The Ag Globe TrotterDr. Dave M. Kohl
Welcome to the weekly edition of The Ag Globe Trotter by Dr. Dave Kohl.
Black swan events like the COVID-19 pandemic are major paradigm shifters. History suggests that some trends will accelerate, while other trends will steadily continue or disappear. The idea for this article was based upon a conversation with a former student who is a well-respected international agriculture marketing specialist. He suggested, “With your experience and foresight gained from working with global thought leaders, you should compose updated megatrends that reflect the major game changer that is upon us.” This article is an attempt to connect the dots from a 30,000-foot view and uncover the implications for those working in a corner office, farm office, tractor, truck or virtually. Let's examine ten major megatrends.
Rural America: Renaissance and Resurgence
In recent years, discussions in seminars and speeches focused on the urbanization of America and global populations. The pandemic has shifted this trend. Whether it is a webcast polling question or a Wall Street Journal article, there is evidence of a renewed interest in relocating to rural or semi-rural areas.
The major impediment to rural migration is technology, specifically broadband internet capabilities. High speed internet is critical to create a magnet for investment in human capital, particularly young workers. Policy initiatives at the local, state and federal levels are being aggressively pursued. This will be imperative for farms, ranches and agribusinesses utilizing the latest technology to gain a global competitive advantage. At the other end of the spectrum, it will be vital for niche and local markets in rural areas to be on a level playing field with other businesses. Rural communities also need family and personal lifestyle amenities.
This renaissance in rural regions would decentralize health risks, energize rural America and reduce urban congestion and pollution. In many cases, businesses located in rural areas can produce goods and services at a lower cost when compared to urban areas -- a positive from a global competitiveness standpoint.
Concentration vs. Small Entrepreneurial Businesses
A black swan event often creates “concentration cannibalization.” This is seen when larger, well-capitalized and more efficient businesses will merge with, acquire or bankrupt smaller businesses. Over the past few months, this process can be observed with Amazon and Walmart, just to name a few that have well developed, efficient delivery systems.
A balance of business models – larger businesses seeking efficiency and optimization and small entrepreneurial businesses riding the wave of trends – can foster hybrid vigor in the marketplace. This balance creates the diversification, resiliency and consumer connection that results in competitive industries. Expect considerable debate at all levels ranging from Main Street and Wall Street to the halls of government and industry that will shape agriculture and other businesses in the future.
Decentralized Work Environment
What a difference a few weeks makes in the workforce environment! According to many leading publications, such as the Wall Street Journal and The Economist, approximately 40% of future jobs will not be location dependent.
Three models will define the new workforce. The first group will work remotely, either from home or an office distant from a centralized location. The next set of workers will be the hybrid group who will work one to three days remotely and spend two to three days in a central office location. The third workforce model, because of their tasks and responsibilities, will be onsite with more traditional schedules.
These models of remote and hybrid work have been utilized by my associates for nearly two decades. What is the secret sauce for effectiveness? While a whole research article could be written on the subject, let's highlight a few key attributes.
A remote employee must be self-disciplined, motivated and focused. They enjoy independence with occasional interaction with team members and customers. They are task and project oriented with the ability to prioritize.
A remote workplace must include an investment in technology with broadband internet access. A dedicated space free from distractions to allow focus is critical. An environment of trust with metrics for productivity and periodic feedback with a culture of learning is very important.
Globalization vs. Selective De-globalization
The movement away from globalization over the past five decades was initiated with recent trade issues and sanctions. The pandemic has accelerated this trend due to changes in consumer desires and demand and supply chain issues in critical industries, such as technology, agriculture, manufacturing, processing and distribution. Agricultural leaders will be required to evaluate unintended consequences of an event.
In agricultural lending, for example, supply and marketing chain disruptions and market/product availability, have become a leading factor in credit risk. Historically, 20% of net farm income came from exports. Moving forward, the trustworthiness and economic health of countries and regions will need to be critically assessed. Supply and marketing chains will be one of the important “C's” of credit, business continuity and sustainability.
In the future, expect more regional trade agreements, such as the United States-Mexico-Canada Agreement (USMCA). China's Belt and Road Initiative, started in 2013, will be challenged. The bottom-line is that agriculture and other critical industries, including the energy, medical and technology sectors, will be the first to experience ramifications. The results could be extreme economic volatility. A high business IQ will be critical in order to monitor these trends.
Stimulus programs from the government and central bank initiatives will eventually come at a price. In the future business environment, expect high levels of taxation at the local, state and federal levels to refill the empty coffers. This will most likely result in higher income taxes and self-employment taxes. There have even been discussions of imposing a wealth tax which would affect the balance sheets of the veterans and baby boomer generations, particularly in the agriculture industry.
Another outcome could be an increase in selective regulation, particularly concerning health, safety, mobility and social interaction. Recently, one speaker indicated that we could have “TSA like security” throughout society. This could hinder domestic and global movement of not only people, but industries associated with mobility, including agriculture as it relates to distribution and shipments.
Rainy Day Emergency Fund
Perhaps it is time for a national rainy day or emergency fund similar to the one that was successful in Canadian agriculture in the 1990s. At that time in Canada, agriculture producers were allowed to invest profits into a tax-deferred account for use in adverse events. In these situations, farms and ranches could set aside tax-deferred income for both business and personal consumption. These funds were accumulated during good years to be available in case an event occurred presenting a need to draw on the account.
For example, these accounts were drawn on during a mad cow disease (BSE) outbreak and helped with the associated financial trauma. The accounts eventually became extinct as the general population in Canada were not offered a similar program, creating considerable discontent. If implemented, this business liquidity fund could be linked to a financial literacy education program, which would be advantageous to all segments of society.
Future of agriculture
The term “one size does not fit all” will be the future structure of the agriculture industry in the United States. There will be a dominance of larger agriculture players. These producers and agribusinesses will capitalize on bio-information and mechanical technologies. To be successful, business owners must integrate artificial intelligence and link production to consumers for the differential edge. The range of business models could be commodity based, value-added or a combination of both.
The smaller agriculture entrepreneurial businesses will thrive in the future. This group will be adaptive, quick to the marketplace and capitalize on trends of the time. Many young and beginning farmers and ranchers will reside in this space.
Expect an accelerated transition of assets and skills within the next five years. This pandemic has caused all generations to reevaluate their goals and priorities. More business transition will occur outside the traditional family. Expect to observe more individuals with less agricultural background and experiences bringing new thinking and hybrid vigor to the established mode of operations.
Educational Programs and Edu-marketing
With six decades of experience as an educator, I have a unique perspective on the future of adult education programs and priorities.
Business and industry must work together in a critical balance to provide educational systems of information and a format for dissemination. Business and financial literacy will be a high priority. This education may be linked to a certificate that has financial incentives, like Division I athletic scholarships. Programs for our military veterans and first responders providing service to the community could be very appealing and made available through educational programs.
Marketing and risk management for commodity and value-added producers could be offered in addition to existing programs with customized applications. Technology, labor management and leadership will be a part of standard educational programming. Young and beginning farmer and rancher programs will include transition management and communication as a standard offering.
Over the next five to 10 years, special “people's choice” topics will be delivered utilizing technology and selective face-to-face education within the boundaries of acceptable health guidance for participants. For businesses, the key will be to educate while marketing, known as edu-marketing, to gain the differential competitive edge.
Knowledge transfer and training has been turned upside down. The standard face-to-face delivery may still exist, but with modified rules based on the environment and health situation.
Online video meetings will be a challenge, but also an opportunity for creative, innovative minds and organizations. Many businesses will need to rethink how the skills of employees and team members are in alignment with these new attributes to operate a successful business. Customization and certificates of learning tied to financial advancement and incentives will be the mode of operation. With the use of technology, education can reach more individuals in rural areas and provide a value-added experience.
Business Models of the Future
Regardless of the industry or enterprise, what will be the pillars of successful business models in the future?
Resiliency is the first pillar for the future. Whether a business is diversified or specialized, capital reserves will be necessary to weather future black swan events and to capitalize on opportunities.
Financial agility is achieved with working capital and quickness to cash. However, it is also the ability to adapt quickly to changing markets, technology or human resource changes. Agility will be the balance between optimization and efficiency versus diversification and resiliency.
Being entrepreneurial and innovative with a people-first working culture will be another pillar. The investment in people, whether in terms of traditional education or customized education, will be important. Successful businesses will manage in “quarterly sprints” and outcomes with a longer-term, sustainable vision and mission in front of them.
Finally, successful business models will have managers with a strong business IQ. The model of the future will have a focus on key performance indicators, but have enough stretch in the guidelines for creative action.
The COVID-19 pandemic has had many unintended consequences – too numerous to mention in this article. However, the aforementioned trends and actions can be a backdrop to developing a dynamic business plan for the future. These trends, though not all-inclusive, are “outside the box” creative ideas designed to challenge your thought process and create discussion and crucial conversations for future thought leaders in the agriculture industry.
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