In Rabobank’s view the world is facing a period of significant agri-commodity scarcity that is set to last for at least this decade and which signals the start of a profound transition in the global Food &Agribusiness sector:
- The global food system has been brought to a tipping point, and the battle for agri commodities will only intensify. When and how the Food &Agribusiness supply chain responds are still open questions — whether to respond is not.
- A possible double dip recession or the rolling back of biofuels legislation may impact the timing of the outlook, but they do not undermine the conclusion that global agricommodity prices are expected to shift higher and become more volatile. This in itself is not a new phenomenon but what is happening this time is genuinely different.
- Larger Food &Agribusiness players, and even governments, are looking into minimising their risks by securing their current and future agri-commodity supplies, while at the same time dealing with higher price-risk levels. In doing so, they may well raise the stakes for companies that have remained on the sideline.
- The battle for agricommodity supply in the next decade is only the beginning of a profound transition. In the next 40 to 50 years, the Food &Agribusiness sector will need to double agricommodity supply with access to only about half of the current land, water and mineral resources. Delivering this four-fold improvement in output is the over-riding challenge facing the incoming generation of Food &Agribusiness leaders and farmers.
- Global food companies with market power will strengthen their influence in the supply chain
- Smaller and midstream processors and traders will come under the most pressure
- Global and regional trading houses will strengthen their positions in the supply chain
- The next decade will be dominated by the battle for raw materials, with a small group of upstream and downstream oligopolies controlling the existing pool of agri commodities.
- Farmers must rise to the challenge of doubling the global food supply with less water, less arable land, less fossil fuels and less fertilisers and chemicals. The key message here is that the battle we will see is not the end-game: the current battle is about dividing the raw-materials (so about power) to mitigate (sourcing) risks. But farmers need to double the amount they produce with limited resources.
- Food &Agribusiness companies and governments need to take the lead to:
- Remove trade barriers to stimulate production of food in the most efficient way and the most efficient locations. For instance if Argentina’s 35% (average) export taxes on agricultural production were removed it would increase agricultural production by 45%.
Controlled supply chains contradict the efficiencies of scale that characterise open markets. - Increase investment in agrifood R&D to develop new and highly productive plant varieties, processing techniques and irrigation systems. Current levels of R&D spending are the same as they were in 1970, while the population has doubled in the same period.
- End waste by reusing it: redesign our diets, green our cities and change the food production and distribution systems that satisfy them.
- Remove trade barriers to stimulate production of food in the most efficient way and the most efficient locations. For instance if Argentina’s 35% (average) export taxes on agricultural production were removed it would increase agricultural production by 45%.
