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Continued disruption affecting Agriculture

Post available in: English

The progressive consolidation of the smaller farms, the growing vertical integration of private companies in certain chains and the relative weight of farm cooperatives, is the beginning of a disruptive trend that challenges the input and processing industry.

With this incipient equalization of forces, industrial companies that do not anticipate and adjust their business strategies could lose volume and/or fall into a pricing war that impacts their profitability.

In the United States, the 2017 agricultural census presents distortions by including all agricultural products and animal proteins (such as chicken or pork where the concentration of producers is high). ie of the two million producers surveyed 5% produce 75% of the total, while some 1.9 million producers contribute the other 25%.

In terms of scale, agricultural production in productive units larger than 800 hectares increased from 15% in 1987 to 36% in 2015, plus the larger production units had much better financial performance than smaller ones: 25% of units with operating profits greater than USD 5 million obtained an operating margin between 10% and 25%, while of the smallest, more than 50%, obtained margins below 10%.

On the other hand, between 1987 and 2012 the average dairy unit went from 80 cows to 900, egg farms from 117,000 to 900,000 hens and pig producers from 1,200 to 40,000.

Although this latest data are not the most recent, they confirm the progress and impact of consolidation. Forced rebalancing Is happening Argentina, and many of its surrounding countries although the greater scales can bring efficiencies and synergies, it is the level of producer withdrawals that defines their sustainability in the business, while the technological factor, access to financing, trained human resources and family succession planned will contrast between professional and amateur management, marking the gap between the different profiles.

Although the process of consolidation of the producers tends to expel those with a smaller scale and less efficiency, on the other side is that 20% of the producers concentrating 80% of the production will drive disruptive changes through new leaders, especially with newer generations.

It is only a matter of time before the entrepreneurial and innovative spirit that highlights the Argentine producer transforms and reinvents its current unionism into a lobby group with political clout.

And, at the same time, to develop new commercial and associative platforms that generate critical masses to negotiate better terms of trade with different allied industries.

Those who understand that in the geopolitics of food production, producers will need to become a strategic link or they will suffer extinction.

Source: Grupo Agrarius (www.grupoagrarius.com)

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Post available in: English

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