For several decades a growing global population and an expanding middle class with an appetite for meat, dairy, and high caloric foods, has increased the demand for processed foods and agricultural crops. As a result, the agriculture input industry—farming resources such as chemicals and seeds—have enjoyed tremendous growth.
But growth is now slowing.
While the population is still increasing, the change in population growth around the world is slowing. Developed countries have already reached peak consumption of meat, and an increase in wealth will not drive meat consumption up any higher. In addition, in a variety of geographies, the perception of meat is changing and many regard vegetarian diets as healthier as well as better for the planet. Grain crops used for biofuels production have also slowed as cheaper oil and alternative energy sources become more economic.
The year 2016 marks the third year of agricultural commodity bear market. This has put severe earnings pressure on all parts of the agriculture supply market as farmers try to cut input costs to compensate for low commodity prices. Consumers are also placing more scrutiny on food safety and quality by reducing their acceptance of many crop nutrition and protection chemicals. Food producers and retailers are responding to society’s concerns about agrochemicals in foods by setting pesticide residue thresholds 20 to 50 percent below legal requirements.
The agriculture input industry faces several developments that challenge the decades-old growth story which focuses on selling input materials in bulk and producing in high-intensity cropping systems. Instead new business models will be needed to meet the demand slowdown and complexity of regulatory and consumer requirements. Ingredient and food transparency, driven by increased consumer focus, will impact the entire supply system.
In other industries, robotics, artificial intelligence, sensing, and big data analytics have all been used successfully. For example, Royal Dutch Shell is using “data-driven oilfields” to bring down the cost of drilling. The data is then compared with thousands of other locations around the world to help the company’s geologists make more accurate recommendations about where to drill.| | | Next → | Single Page