How New Supply-Demand Dynamics Are Impacting Ag Retail From Every Direction
December 11, 2022 
Markets and market conditions are seemingly as volatile as they’ve ever been, but proactive agricultural retailers are looking at new solutions and finding opportunity in the turmoil. That was a recurring theme at the first-ever PACESM Executive Forum, a one-of-a-kind event for industry leadership to connect and engage in an exclusive conference setting with executives from all industry sectors. Nearly 100 leaders from all facets of ag retail gathered in Kansas City, MO, in October to compare notes on challenges, gain insights, and share intelligence on the strategic drivers reshaping our industry.
“We need more collaboration in ag, not competition,” said Lara Sowinski, Group Editor for Meister Media’s CropLife Media Group as she set the stage for the Forum’s two days of discussion. “What do we need to do today and in next one to two years to make this happen? Are we willing to get a little uncomfortable in order to see things a little bit differently?”
Ken Zuckerberg, AIF, Lead Industry Analyst for CoBank started the morning session with some eye-opening analysis on market conditions at home and around the world and some new realities the ag retail market will need to adapt to in the coming months.
“The world has experienced several demand and supply shocks since the start of COVID, the shocks have ranged from fertilizer and chemical shortages and manufacturing disruptions overseas to accelerating inflation. And then Russia invaded Ukraine,” he said. “We want to go back to normal, but volatility is the new normal. Ag retailers must adapt to these new marketplace dynamics and create a sustainable competitive advantage.”
From an international perspective, three key situations had Zuckerberg’s attention.
First and foremost was the war in Ukraine. The grain situation there is an obvious concern. “Even if everything went back to normal relations tomorrow, there’s a lot of damage to those fields. This is going to go on for a while,” he said.
China remains complicated. Xi Jinping has secured a third leadership term and is increasingly entrenched. “Xi is building up military power and taking a more aggressive stance vs. the U.S.,” he said. “They are unpredictable, and we need to keep that in mind. China has been importing more US soybeans. They manufacture fertilizers and agrochemicals. Could they purposely shut that down to make the U.S. squirm? Yes. No one is playing nice.”
In addition, Europe’s economic picture remains relatively weak. Eurozone economic contraction deepened in the fall of 2022. “They will get through it, but the numbers look a little scary,” Zuckerberg said. “They are a recession risk. Recessions are normal but that could impact the U.S. The dollar stays strong in a risky world.”
Zuckerberg shared his take on several longer-term trends that will impact the industry. From the macro perspective, agriculture will certainly feel the impact of climate change, inflation (2% is a thing of the past, he said), geopolitical power plays, and consumer influences. And from a more micro angle, ag retailers can expect to be dealing with greater bargaining power of both suppliers (input manufacturers) and buyers (growers). He predicted we will also continue to see a blurring of lines between input and equipment sellers, more new entrants and start-ups in the market, and omnichannel — selling direct —becoming a major trend.
His message to deal with challenges like these: Work together as an industry to be proactive.
“Last year Hurricane Ida caused power outages which led to shocks to grain exports and fertilizer production. Record low water levels on the Mississippi River this year have caused logjams and spikes in barge rates,” he said. “We should have expected this, it’s not uncommon anymore. What is ag doing? Ag needs to form a coalition to address this, don’t wait for the government. Be proactive. It will be other things next year, and these things impact retailers just like they do growers.”
Disruptions As the Norm
Shifting the discussion more directly to supply chain disruptions, after nearly three years challenges that started with the pandemic and spread into other areas, we’re still grappling with problems in a number of areas, said Jeremy Pafford, Head of North America, Market Development, ICIS.
“It’s a ‘whack a mole’ situation. When one thing gets better, something else pops up,” he said. While shipping rates are dropping and we’re seeing more raw materials flowing from Asia, we’re still dealing with a non-optimized supply chain currently challenged with energy availability and costs. “We won’t be optimized again until we find new ways of doing things,” he said. “Water finds its equilibrium We’re not there yet.”
Sarah Waltner, Senior Director of Global Sales, Raven Applied Technology, said her organization is dealing with competition for critical resources that remain limited. “We design and manufacture our product. We’re fighting for the same semiconductors everyone else is,” she said. Focusing on improved communication with both suppliers and customers is part of the solution.
“I don’t think we’ll go back to ‘just-in-time’ the way we were,” she said. “Planning and communication are absolutely critical. I’ve seen from our customer base we need to plan more and there has been an increased openness to more planning. The only thing you know about a forecast is if it’s right you got lucky, but you have to be communicating to have a chance for things to work.”
With continued kinks in international supply chains, the concepts of “onshoring” and “nearshoring” were obvious discussion points.
“Going back to no globalization is not realistic or sustainable. We have to be real about the risks and how we can mitigate them,” Waltner said. “For example, I might have an alternative that could come from another country, or sometimes we might be able to go back a version or two to something that’s still available. We aren’t going to mitigate every risk, but we need to have alternatives where we are most at risk.”
ICIS’ Pafford suggested another concept that can be an option: “The new term is ‘friendshoring’ — find out who your friends are and source there. If completely onshoring was cost effective for businesses, we would have done that already. If we want more things made here, we are going to have to pay for it and that will have to be passed on to consumers. Having a single source in a marketplace where there are multiple sources is not an option,” he said.
Data will continue to be a big issue in supply chain discussions, particularly with the impending implementation of traceability requirements under the Food Safety Modernization Act (FSMA).
“Ag retailers and growers are going to have to provide a lot more digital versions of data,” said Aaron Hutchison, CEO, CropTrak. “To be able to sell a crop into that market we will have to be digital, and all of this requires we talk to each other. It’s impossible in silos.”
Hutchison posited that we’ll need to have much more collaboration in this space — or we’re going to see consolidation.
“This is an opportunity for ag retailers. It’s going to be hard for the farmer with so many things coming at once. You as an ag retailer need to be able to help them as their technical experts,” he said.
And the corn belt should be watching closely. While FSMA will have the biggest impact on the produce market initially, the requirements likely won’t stop there. “They aren’t going to want to have multiple sets of standards. There will be a grace period for row crop growers while the produce guys figure it out, but not a long one,” Hutchison said.
Risk Mitigation: Alleviating Market Pressures
Maneuvering in any market requires risk, and with conditions today, those risks may seem even more disorienting and existential that normal. Sowinski posed the question: How do we change the way we think about risk? Human nature is to pull in, but that’s not always a sustainable alternative.”
Truly understanding your risk is the first step, said Paola Luporini, Senior Analyst, Stable Inc. “Do a very deep understanding and development analysis. Understand the source of risks and the potential impact financial or otherwise. Not every risk needs to be avoided. What is your risk tolerance? You may embrace some risk if there is upside on profit.”
There’s often opportunity to be found in a risk analysis Luporini said. She provided an example of the threat of electric vehicles to the petroleum industry.
“Eight years ago, I was in a room of leaders from energy sector in Brazil,” he said. “Market leaders were discussing long term strategy, and there was a consultant showing forecasts for electric vehicles in a decade or two. This was a huge risk for these organizations — if you don’t have demand for gasoline how to you support your infrastructure?
“That discussion was instrumental for them on where they would create growth,” he continued. “They didn’t phase out of oil. They rebranded and rethought their business to be a circular economy. They are leading the energy transition in South America but still are leading sellers of gasoline. It doesn’t mean they eliminated that risk. They are still exposed. But they are creating value from other business.”
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