Time has arrived in the second quarter of 2024, and the development of global agriculture is facing various challenges. In this article, we will take stock of the types of challenges and discuss how to deal with them.
Agricultural Supply Exceeds Demand And Stagflation Is Evident
Taking crop inputs (pesticides, fertilizers, facilities, engineering) as an example, the demand will be reduced by 10%-30%. On the other hand, some fixed expenditures (wages, land) and energy (water, electricity, natural gas, etc.) inputs are Increase. The company’s continued profitability means that they will further reduce expenditures and make additional investments in 2024, and there may also be personnel changes and structural reforms.
Strict Supervision
Due to the uneven distribution of global resources and tension caused by war, some countries are imposing restrictions on manufacturing and exports. Including fertilizers, agricultural products and deeply processed products. These policies will lead to the reshuffling of inventory in global channels and cause certain market chaos.
Energy Issue
Oil prices continue to rise amid a Russian embargo, OPEC supply tightening and U.S. strategic reserves hitting record lows. Tensions in the Middle East between Iran/Hamas and Israel will only put more pressure on global supplies. At the same time, the cost of oil-based raw materials, manufacturing, transportation, cultivation, inputs and harvesting for the agri-food industry is likely to increase.
Political Deglobalization Leads To Trade Wars And Physical Wars
What is certain is that the Russia-Ukraine war will not be resolved in the short term, and no obvious results can be seen. With the “war” breaking out in the Gaza Strip, the situation on Europe’s doorstep has become more serious. At the same time, the continent is facing the challenges of increased immigration, tight energy supplies and an aging population.
Recent nationalist trends are emerging – for example, tighter border controls and boycotts of Ukrainian grains and Russian oil. Furthermore, Europeans appear more willing to prioritize combating climate change over other priorities and impose this direction on the global agro-industry.
Interest Rate Inflation
The Commonwealth Bank of the West continues to target inflation at two percent. High borrowing costs will have a significant impact on the cash flow of businesses, particularly agricultural businesses that do not have strong balance sheets or cash flows. Cash is the key to success. Therefore, the agricultural products processing industry must transform and deal with a series of challenges.
Labor Shortage
Urbanization has ultimately led to agricultural labor shortages in many parts of the world. As producer consolidation continues around the world, mechanization and automation solve many problems, and economies of scale become necessary for farmers to compete globally. Even so, certain types of labor remain scarce in rural areas. Agriculture should be further integrated or more actively automated through high technology (e.g. through robotics, drone farming)
Climate Changes
The use of fossil fuels contributes to global climate change and its irregularities (El Niño, La Niña). Since 2024, climate anomalies, such as heavy rains, droughts, and cold waves, have occurred in many countries and regions. This poses challenges to the healthy growth of crops and seriously affects the food security plans of various countries.
Ongoing Regulatory Pressure
More and more countries are joining the queue of strict supervision of agricultural fertilizers, biostimulants, and agricultural product processing. This is a necessary means for the country to ensure the health and safety of domestic agriculture. For the global industry, more supervision will lead to an increase in money and time costs in the value chain, and the phenomenon of rampant counterfeit goods will gradually become apparent.
The Impact Of Artificial Intelligence
As major companies invest in AI technology, AI will further drive the way business is performed at the farm gate. For example, artificial intelligence knowledge base, automation of drone aerial applications, etc.
Reflection
1. How to further enhance the company’s advantages and achieve profitability and sustainable business in a stagflation environment?
2. In the context of increasingly strict supervision, how to plan purchases in advance and purchase goods from suppliers regularly to save time and money?
3. How will artificial intelligence affect the agricultural industry, and what benefits can growers gain from it?
4. How will producers respond to government regulation? Can fertilizer and chemical manufacturers switch to “cleaner” energy?