The F&A Fallout of a Fragmented World: A Thought Experiment
In 2020, Rabobank’s Global Economics and Markets team considered a thought experiment of an increasingly fragmented world in which the liberal world order partially collapses by 2030. With this follow-up report, we explore the hypothetical implications for global food & agribusiness (F&A) that would stem from such an implied multipolar world with heavy trade restrictions and severe changes to the farm-to-fork supply chain.
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Hypothetical implications for global food & agribusiness in a multipolar world
The geopolitical framework. The US is assumed to remain global hegemon in 2030 but in a relatively weaker position. China and the US, including their allies, may decouple. Europe and South America will strive for strategic autonomy (scenario 1 in this report), but potentially will be forced to pick sides (scenarios 2 and 3). The scenarios cover a spectrum of impacts ranging from manageable to very extreme at a global level.
The impacts on F&A. Depending on the scenario, the impacts could be significant, partly threatening food security in deficit regions (China alliance) while hurting farmer margins in surplus areas (US alliance).
- As China, the world’s largest importer of grains & oilseeds (G&O), animal protein (AP), and dairy, attempts to achieve greater self-sufficiency, significant repercussions for the global markets are likely to follow. China’s heavy dependence on imported protein meals is a significant element of this thought experiment that could either constrain the growth of domestic dairy and AP production or heavily threaten China’s existing domestic production.
- The level of impact depends also on the speed at which trade with the China alliances is halted. As exportable surpluses of G&O, AP, and dairy are largely confined to a handful of export regions – which, depending on the scenario, are mostly in the US alliance – the loss of access to the China alliance would lead to multi-year oversupplies, low prices, and low margins in the US alliance, as volumes are reallocated to other destinations or product streams.
- In addition, temporary (e.g. weather-related) production shortfalls would result in more extreme supply shocks as trade could not efficiently bridge the supply and demand gaps anymore. And the benefits of the northern and southern hemispheres’ seasonal (crop) production wouldn’t be efficiently used, requiring storage (e.g. oilseeds) for a longer period of time after harvest.
- Adapting to the implied changes won’t be easy; rather, it will likely be painful and costly and, in some instances, even impossible. Notwithstanding, hope exists that some scenario outcomes might be buffered by some trade allowances/quotas for essential F&A products between the blocs, as both sides have reasons to negotiate to retain food security and farm economics.
- Foreign investments of F&A companies in the other blocs might be at risk of needing to operate independently from headquarters, either via new entities or sale to third parties.
Scenario 1 (EU and South America stay neutral): Somewhat manageable
Scenario 2 (EU and South America join US): Worst case for all products
Scenario 3 (EU joins US, South America joins China): Bad for dairy, issues for G&O and AP
Rabobank’s F&A research rarely publishes thought experiments like this. The future might evolve differently, but having a black swan event on the strategic planning board is crucial.