Trends Impacting the Food and Agribusiness Value Chain

In the last post, I addressed three areas of significance for innovation in the global food and agribusiness sectors in response to a survey that the International Food and Agribusiness Management Association is conducting with McKinsey & Company to better understand where the global growth opportunities are in food and agribusiness across the value chain.

Another question I addressed in the survey was related to the value chain.  Three trends I believe will have significant  impact on the value chain for food and agribusiness I listed in response to the survey are below.

Information at your fingertips

When we launched our first Internet-based electronic commerce application at E-Markets in 1997 for contracting specialty grains and oilseeds, the novelty was in tying participants from across the supply chain into a single information system.  The results were more efficiency, better coordination, and a system of traceability.  Today, that software application is described as cloud computing, a trend that is just beginning to take shape.

The foundation of cloud computing, information available at any node, combined with mobile devices will have powerful implications for many industries, agriculture and the food industry included.  The information-at-your-fingertips metaphor is a powerful one.  As business people and consumers demand this capability for how they make transactions and interact with information, there will be many changes in how business is conducted.

A student start-up emerging from the Agricultural Entrepreneurship Initiative Student Incubator Program, ScoutPro, is a great example.   Michael Koenig’s observation as a crop scouting intern was that he could do his job much more effectively if he had crop pest data at his fingertips, not as a cumbersome catalog carried in a field, but rather as a software application.  Eighteen months later he and his team have launched  company that provides mobile applications for crop scouting.

At the consumer end of the food business, there will be ramifications for the industry as well.  Consumers want more information at their fingertips, and it will affect their purchasing choices.  ShoptoCook, for example, provides consumers at the point of purchase with recipes, shopping lists, and other information.  If your company has an sku item in a recipe ingredient list pulled up on a kiosk at a retail store or on a smartphone, do you think it’s important to have a position in the list?

Nutrition Literacy

There are many signs of a higher proportion of consumers becoming much more literate, or at least interested, in nutrition.  There is also much more being published at the consumer level regarding the science of nutrition, the interaction of the body with various ingredients and compounds.  This will have significant impacts on food demand.

The boundaries of nutrition and science are being pushed, particularly by athletes and fitness buffs.  A fuller understanding of athletic performance and how it’s affected by nutrition has been a fact among high-performance athletes for some time, but there is evidence of this seeping into broader consumer markets as well.

For example, there has been fast growth among athletic nutrition franchises such as Complete Nutrition and Nutrishop. While these stores cater to the portion of the market focused on exercise, fitness, athletic performance and nutrition, it is a fast-growth market.

P90x is a personal training program that has become a cult-like phenomenon, with something close to 4 million people in U.S. using this extreme (90 minutes per day) personal fitness regime.  Part of that regime is nutrition, with a detailed nutrition guide that provides a philosophical and scientific base for health, fitness, and nutrition.  If 4 million people in the U.S. are following a nutrition plan like this, it points to an important trend where a higher proportion of consumers become much more discriminating in food and ingredient choices.

A regional grocer, HyVee, has developed NuVal, a food-scoring system that helps consumers see – at a glance – the nutritional value of the food they buy.  It doesn’t prevent my kids from grabbing the bag of Doritos, but it is interesting to hear them talk about and compare the nutrition labeling scores on various products.

New Supply Chains

The agricultural supply chain is the system of organizations, people, technology, activities, information and resources involved in moving and transforming commodities and food products from inputs to final customer.  There are trends pointing to changes in traditional supply chains and supply chain relationships.

First, I believe that a higher proportion of supply chain developments are currently being driven by events and issues at the production end of the chain.  Whereas processors have historically held much sway in the industry for structuring supply chains. today there is greater scarcity of production capacity rather than processing capacity.  This leads to many supply chain decisions being dictated by production issues such as access to supply, access to land resources, access to transportation infrastructure, etc.  I’ve written in a past post (Economic Center of Gravity in Agriculture) that a very interesting dynamic in agriculture today is the migration of the economic center of gravity toward the production side of the supply chain.

The dynamic in supply chain structure changes is expressed in many ways.  One example is the fragmentation of supply chains previously driven purely by scale economies.  In Iowa, a beef packing plant that has been more or less closed since 1999 in Tama is set to re-open this summer, but under a new model.  Rather than compete in commodity beef markets, where it would lose on scale economics, it will become a very large custom kill facility where beef producers can work to develop more regional and specialty supply chains. With beef supplies in the U.S. at historic lows, it is certainly an interesting time to launch the venture.

Perhaps the more interesting are supply chain trends playing out in countries other than the United States.  In Brazil, for example, there are cases where small numbers of farmers who collectively plant hundreds of thousands of acres of oilseeds are obtaining funding for development of their own oilseed processing facilities.  In Africa, a fundamental challenge to agricultural development remains development of viable ‘smallholder supply chains.’

The overall picture is one of supply chains emerging in global markets with a greater variety of structures and systems than have characterized agrifood markets in the past.