INDUSTRY INSIGHTS

Agrifood

How would you describe the impact of COVID-19 on your business?

Survey highlights

Seventy-seven percent of respondents in the agrifood industry were from North America or EMEA. Overall, agrifood had a smaller proportion of respondents still in the react phase than most other sectors. Forty percent of respondents said they were in the reshape phase, which is higher than the overall industry benchmark (30%). This is supported by the fact that 12% (7%) of respondents said their companies had thrived during the crisis. A higher proportion of respondents also said they had been impacted by the pandemic but that their organization remained resilient. Notwithstanding this, over half of respondents expect to take more than a year to recover from the pandemic. A much higher proportion of agrifood organizations — 39% — said insurance and risk management could be better integrated into their business compared with all industries (28%), with a similar percentage saying the pandemic would accelerate their review of ERM processes. This industry also demonstrated an increased willingness to consider captives as an alternative solution, at 23% (16%).

“Climate change is one of the biggest future issues that the industry is facing. The issues are complex and have the potential to impact on supply chain, business model, corporate governance and reputation. The findings from this survey show not only the importance, but more significantly the benefit, of planning enterprise-wide strategies to respond to future shocks. This is going to require executive leaders to understand the full range of impacts from shifting demands of employees, customers and shareholders or investors that place increased emphasis on the corporate strategy in such areas.”

- Ciara Jackson, EMEA Food, Agribusiness & Beverage Practice Leader

At 42%, agrifood respondents reported a higher demand-led impact on their supply chain compared with the overall industry benchmark (36%), which is consistent with the industry’s vertical position in the chain to consumers. However, only 7% reported significant supply issues (16%). National food security is a significant issue that has been amplified by COVID-19, especially for net importers of food, as well as by geopolitical issues such as Brexit and trade wars between the U.S. and China. This has added transit delays and tariffs to products that critically impact this industry, which is especially challenging for products lower margins (below 10%) and for lean working models (including sequencing), where disruption and delay can cause significant challenges.

Industry insights

The survey results bear out what we are seeing across the industry: a mix of organizations that are thriving and others that have been hit hard; the severity of the impact of COVID-19 tends to be linked to distribution channels. Many agrifood businesses supply both retail and food service customers, meaning that some organizations have experienced different impacts. This has led to decisions to reallocate resources or repurpose them to mitigate the net impact. This is likely why a large proportion of respondents said the impact was either not ascertainable or minimal. Companies supplying retail have faced huge demand, resulting in challenges resourcing and fulfilling this sudden increase. This presents workforce management issues in resourcing to meet additional production quotas, maintaining a COVID-19 secure production environment or dealing with absences. The industry also faces significant competition for talent, especially in R&D areas. COVID-19 has added to existing challenges relating to food safety and security. Criminal networks have sought to take advantage of those challenges through techniques including cyber/ransomware, employee social engineering and interfering with supply chain quality.

Proportion of organizations facing supply chain issues

Macroeconomic factors will continue to be a threat. Consumer demand could change food preferences (e.g., reducing demand for premium products). The future of food is also a big topic driving decision-making. For example, companies are exploring technology to drive greater efficiency and productivity to match population growth. This is creating disruptive business models, backed by new private equity and other investors, that use technology-based solutions to generate new operating models. This is probably why M&A activity was identified as a higher priority in this industry. M&A activity is also prevalent in secondary processing, with increased investment in business models linked to craft food and beverages. We see the identifying contingent capital as a priority in the context of the hardening insurance market. These organizations are keen to explore ways to release capital.

Future shocks

  1. Economic disruption
  2. Climate change
  3. Geopolitical tension
  4. Another health crisis/pandemic
  5. Business model disruption