Everybody’s got to eat. That’s one of the few things in life you can count on, and a fact that makes agriculture and food processing (which is also known as “agribusiness”) a steady player among industries. Just about every other aspect of agribusiness has been impacted by change, many of them seismic. Most of these changes have had an impact on how companies make expansion and relocation decisions, and in turn, how communities, regions and states retain and grow investments in their areas.
Trends Impacting Agribusiness
The agribusiness industry is a very complex value chain, with lots of moving pieces. It ranges from multi-billion dollar multinationals to the smallest artisanal operations. Unlike other industries, production and distribution can be limited by seasonality and perishability. Weather and other natural disasters can roil markets overnight. Let’s look at the some of the key trends impacting the agribusiness industry.
- Partnerships and acquisitions within the supply chain. You thought Kraft and Heinz was big. How about DuPont and Dow? Or even Mondelez and Hershey, or Bayer and Monsanto? These are all deals that have been proposed or are in process. These relationships are forging mammoth entities with tentacles reaching far into the supply chain.
- Plant consolidations. Following directly on the heels of the partnerships and acquisitions, in many cases, are a spate of consolidations. Look no further than the massive consolidations that Kraft Heinz and ConAgra have announced.
- Plant reinvestments. While some plants are being closed, others are slated for huge investments. One example is the $100 million that Kraft Heinz announced it will invest in its New Ulm, Minnesota plant, which makes Kraft Deli Deluxe slides, “Handi Snacks,” and soon, retail Velveeta.
- Big data. Precision agriculture has advanced by leaps and bounds in recent years. Case in point: in 2013, Monsanto bought Climate Corp. for $930 million. In the June 15, 2016 issue of Fortune magazine, Climate Corporation’s CTO is quoted as saying that he doubts that Monsanto could ever get to a billion-acre footprint just by being a seed company, “but as a decision-based company, it seems to have a really good shot.”
- Consumer trends. In a nutshell, people today want to eat foods that are local, sustainable and authentic. Blue chip food processing companies such as General Mills, Campbell Soup, Pepsi, and others have been working relentlessly to recast their operations and products to meet these consumer needs. One of the ways that this trend has been playing out is in the proliferation of local breweries, which have proliferated in recent years. Meanwhile, buyers at Whole Foods Market, Inc. and Starbucks Corp. are looking to shift to poultry bred for flavor profile and animal humaneness, rather than the typical rapid weight gain of nearly all of today’s production chickens. The limited availability of such birds means the transition may take up to eight years to execute.
- Innovation from within. To compete with start-ups, companies such as Campbell Soup Co., General Mills, and Coca-Cola Co. have venture capital programs to gain a piece of the food industry start-up pie. Campbell, for example, is investing $125 million in its own venture capital project to fund food start-ups, according to the Wall Street Journal.
- Innovation, accelerated. Bio-Ag has been dominated by six huge seed and chemical companies. But now, there is an “accelerator” geared just toward early-stage agricultural companies. The new AgTech Accelerator will be based in Research Triangle Park, North Carolina, and will be focused on gaining a share of venture capital investments. To that end, some of the big companies, such as Monsanto, have their own venture capital operations, too, according to an article in the New York Times.
- International protein plays. China, among other nations, has a lot of mouths to feed. They are the world’s largest buyer of proteins, whether that is derived from animal (Smithfield Foods is a great example), soy, or other sources.
Implications for Site Selectors and for Economic Development Organizations (EDOs)
MEGATREND #1: Shift to Regional Plants
As consumers push for more local sourcing, companies will respond by adapting to local tastes. This megatrend also allows them to minimize transportation costs, and allows them to be flexible, which reduces their risk.
Site Selection Implications:
- Bigger companies may be looking to locate multiple, smaller plants with greater flexibility. Start-ups and smaller companies will be looking for the same.
EDO Implications:
- Your region may attract projects that it previously could not win due to size. Knowing exactly what assets you have to support specific sectors within agribusiness will be crucial to focusing your outbound efforts.
MEGATREND #2: Technology Adoption
As with the broader spectrum of manufacturing, we are seeing a shift from labor-intensive to capital-intensive manufacturing. This is being driven by increases in consistency, speed and productivity which offset labor demands and costs.
Site Selection Implications:
- Machinery and equipment costs can exceed building costs.
- Electricity capacity, cost, and reliability continue to increase.
EDO Implications:
- Tax credits, especially for machinery and equipment, will be weighted more heavily.
- Electric capacity, cost, and reliability will be differentiators.
- If you have low-cost, low-skilled labor, consider the impact of automation on your region’s plants. Consider an ED strategic plan to create a new vision for your region.
MEGATREND #3: SUPPLY CHAIN OPPORTUNITIES
Companies are looking for high value-added opportunities, and the availability of data and the ability to crunch the data will lead to many new developments.
Site Selection Implications:
- Supply chain factors may trump other location criteria. Example: If your client has a technology that works with ethanol, being in close proximity to ethanol production will be key.
EDO Implications:
- Reverse site selection: there may be opportunities in your region that are not evident unless you think in reverse about the byproducts and raw materials you have in the region, and which types of companies would place the greatest value on them.
- Think regionally, not locally (as always). Your pooled assets will be more favorable than those limited to your jurisdictional boundaries.
MEGATREND #4: BUSINESS RETENTION AND EXPANSION WILL BE KEY
I am a firm believer in business retention and expansion (BRE) being one of the best paths to business recruitment. Understand what your existing businesses are doing in the agribusiness space and how you can help them expand, or attract missing components of their supply chain.
Site Selection Implications:
- As companies partner and acquire one another, consolidations and rationalizations often follow. These drive many site selection projects.
EDO Implications:
- BRE calls and consultations are a critical component of your overall agribusiness strategy, whether it leads to retention, expansion, or recruitment.
- Calls on the headquarters of existing businesses are important given the continuing M&A climate in agribusiness.
- Reverse site selection may help find the best and highest-possible re-use for plants earmarked for closure.
MEGATREND #5: IT’S STILL ABOUT RISK MITIGATION AND COST
Agribusiness is an extremely competitive industry. Layered on top of this are emerging consumer sentiment, leading some companies to pursue sustainability objectives, which is a challenge to such a resource-intensive industry.
Site Selection Implications:
- Some location criteria are increasing drastically in importance. Short-term and long-term water and sewer capacity are at the top of that list. For some projects, site selectors are forecasting out 50 years or more. And most food processors would prefer municipal water and sewer, all else being equal.
- Cost, of course, is always a consideration as well.
EDO Implications:
- Ensure infrastructure is in place. Know how much water capacity and sewer capacity you have, and what types of projects you would be willing to supply. This latter point is very important – you don’t want to commit limited resources like water and sewer to projects that might not be in your region’s best long-term interests. We work with our clients to identify and evaluate a number of potential scenarios before they happen to ensure projects and incentives align with their strategies.
MEGATREND #6: FOREIGN DIRECT INVESTMENT (FDI)
In the last downturn, one of the bright spots in FDI was in agribusiness, specifically food processing. As I stated earlier, even in down times, people still need to eat.
Site Selection Implications:
- There are many international companies looking to expand into the U.S., which is still one of the most attractive consumer markets in the world.
EDO Implications:
- Allocating some marketing efforts to FDI can be fruitful. Leverage relationships and resources, such as relationships from existing businesses, and state trade missions.
Tying It All Together
For site selectors, keep in touch with past agribusiness clients, as they are a good source of new leads. Be sure to incorporate water and sewer forecasting for many years out, as so much of the United States is predicted to be in full crisis mode on water in coming decades. Don’t overlook the innovations and decentralization that is occurring all along the supply chain, from applied research and venture capital through production and distribution.
For economic developers, there are great opportunities in the agribusiness industry. But it will take a deep understanding of what your agribusiness assets are, a vision for the role your region could play in agribusiness, and a laser-focused plan to identify the types of projects that will place the greatest value on the particular mix of assets that you have and the strategies for achieving the vision.
Bio: Janet Ady is president and CEO of Ady Advantage, an international economic development consultancy she founded in 2003. Her firm has advised hundreds of corporate and economic development clients on topics related to growth, location strategies, and marketing. She speaks and writes frequently on topics related to rural economic development, talent, and growth strategies. Regarding agribusiness, Ady Advantage has worked with more than 100 agribusiness companies and has consulted with numerous states, provinces, and regions on developing agribusiness economic development strategies. Janet can be reached at 608.663.9218, or jady@adyadvantage.com. Her company’s website is at www.adyadvantage.com.
