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Impact of three ‘birds’ on global agribusiness trends

November 10, 2020

The COVID-19 pandemic has caused a distinct three-part consumer behavior reaction. Specifically, it’s resulted in a few clear global agriculture trends moving into 2021 and beyond, ranging from the individual farm level to the global marketplace.

The pandemic is a textbook example of a “black swan” that’s created economic, social and emotional anxiety throughout the food and agriculture supply chain. That angst has touched just about every point in the chain, but it’s also created the opportunity for farmers, ranchers and agribusiness owners to implement new business models to connect with consumers whose needs have evolved in part because of COVID-19.

“COVID-19 has shown us the importance of diversified and safe food, fiber and fuel sources, the basics of life,” according to longtime Virginia Tech University agricultural economist David Kohl. “We had gotten too concentrated, and we needed the reassurance of transparency in where food is produced, processed and distributed. We’re going to continue to see more local niche markets and agritourism opportunities pop up, but will that be permanent? It will be up to those farm managers to stay one to three steps ahead of the competition to be successful.”

The three ‘birds’ of COVID-19  driving new agribusiness trends

The COVID-19 black swan has three distinct phases beginning with what is called a “dirty bird” in which the short-term ramifications of virus-driven shutdowns are the strongest. It’s when farmers and agribusiness managers as well as their consumers go “back to the basics” and take practical steps to minimize disruptions from the virus.

The second “angry bird” phase — the one characterized by blame and frustration — has demonstrated the difficulty of responding to a global health crisis. This stage was paced by agribusiness losses based on both the virus and its human response, and it accelerated efforts already underway to deglobalize agriculture markets. Navigating the angry bird phase of a black swan requires an agribusiness to make quick adjustments to its business in the short term and prepare for future marketplace volatility.

“We saw intensified de-globalization discussions. The trade issues we’ve seen in recent years will become a precursor of volatility not just in the next year, but the next decade,” Kohl said. “We’ll see volatility based on headlines, and we’ll experience blame and frustration. We have to be supportive and think about unintended consequences.”

The third and final stage of a black swan is the “Phoenix.” Specific to agribusiness, this stage is named for the mythical bird that represents perpetual rebirth, and is typified by business managers’ efforts to evolve the industry and prevent the damage from major disruptions in the future.

“The Phoenix phase happens with every black swan and is a commitment to move forward. In agriculture, that will mean new leadership and business models, and we will take on consolidation questions and issues like accelerated de-globalization and the role of artificial intelligence,” Kohl said. “It’s when we take all the energy that was negative and move forward positively. It’s about thinking outside the proverbial box and defining new business models for success.”

Short and long-term COVID-19 fallout

The COVID-19 pandemic exposed the food and ag system’s vulnerabilities and lack of resilience in the face of a global disruption and showed how quickly and sharply supply and demand for crude oil, livestock, produce and other raw materials can shift and create massive volatility. It’s a call, Kohl said, for policies that prevent short-term negative implications from becoming bigger issues in the long term.

“We will have to continue to watch global monetary policy and ensure it’s not offering short-term cures in exchange for lost recurring income down the road,” Kohl said. “Black swans accelerate change, but not all of that change is negative.”

Among the changes accelerated by the COVID-19 pandemic was a recognition of diversified agriculture systems that offer resilience in every step of the supply chain and including other sectors of agribusiness like agritourism. It’s also shown the relative strength of some agricultural assets, namely farmland.

“Land is 83% of the U.S. farm balance sheet and a great bridge over troubled economic waters. But will lenders continue to restructure losses onto longer-term debt?” Kohl said. “My contention is that farm real estate will remain strong, because there’s a lot of interest in rural property and the Baby Boomer farmer and rancher is still investing. There’s a lot more trust in farmland than there is in Wall Street.”

Four new types of consumers

Among the changes caused by the pandemic is the development and clarification of new types of consumers that are driving new agriculture trends. Consumers responded to the COVID-19 disruption by gravitating toward one of the following general categories, and recognizing how each agribusiness’ customers have adapted will be key to sustaining each producer’s role in the supply chain.

  1. The Minimalist. This group likely lost revenue because of the pandemic; as a result, minimalist consumers are “going back to basic needs” and “take pride and esteem in survival,” Kohl said.
  2. The Frugal. Much like the minimalist, this group is characterized by an emphasis on covering basic consumer needs and cutting back on discretionary buying that was more common prior to the pandemic. The frugal consumer prioritizes proactive budgeting and ensuring basic needs are met.
  3. The Carefree. This is the group Kohl said has “pogo stick syndrome.” Characterized by the higher spending driven by impulse and emotion, the carefree consumer reflects the pent-up general consumer demand that is common with any large-scale economic disruption.
  4. The Alpha. The Alpha, or investor, is the opposite end of the spectrum from the minimalist. Typically with the highest income and discretionary spending capability, the alpha has a high risk tolerance and leverages it in planning ahead. “The alpha is focused on discounted opportunities to build a larger wealth cushion to help ease the shock of future black swans,” Kohl said.

Establish the right priorities

As the COVID-19 situation continues to evolve, successful agribusinesses will share a few common traits, Kohl said. On top of attention to how consumer behavior and and global agriculture trends have changed, more active and attentive business management strategies can help agribusinesses continue to generate revenue.

“Knowing your cost of production, conducting thorough analysis of your business cash flow, and reassessing overall goals are all important,” Kohl said. ‘Work with a team of trusted advisors to ensure you are managing risk the right way.”

Learn how agents can maintain agribusiness consumer confidence in the midst of the global pandemic.