The global market place, fluctuating commodity prices and how consumers respond to prices were some of the issues addressed in Rabobank's 2009 North American Food & Agribusiness Outlook.
The outlook is produced annually by the Rabobank Food & Agribusiness Research and Advisory (FAR) team, which provides information and analysis covering all of the major sectors throughout the food chain. The Americas-based FAR team is part of Rabobank's global FAR group, comprised of approximately 80 research analysts located around the world, who conduct research on subjects of strategic interest to companies and customers within the food, agribusiness and agriculture sectors.
According to the authors of this year's outlook, "the world of agribusiness is rapidly changing. Increasing demand for food, growth of noncommercial investment in commodity markets, a turbulent financial market, and changing consumer behavior has altered the agricultural landscape. However, despite these current uncertainties, it is likely that opportunities will persist."
In the outlook, Rabobank's FAR team takes an in-depth look at issues that will affect the global agricultural industry in the coming year. Below are highlights of three key issues addressed in this year's outlook: consumer response, global markets and commodity volatility.
"The downturn in the economy has reversed the way consumers shop," FAR Vice President Stephen Rannekleiv said. "Five years ago, there was a growing trend of U.S. consumers willing to pay more for high quality, luxury goods. Today, there has been a 180 degree turn."
A growing consumer-preference trend toward discounters, such as Wal-Mart and Costco, is pressuring other retailers to keep prices low. In addition, demand for private label products has increased as consumer seek greater value for money. "There is a generalized return to frugality across all levels of society," Rannekleiv said.
Consumers are cutting back on all discretionary spending and cutting out waste, which is forcing beverage marketers and retailers to work harder to convince consumers to spend more. "In fact, it is possible, that this mindset could prevail beyond the current economic downturn," Rannekleiv said.
This change in consumer purchasing patterns is expected to impact agricultural producers, food and beverage manufacturers, food retailers and food service providers. Particularly hard hit will be those that are positioned as luxury items - such as high end restaurants and premium wines.
"Last year was a very different world," FAR Vice President Michael Whitehead said. "We can look back on one of the most eventful years for agriculture in memory, but more critically we look toward one of the most important years agriculture has faced."
During the first half of 2008, the low U.S. dollar provided a competitive boost for U.S. agricultural exports. However, 2009 is likely to see pressure on exports as the global economic recovery slows and demand weakens.
Additionally, a key factor affecting trade in 2009 is the progress of the Doha agreement on agricultural trade. The U.S. agricultural sector may also see some countries imposing tariff increases and trade restrictions, and the World Trade Organization may possibly take action on a wide range of products such as cotton, corn, sugar and ethanol.
"The best thing for the global trade outlook for 2009, is that 2010 will follow," Whitehead said. "Despite this, forecast for longer-term growth should provide some optimism for the U.S. ag sector that positive fundaments, in terms of population increase, rising incomes and evolving diets are very much still there."
"Market whiplash has presented the grain and oilseed complex a tough prognosis," FAR Executive Director Karol Aure-Flynn said. "Crude oil, investor speculation, and exchange rates continue to generate unpredictable swings. Global demand growth is expected for the long term, but is uncertain during the currently unstable global recession."
However, one certainty is that this period of high commodity prices has created far more volatility than previous years, which is likely to constrain organic expansion and emphasizes the need for strategic planning. Risk management measures are essential.
"Price volatility will be the key challenge for all segments of the sector as players examine their long-term strategy and short-term tactics," Aure-Flynn said.
However, moving forward, "once the market resumes focusing on the fundamentals of low stock levels and increased demand for food, and the strong de-leveraging process coming from investors slows down, it is expected that commodity prices will partially recover from the levels reached in October 2008," Aure-Flynn said.