The Situation
Crop farmers, input suppliers and retailers have successfully navigated through an extended period of extreme volatility that began with COVID-19.
The good news is that, as of mid-September, the pandemic is largely under control, supply chain disruptions have improved, and general inflation has moderated as actions by the Federal Reserve are finally bearing fruit. The bad news is labor shortages persist, and extreme weather is driving up property insurance costs for agribusinesses and presenting risk for businesses producing and exporting grain and distributing inputs.
In the current environment, the natural question is what should upstream inputs or grain companies do? As summarized in the three-point list to the left, it starts with analysis.
Then, ask hard questions, and focus. Beyond that, companies should commit to training and upgrading staff capabilities. Be willing to pay for the right talent that can fill critical staffing gaps, such as those in marketing, technology, risk management or branding, and add diversity within the company ranks and at the board level.
Initial Steps Toward Building Business Resiliency:
- Analyze your customers’ product and service needs as well as your company’s capabilities. Are there gaps between what they need and what you can deliver? How are you going to close the gap(s)?
- Ask hard questions. When I sit down with boards of directors, we often talk about whether the business model looks forward or backward.
- Decide your focus. Specifically, is your business strategy playing offense or defense? Leaders have three choices when the facts change: do nothing, do something, or transform.
Transformation can take many forms, including but not limited to mergers, acquisitions, divestitures and strategic partnerships. During the past six months, upstream agriculture has seen a flurry of such activities, including a strategic partnership by John Deere and Nutrien Ag Solutions to promote digital connectivity between farmers and their suppliers.
The signal here is that forward-thinking players are executing plans to deliver more value for their farmer customers and owners.
Concluding Thoughts
The best time to plan for the future is when you have the time and financial flexibility to do so. Farmers, grain merchandisers and input retailers have made considerable sums of money during the past three years, notwithstanding a difficult macro and geopolitical operating environment. Will the next three years be as profitable? Logic says the answer is “no” given the cyclical nature of the crop farming business. We think the time is now to rethink business models in order to build future resilience.
