Consumer demand, new technology and trade tariffs: What are the trends impacting Agriculture businesses in 2019?
Duane Thompson, partner at Eide Bailly and HLB Agriculture industry expert
Anyone in the agriculture industry knows that yours, more than nearly any other, is greatly impacted by things outside of your control. Obviously, weather is a huge factor, but so are things like technological advances, changing demands and legislative decisions. It is vital to have contingency plans – and contingency plans for those contingency plans – to remain solvent and, ideally, successful. It is also important to stay up-to-date with what is going on in the industry and the outside factors that can impact it. Based on what we see, 2019 could be another interesting year.
On one hand, this could be seen as a fantastic time for the industry as we see continued advances and availability in technology. “The changes in software for production to manage fields from planting to fertiliser and chemical applications is huge,” said Duane Thompson, partner at Eide Bailly and HLB Agriculture industry expert. “Livestock producers have an amazing amount of technology available to assist in production now too, and I think we are on the verge of a great deal more to come in the near future.” The producers that are able to embrace these technologies often see greater profits and produce higher quality products.
The downside is that many smaller producers can’t take advantage of these advances due to the prohibitive cost. “Machinery and technology can be costly and if you are a smaller farmer, there is a tendency to stick with what you know rather than take a chance on costly new software and equipment,” Thompson shared. “Larger producers can see it pay for itself more quickly because they can use it over larger acres or numbers of livestock.”
Changing consumer demands
While there will quite obviously always be a demand for food, the type of food consumers want is – and will continue to – change. What people eat is always shifting, but what is different now is their demand for transparency. “Consumers are increasingly concerned about how livestock is cared for and where it is coming from,” Thompson said. “The same is true for crops especially in regard to source as well as fertiliser and chemical applications.” Those in the industry are being pushed toward greater accountability, and this is likely a trend that is here to stay.
We expect demand for non-GMO products, cage-free poultry and hog farming, and organic produce to continue to exist, and those farmers that can do so at a lower cost will reap the benefits. “Consumers want all the benefits of this type of farming, but at a low cost, and that is still very tough to do,” Thompson commented. Ultimately, those that can make these production adjustments should be able to reap the rewards.
Rising tariffs, particularly between the U.S. and China, are impacting markets today and will likely get worse in the future. “As the tariffs continue, China will look for other sources that they view as more reliable,” Thompson said. “While this is unfortunate for U.S. producers who have to take a financial hit over what is essentially an unrelated intellectual property issue at heart, it is not an issue that will be quickly resolved.”
Finding other customers for the crops that China is no longer buying is an option, but difficult as well. “It takes time to enter new markets and establish relationships with buyers,” Thompson explained. While various producer associations are doing what they can, the best thing individual farmers can do is to put pressure on their elected officials to do everything they can to end the tariff stalemate as quickly as possible.
“What will happen to my company when I decide to retire?” is a common refrain for any business owner. For those in agriculture families, one common consideration is to pass the operations on to the next generation. “This is still a common succession plan in agriculture, particularly for those with larger operations,” Thompson said. Smaller producers, however, often face challenges on this front for simple math reasons. Take a small family farm that has successfully supported the family for many years. It comes time for the farmer’s two adult children to take over. Now the farm has to support two additional families on the same amount of land and production. This can only be sustained for so long before adjustments have to be made.
Available farm land is difficult to find and sold at a premium when it does become available. It is either owned by the producers or rented for production, and rarely does new farm land come available anymore. “Expanding in terms of crop acres is extremely difficult due to the competitive market and absence of empty acreage,” Thompson said. “No other piece of real estate will turn as fast as an acre of farm land.”
This assumes that the next generation wants to live the farm life, which is often not the situation. Not only is it hard work, depending on the type of farming, it is a year-round, long hours job where you are lucky to break even in many cases. Unlike manufacturers who can shut down a production line or furlough employees during down times, cows keep producing milk, livestock keeps aging, and crops keep producing. Downscaling of any size takes months and even years.
While the impact of Brexit on producers is still a big unknown, there is little argument that the agriculture industry in the UK will feel an impact. With the addition of tariffs due to Brexit, food prices will almost certainly rise, and farmers will have a harder time competing with other European producers.
On the other side of the pond, the U.S. government shutdown is adversely impacting farmers. With vital agencies on a skeleton staff or shut-down completely, it is difficult for producers to get the information they need to make planting decisions, receive relief that has been promised or get permits they need to do business. While this is a temporary situation and offices will reopen once the shutdown is over, some of the decisions made now will certainly impact longer term operations for both small and large farms.
“As doom and gloom as it sounds, every business goes through lifecycles, and the hope is that many of these downturns are short term,” Thompson said. “In fact, a down market can be a good time to cautiously expand operations.” Creating a plan, looking at financials and surrounding yourself with good advisors is as important as ever too. With some solid planning, this down period can turn into an opportunity for long-term growth.
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