Outside Influences on the Grains & Oilseeds Industry in the Post-Covid World: November 2020

Stefan Vogel, global strategist for Grains & Oilseeds, takes his quarterly look at what RaboResearch F&A's insights into other sectors mean for the G&O industry.

African Beer: A Key Growth Driver for Malt to 2050

In 2020, Covid-19 impacted beer markets massively. North America held up relatively well, but Europe’s on-trade markets were hit hard. Meanwhile, the loss of summer sales in Asia hang over 2020 beer volumes despite a sharp Chinese recovery.

For the long-term outlook, the development of China from minor player to global beer powerhouse over the past 30 years has shown the potential of emerging markets and can serve as a blueprint for Africa, which offers great opportunities for brewers over the next 30 years, as the continent’s beer volumes increase 50% by 2030 and triple by 2050.

Impact on G&O: The global malt outlook will benefit from rising volumes of malt traded to Africa and locally produced malt. The cost of beer will be a key issue in Africa and will also impact malt.

Taste, Price, Convenience, Health, & Sustainability

Despite a lot of Covid-19-induced changes, the key drivers of consumers’ food purchasing decisions haven’t changed much, and some, like health, have taken center stage.

Impact on G&O: Though alternative meat products have a ways to go in regards to health, meat alternatives continue to rise and with them demand for plant-based protein ingredients. While protein ingredients from grains still show relatively small volumes, the growth will be strong in the coming years. Many major G&O companies are on a journey to transition their businesses to providing food ingredients, technologies, and solutions. Health and wellness plays a key role in this transition, and it’s worth learning about dairy’s whey protein journey, which has seen strong returns in the sports-nutrition, clinical-nutrition, and infant-formula industries, which have driven investments across the globe. As a result, over 90% of the global whey stream is now utilized, bringing value to dairy farmers, manufacturers, and consumers alike. Also seeing the value of producing ingredients, the animal feed industry’s long-term strategy continues to be investment in novel feed ingredients.

Digital Pathway and E-Commerce in Farm Inputs

In the distribution of farm inputs, the existing omni-channel retailers (bricks and mortar) are best placed to capture growth in the US, but they face disruption risk from established e-commerce behemoths, product manufacturers, and smaller start-ups. However, broader digital and data-driven ecosystems are the key to lifting decision-making to an ROI maximization vs. productivity maximization.

Two major hurdles limit the capacity of technology in farm decision-making. Firstly, technologies lack ability to collect data from the required number of variables, and analysis tools need to improve. Secondly, collecting data, analyzing it, and acting on it is arduous and complex.

Impact on G&O: Many G&O companies are also active in farm inputs and will face more competition from e-commerce, but they can also benefit from their own e-commerce strategies.

Animal Protein Outlook

The outlook for 2021 animal protein production in most regions is calling for growth, with the biggest change taking place in Asia, where the impacts of African swine fever (ASF) are fading. Pork will lead that growth, followed by poultry, aquaculture, and beef. Trade continues to create opportunity and risk, with China’s trade posing the biggest uncertainty.

Impact on G&O: Growth in animal protein will further stimulate 2021 G&O feed demand.

Carbon Reduction in Food: A Trend for the Future

Unlocking climate-friendly meat to reduce GHG emissions via a range of initiatives has gained traction, while headwinds lie in the measurement of GHG emissions.

Impact on G&O: The G&O sector is implementing many different sustainability initiatives, not only within G&O companies but along the whole supply chain, from the farmers that supply G&O to transport and ocean shipping to processing. Furthermore, as feed and land use contribute to livestock’s GHG balance, animal protein will drive further changes in G&O industries.

Indian Farm Reforms: Stepping Stone of a Long Path

India’s reforms provide farmers a free market to sell their produce anywhere without restrictions, promote contract farming by facilitating agreements between farmers and companies, boost agriculture infrastructure like cold storage and warehouses, strengthen Farmer Producer Organizations (FPOs) for stimulating farmers’ market power through aggregation, and facilitate digital infrastructure for agriculture.

Impact on G&O: These reforms of the world’s fourth largest grain producer are stepping stones but not final solutions.

Detailed Regional Outlooks From Farm to Fork

China: China’s soybean imports remain strong. Domestic corn prices and imports are very high. China‘s economy continues to bounce back from Covid-19, with strong domestic demand driving recovery in production and downstream industries. The momentum in food and beverage sectors is expected to remain robust in Q4 and into 2021.

Australia: After three years of drought, a massively recovered G&O crop will be harvested soon.

Brazil: Soybean and corn farmgate prices are at record highs, up ~110% YOY, while G&O exports have slowed. Some imports from the US will even take place. Farmers and companies have had their business models tested by Covid-19 and will have to build greater strength and resilience in the future. Sustainability will rise further in importance.

North America: The North American agribusiness sector is benefiting from strong G&O prices, and recent election results are keeping uncertainty high, especially regarding the future of trade with China.

Food and Agri Maps

Rabobank’s sugar map was updated recently.

Impact on G&O: An updated G&O map will be released in Q1 2021, the 2016 version is here.