The agro-industrial sector: Focus on specific European challenges
This article sets out some of the lessons that CDI Global European offices have learned from their work in the agro-business sectors, with the aim of providing food for thought for the future to their clients.
As a strategic sector of the European economy, agriculture is currently under pressure to reinvent itself to remedy certain structural weaknesses and better respond to changes in the environment.
European agriculture is currently highly dependent on direct funding from the European Union's Common Agricultural Policy (CAP). A substantial number of farms receive direct subsidies, which on average account for a significant share of their income, but despite these subsidies, the poverty rate among European farmers is higher than national averages throughout the EU.
It already seems certain that the total amount distributed by the CAP will fall sharply. In addition, it seems highly likely that aid will be redirected towards small farms, through capping or a system of degression.
A number of European start-ups are at the forefront of risk management solutions to increase crop competitiveness and offset low-price cycles, by putting innovation at the heart of the farmer's performance approach.
Also, this kind of positioning enables to invest in niche markets that are not subject to global competition or international prices, and where the weight of the price factor is not a determining factor. These markets however will have to simultaneously meet major challenges in order to remedy certain structural weaknesses and better respond to changes in the environment.
Better informed and more health-conscious, consumers have made significant changes to their food consumption in recent years. For example, food cooking from "raw products" has been increasing in Europe as a whole (this behavior increased by 30% on average in France in the last years). The appetite for products from local circuits, necessarily subject to greater seasonality, has been growing steadily (with an increase of 18% per year in the last 2 years), and consumers also continue to seek out organic and environmentally friendly products.
The trend for organic products was driven by the arrival of these products on supermarkets’ shelves and also by the acquisition of organic shops by supermarket chains. The consumption of organic food is nowadays, however, affected by the inflation factor; but, as soon as the inflation gets lower, the organic products consumption will grow again. This will raise the question of sourcing with the set-up of specialized supply chains needed to source raw and processed organic products locally.
Finally, a new demand is developing for lactose-free, gluten-free and vegan alternatives: the constraints imposed by consumers in terms of "healthy" eating are becoming increasingly numerous and specific. To meet - or even anticipate - these trends, several brands are developing new segments, such as plant-based desserts and nutritional powders.
The challenges in Europe could thus be summarized as follows:
- Reinforce overall export performance not only in beverages (wines/spirits sector), cereals and dairy sectors but also in sectors with growing consumer demand (such as fish and shellfish, fruit, fruit and vegetable preparations) as well as in organic products where imports represent a high share of the local consumption.
- Accelerate the transition to a sustainable environmental model. European agriculture today has a high environmental impact related to its greenhouse gas emissions. Similarly, the high consumption of artificial, chemical plant protection products is being increasingly questioned.
- Reduce the fragmentation of the agri-food sector and strengthen "internal” collaboration. The sector is structured around a classic producer/processor/distributor triangle, but with a high degree of fragmentation which is particularly marked upstream, on the farms themselves. The average size of cereal and oilseed farms, one of the major agricultural productions in Europe, is below 200 ha, compared with around 800 ha in Brazil, 900 ha in the United States, and 1,200 ha in Canada. This is a substantial competitive handicap, given that the fixed costs of a farm are very high, and that the effect of scale is therefore decisive. The same fragmentation is found among agri-food manufacturers. To illustrate, the combined sales of the top 30 French players barely exceed €100 billion a year, while the world leader, Nestlé, alone has sales of over €80 billion. In addition to fragmentation, the other characteristic of this triangle is the lack of cooperation between the three categories of players.
- Anticipate changes in business models and new uses through new technologies and tools: today the sector makes little use of the opportunities in the entire value chain (internet purchasing of inputs, product sales, etc.). Some platforms provide access to data from several thousand farms, enabling farmers to fine-tune their input doses and seeding, treatment and harvesting schedules according to a range of factors (soil type, weather risks, etc.). These platforms, which promote precision agriculture and risk modelling, can be expected to fundamentally transform agricultural practices and the relationships between the various players within the agro-industrial sector.
CDI Global has listed 7 major subjects that will increasingly impact the European agro-industrial sector:
- Alternative proteins: plant proteins, insect proteins, aquaculture, cell culture, technologies replacing farmed meat continue to evolve rapidly, thanks to major investments in recent years as illustrated in France by YNSECT and INNOVAFEED.
- Food quality and integrity detection technologies: “non-invasive" sensors, such as infrared spectrometry and hyperspectral imaging, and cloud-based image interpretation algorithms are quickly developing, providing systematic and non-destructive analyses of food products in order to assess food freshness, quality and authenticity (fraud analysis). These technologies will progressively be integrated throughout the agri-food value chain as illustrated, for example, by the DIETSENSOR application.
- Nutrigenetics developments: DNA analysis enables to analyze how genetic variations determine the uptake of nutrients by individuals and can improve health and well-being by adjusting their diet to the specific needs and reactions of each individual.
- Risk analysis (big data): Agricultural activities combine multiple risks (meteorological and catastrophic risks, operational risk, health risk, fluctuations in agricultural prices, etc.). Modeling these risks using big data analysis and AI for the sophistication of data interpretation algorithms is developing quickly as illustrated by WEATHER MEASURES.
- Precision farming: farming decisions (when, how, what to sow…) are based on know-how acquired through experience, and sometimes on farmers' intuition, which implies that these decisions are not always optimal. Precision farming helps to meet this challenge by combining information gathering and analysis technologies, machine learning decision-support tools and, in some cases, robotics as illustrated by companies such as FRUITION SCIENCES and EMERALD RESEARCH.
- Microbiotics/Biocontrol: research into microbiotics has shown symbiotic relationships between these microorganisms and their hosts creating new opportunities. For example, coating seeds with certain microbes, depositing them around the plant or on the plant leaves, can make it more resistant to drought, extreme temperatures, lack of nitrogen, soil salinity, pests, and diseases. This process can replace or complement chemical phytosanitary treatments. Companies such as GINGKO BIOWORKS and AGRAUXINE (LESAFFRE) are already active in this field.
- Renewable energy generation and storage: as already mentioned, the usage of agricultural products or wastes are seen as a new source of renewable energies with active new technologies such as that of BIOTFUEL.
CDI Global with its expertise and true international reach with offices in the five continents helps its agro-business clients in anticipating and being active actors internationally in these epochal changes.
CDI Global provides middle-market advisory with globalreaching success. Our commitment is to deliver worldclass service built on long-term client relationships. The pillars on which we have built our organization are integrity, excellence, client focus, and partnerships. These core values are at the forefront of every CDI Global engagement, driving our dedication to finding the best opportunities in virtually any industry or location. Our goal is to create a lasting and positive impact through our history of successful cross-border transactions.
By Gabriel Krapf, CDI Global Partner
