Navigating A Challenging Path Forward For Agriculture
November 6, 2015 The annual Mid America CropLife Association (MACA) meeting typically addresses several key topics facing agriculture. This year’s event, held in Chicago, IL, in early September was no exception.
Charlie Arnot, CEO for The Center for Food Integrity
First to speak was Charlie Arnot, CEO for The Center for Food Integrity. According to him, there’s little denying a war of sorts is currently being waged against agriculture by portions of the general public. How to fight this war, however, is different than conventional wisdom might dictate.
“It’s very frustrating to people in agriculture,” said Arnot. “How did we get to the point where the public is skeptical of what we do? In general today, food is safer, more available and more affordable than it has ever been before, and that’s a tribute to agriculture. Yet, consumers are more skeptical of food than ever before. How did that happen?”
In his opinion, this public skepticism has its roots in the counter-culture movement of the late 1960s and early 1970s. In 1968, strong political leaders such as Robert F. Kennedy and Martin Luther King Jr. were assassinated and that year’s Democratic Convention in Chicago, IL, degenerated into rioting. In addition, protests against U.S. involvement in Vietnam were in full bloom. Then, in 1972, President Richard Nixon resigned as a result of the Watergate Scandal.
In the span of a few short years, said Arnot, the trust the public previously had for large institutions and government disappeared. “This was where it began,” he said. “After these events, and others that followed over the next 40 years, people began to equate large corporations with being more likely to put their profits ahead of the public’s well-being. So it was an easy leap for people hating big institutions to hating big food and big agriculture.”
Communications: Then Vs. Now
How can agriculture build up a new level of trust with a skeptical public? According to Arnot, his organization conducted a three-year survey of 6,000 consumers to find out.
“We in agriculture have a historic way of trying to build trust by leading with our data, but that appears to be backward from what consumers want to hear,” he said. “In our survey, we discovered that confidence for shared values is three to five times more important in building trust than demonstrating our technical competency. For consumers, it’s not about data — it’s about if we in agriculture are committed to doing what’s right for them.”
Arnot ended his presentation with three recommendations for agricultural companies to consider when trying to speak to the public about their businesses. “The first is to begin your public engagement using shared values,” he said.
Second, companies should open the digital door to today’s agriculture. “Find ways to make what you do transparent to illustrate your commitment to do what’s right,” said Arnot.
Finally, agricultural entities should commit to engaging early, often, and consistently with consumers. “Your voice, your knowledge and your credibility matter,” he said. “You can make a difference in building public support, but you have to learn how to play by new rules.”
The Global Agriculture Outlook
As the agricultural marketplace has reached the middle of the second decade of the 21st century, its fortunes have become increasingly hard to predict, said David Lehman, managing director, commodity research and product development for CME Group. According to Lehman, the biggest wildcard when looking at agriculture today ties to the world’s most populous nation, China.
David Lehman, managing director commodity research and product development for CME Group
“Most of what’s been going on in all commodities markets today relates back to China,” he said at the start of his presentation.
For several years now, said Lehman, U.S. agriculture has relied heavily on Chinese consumption patterns to boost its bottom line. But this might not remain the case for much longer.
“China’s growth potential is probably fairly limited,” he said. “Its economy is likely to shift to a slower growth trajectory and its caloric intake is now close to the world average. China’s real gross domestic product growth rate is decelerating, probably into the 4% to 6% range over the 2015-18 period.”
Further muddying the read on China is its changing demographic outlook. Because of the country’s 40-year one-child per family policy, the country’s overall population is rapidly aging. This is similar to what previously happened in both Germany and Japan over the past 20 years, and which path China follows will make a big difference to agriculture.
“As China’s population begins to age, will its per capita calories consumption fall like it did in Japan or will it rise like it did in Germany?” asked Lehman. “The outcome will have an enormous impact on world food demand — -2% if China’s per capita calorie consumption falls like Japan’s did or +2% if it rises like Germany’s did.”
No matter which direction China goes regarding consumption, the outlook for U.S. agriculture will remain mixed. According to Lehman, U.S. crop production is on the rise, leaving the country’s supply risk nearly eliminated. USDA figures place the U.S. corn yield at 168.8 bushels per acre for 2015, up from earlier estimates. Meanwhile, soybean yields are expected to hit 46.9 bushels per acre — the second highest yield ever recorded for the crop. In addition, as countries such as Brazil, Argentina and Australia have increased their crop production, the U.S. share of the world’s crop trade has declined from 45% in 2000 to 30% today.
Naturally, all this has had a negative impact on crop prices. “After a bumper harvest, wheat and corn prices are close to their 2009-10 levels and 50% below their 2013 highs,” said Lehman. “Soybean and soybean meal prices are about 40% off of their highs after a strong harvest in 2014.”
The Brave New World Of Agriculture
No one who regularly follows the agricultural marketplace can be anything but amazed at how rapidly things have changed. In the space of 12 or so months, market conditions have quickly gone from “great” to “not so great,” say observers. Today, there are plenty of challenges facing every company that earns a living from the crop marketplace.
Tom Warner, president North America Retail Agrium and CPS
A small example of this adversity was on display as representatives from three of the nation’s largest ag distributors — Crop Production Services, Inc. (CPS), Helena Chemical Co., and United Suppliers — took part in a roundtable discussion focusing on the many challenges today’s ag retailers and grower-customers are dealing with. According to Tom Warner, president, North America Retail Agrium & CPS, this has been particularly hard for companies in agriculture to manage because of how relatively easy catering to the market has been up until now.
“I’ve been in this business for more than 45 years and I don’t think we’ve ever had things as good as we have the past four years,” said Warner. “So for many of the companies doing business in agriculture, there have been no real challenges for that long, at least.”
Brett Bruggeman, vice president, crop protection & seed for United Suppliers, agreed with this view. “Because market conditions have been so strong these past few years, the crop inputs business has been on a steady growth curve, which now falls somewhere between $45 billion and $50 billion annually,” said Bruggeman.
As commodity prices have grown from $3 per bushel for corn in the early 2000s to more than $7 as of 2011, crop inputs have also enjoyed higher prices for the supply chain. “The cost of doing business in the agriculture market today is a lot higher than it used to be,” said Randy Parman, vice president, Northern Business Unit for Helena.
As a consequence, growers have spent the past few seasons adding new technologies such as precision agricultural systems and big field equipment to their operations. “Think about the amount of money growers have spent on equipment the past three or four years,” said CPS’ Warner. “And on the technology front, farmers have been willing to try anything because of this surplus cash. But these days are probably not going to come around again anytime soon.”
This extra money has disappeared as commodity prices have dropped. In 2015, corn is barely topping $3 per bushel, with soybeans falling from the mid-teens per bushel to under $9.
“These kinds of commodity prices are a real problem today,” said Warner. “In the Corn Belt, the cost of producing an acre of crops needs to be profitable. But for many growers, it is not at these prices.”
Besides the obvious challenge of selling crop inputs in this kind of agricultural environment, ag distributors are being required to be more flexible and quick in their delivery than ever before, said panelists. “Many ag retailers are trying to keep up with getting supplies to growers that are planting 1,000 acres per day,” said United Suppliers’ Bruggeman.
Of course, these kind of uneven market conditions do offer some opportunities for ag distributors as well as challenges, said Bruggeman. “Think about your average college football coach,” he concluded. “Most of them probably don’t do their best coaching job in a good year, when the wins are coming easily. The best coaching jobs probably happen when things are tougher and they have to work harder to make their teams successful. That’s where ag distributors find themselves today.”
Subscribe Today For
