Ian Proudfoot, global head of agribusiness with KPMG, outlined six key pillars at their agribusiness briefing this week in the Horse & Jockey Hotel, Tipperary, that will shape the future of global agribusiness.

These include: 1) population growth; 2) urbanisation across the globe; 3) the rise of underdeveloped regions; 4) private equity now attracted to agribusiness; 5) the rise of the middle class; and finally 6) Government policies.

With the world population set to grow from seven billion to nine billion and, of even greater significance, the predicted 3.2 billion more people by 2030 across the globe that will be classed as ‘middle class’, i.e. with greater purchase power, and also changing eating habits are all set to transform opportunities within the sector according to Proudfoot.

He went on to outline that, in the midst of such global opportunities, agribusinesses that fail to evolve, embrace technology, invest in R&D and just rely on what was successful for them in the past, will lose market share and will be left behind by this global phenomenon.

Over the coming years, 50% of the world’s population will live in cities. In sheer numbers, that equates to 64 million people moving to cities each year, or the equivalent of three new Shanghais being created each year. This is, and will continue to, affect consumer diets, particularly within Asia as they increasingly embrace many western dietary habits and increase global demand for dietary protein.

The continent of Africa is currently undergoing profound changes, as are many parts of Russia, and with the increasing mechanisation and adoption of new technology and the best animal genetics globally, their primary agriculture production base is set to increase production significantly in the years ahead. Proudfoot went on to say: “Private equity in the form of large pension funds and other private equity sources are increasingly determined to diversify their investment portfolio to include primary agriculture now. “This will also affect change globally and, while this will create opportunities, it will also pose fundamental questions to national governments with regard to national ownership of strategic assets, resources and companies.”

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The natural environment, water and bio-security will pose new challenges for global agribusiness and the associated companies. Proudfoot outlined how some of the largest food companies in the world are already adjusting their buying patterns to reflect these sustainability concerns.

In addition, some commentators from the floor outlined how such environmental and sustainability issues will affect countries like New Zealand far greater than European countries.

European countries have had to already adapt and operate within increasingly strict standards, e.g. nitrate directives and the like.

From Proudfoot’s frequent travels around the world reviewing agricultural production systems, he outlined that agriculture is slower than most other sectors to embrace new technology and innovations.

“Agriculture and agribusiness must invest more in animal and people genetics, good IT. And broadband connectivity outside of urban centres is critical now. The sector as a whole must invest more in R&D,” according to Proudfoot.

Retailers

Some of the largest global retailers (Walmart, Carrefour, Tesco, Costco, Lidl) identified key priorities for their businesses in the future.

Suppliers need to offer multiple retail formats and sizes of their products, low prices, a renewed focus on locally-sourced goods, environmental issues, diversification of their revenues, strong brands, good employees, technology and finally to gather and use customer data more.

Origin Green

Proudfoot was very impressed with Bord Bia’s Origin Green initiative and the associated buy-in from the agribusiness companies and farmers alike.

Many countries lack such a cohesive strategy and felt forward-looking developments such as these will help differentiate Ireland on foreign markets.

Dairy

Proudfoot remains optimistic for dairy where, in the main population centres (e.g. India, China, Africa, the Middle East), as their populations increase, demand for dairy products is forecasted to outstrip supply by on average 3% per annum over the coming years.

It is this strong demand that continues to underpin current dairy prices, where Chinese buyers are the ones currently continuing to offer strong prices for dairy supplies.

However, when questioned on the short term, i.e. post quotas in 2015 and the surge in milk supplies that is predicted from pent up supplies in countries like Ireland, Holland, France, Germany and Denmark, he conceded that prices may dip somewhat in 2015 to 2016 but, on average, global dairy prices have reached a new and higher plateau.

Proudfoot confirmed that New Zealand’s dairy industry remains concerned over the impact on international dairy markets post-2015 with increased supplies of dairy product from Europe, and, in particular, Ireland.

Rabobank predicts bright dairy future

Barry Henry of Rabobank Ireland predicted that Ireland would enter the top 10 dairy exporters internationally post 2015 (see Figure 1). Ireland is currently ranked at 15, with New Zealand ranked number one. Henry contrasted the development of the Irish dairy industry with New Zealand’s and noted how the introduction of quotas in Europe and the removal of subsidies in New Zealand had profound impacts respectively. New Zealand’s dairy industry is one of the main drivers of economic growth and prosperity within New Zealand and has developed its milk pool from 5.2 billion litres back in 1977 to 19 billion litres in 2012.

Ireland’s milk pool has grown from 3.25 billion litres in 1997 to just 5.2 billion litres in 2012. The predicted 50% increase post 2015 in Ireland is set to increase our exports by €1.5 billion per annum not to mention the knock on economic affects throughout rural Ireland.

In addition, Henry outlined all of our main competitors on International dairy markets, e.g. Holland, Denmark and New Zealand have over the past decade consolidated their agribusiness dairy companies so today over 80% of their milk pool and diary exports are managed by just one company (FreislandCampina, Arla and Fonterra respectively). In Ireland, six different companies continue to control 80% of Ireland’s milk pool.