Investing in a safe and healthy future
Doug Kravet outlines key global trends in the rapidly growing organic and sustainable agriculture sector. He is Oaklins' organic & sustainable agriculture specialist and has successfully advised a wide range of companies across the agriculture supply chain over the past two decades.
Introduction
At the onset of the pandemic, advanced economies swiftly focused on food security and maintaining the supply chain. With lockdowns imposed around the world, consumer purchasing immediately shifted away from restaurants and toward food at home. Despite the enormous stress this put on the overall food supply system, the system proved reassuringly resilient.
Throughout this time, consumers continued to support products considered good for health and well-being, grown using humane methods and supplied using fair-trade practices. In addition, people became more comfortable purchasing products online, and omnichannel shopping increased dramatically.
Emerging markets will play a major role in economic growth over the next decade, helping supply the increasing demand for sustainable agriculture. With smallholder farmers beginning to implement technology to grow and distribute food more productively, the importance of the ag-tech industry will continue to grow.
Market trends
Natural and organic produce
Organic food is one of the cornerstones of the natural & organic industry, with sales estimated at $US252 billion in 2020. COVID-19 had a positive impact on the industry, which registered annual growth of 9.5% due to surging demand for natural and organic products.
Fresh produce led the way in 2020, as it has done consistently for years, with organic produce achieving double-digit growth across four consecutive quarters. Organic food consumption now accounts for 12% of the US market. Sales continue to outpace those of conventionally grown food and hit US$8.5 billion in 2020 — a 14.2% increase over the previous year, compared with a 10.7% rise in conventional produce sales. Overall organic volume increased 16% compared with 2019, while conventional volume rose by 9% during the same period. We are mid-cycle on this trend, which means organic food will continue to take market share away from conventionally grown food for some time to come.
The survey also highlighted a strong shift in US consumer sentiment toward eating healthy foods, which respondents rated as 33% more important to them during the pandemic than in 2019. However, we need to observe whether this trend sticks at least 12 months after the pandemic has subsided to see if it represents a more permanent change.
Consumers are retaining values that have fueled the growth of natural & organic, despite COVID-19.
E-commerce
The pandemic also saw the trend toward e-commerce accelerating as consumers turned to online shopping for both safety and convenience, with sales growth expected to exceed 50% in 2020.
E-commerce sales growth
According to Nielsen’s Omnichannel Shopping Fundamentals Survey, online shopping has become an especially critical resource for constrained consumers, whose spending power during the pandemic has become limited due to unemployment, furloughing or other COVID-19 impacts. With more time on their hands, these consumers can take advantage of online shopping to compare prices, search for offers and avoid travel costs. By May 2020, 66% of global consumers shopped online, with higher rates in the Asia- Pacific (78%) and Africa-Middle East (75%) regions. With online shopping so dominant, both manufacturers and retailers need to better understand current consumer behavior in order to adapt their business models accordingly.
Food security
Although food supply systems proved resilient in advanced economies after the initial shock of the COVID-19 outbreak, the pandemic’s impact on food security in countries already facing food crises raises cause for concern. The economy’s contraction will not be equal across the globe: a much bleaker forecast for Latin America and the Caribbean than for East Asia and the Pacific points to consequences varying in their severity in different parts of the world. Economic impacts will depend on factors such as dependency on oil and gas, and agricultural production and supply chain will depend on crop-cycle timing in relation to restrictions, and interdependencies between countries for labor and crop exports. Political stability and national security issues also have the potential to disrupt the food supply chain. All of these issues represent a tremendous challenge, but at the same time an opportunity that will require large-scale investment.
Early adoption of technology
A recent McKinsey report How Digital Tools Can Help Transform African Agri-Food Systems summarizes the benefits of using digital technology to transform agricultural production in emerging economies but also highlights some of the issues faced. Governments can assist private-sector players and development partners in developing and deploying digital agriculture technologies that help smallholders increase output and therefore support food security. However, some of the challenges faced when launching and scaling digital agriculture solutions include limited digital access, digital literacy, data accuracy and access to electric power. In addition, to increase typically low uptake percentages, solutions must create value to incentivize users, provide some level of in-person support and receive adequate government support.
Investment in the ag-tech industry
According to AgFunder, of the US$8.8 billion invested in the ag-tech industry in H1 2020 — projected to increase by approximately 20% over time as more data comes in — more than half flowed into the upstream sectors (agbiotechnology, farm management software, farm robotics & equipment, bioenergy & biomaterials, novel farming agribusiness marketplace, midstream and innovative food). The projected upstream total for H1 is US$5.5 billion, compared with US$8.3 billion in 2019.
E-grocery retained the number one spot during the pandemic as agrifoodtech’s best-funded category, with 20% of the year’s overall investment, and midstream tech, which supports food logistics, supply chains and traceability, took second place. Strong demand for environmentally friendly new crop varieties and on-farm treatments fueled investment in capital-intensive agbiotechnology, which has long development timelines. Funding in farm management software, sensing and Internet of Things (IoT) was down midway through the year compared with FY 2019 while investors waited to see results before parting with more capital.
Conclusion
Agricultural markets proved their importance this year, when food security and global supply chain stability became the focal point as the pandemic expanded globally. After the initial shock to the food supply system, consumers reaffirmed their preferences toward organic food, sustainability, and health and wellness activities in general. When added to the need for technology to improve productivity in emerging markets, this translates to a large pent-up demand for M&A opportunities and investment in the overall agriculture sector.DOUG KRAVET, ORGANIC & SUSTAINABLE AGRICULTURE SPECIALIST, OAKLINS
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