The Ag Globe TrotterDr. Dave M. Kohl
Welcome to the weekly edition of The Ag Globe Trotter by Dr. Dave Kohl.
From interactions and discussions with producers, lenders, government agencies and agribusinesses around the country, several pertinent trends to examine appear. These observations point to the state of the state of agriculture, and to changes transforming the landscape of today’s industry. As we approach the quarter-century mark of 2025, it is important to review agriculture’s recent economic evolution as well as emerging trends that will carry the industry into the future.
In general, the agriculture industry is in an extended economic downturn; most sectors are well into their fourth year of the reset. In contrast, the 1980s boasted high interest rates and volatile markets combined with considerable financial leverage on farms and ranches. As a result, the brunt of a sharp correction occurred between 1981 and 1987. Today’s economic reset does not appear to be as deep, but is building momentum from the glut of commodities worldwide. Of course, the strong economic cycle that preceded today’s downturn allowed producers with strong management practices to build working capital and equity reserves for future resiliency. Combined with nearly a decade of relatively low interest rates, the recent supercycle minimized financial distress for many.
While even the bottom one-third of producers thrived during the supercycle, today’s reset is forcing an exit for some. Businesses in the lower third of profitability often exhibit marginal resources, which reduces efficiency and creates volatility. In addition, many in this category have no family member or partner to take over the business, and thus are considering leaving the industry. Others lack the production, marketing, financial systems or management processes to achieve the necessary efficiencies to be competitive in the marketplace. Still others cannot sustain their business model because of an unstable market for their product, domestic or abroad. If economic conditions persist, this lower-profitability group will experience increasing pressure to exit or scale down over the next five years.
Spurred by today’s economics, the drive toward efficiency is another emerging trend. Nationwide, farm businesses of all sizes are making changes at an accelerating rate. Some are incorporating technology, while others are altering the size or scope of the operation. Additionally, support businesses such as suppliers and dealers are experiencing consolidation, which is taxing for many rural communities.
Increasingly, agriculture entrepreneurships are springing up everywhere. Some of these are on traditional farms, but many are emerging in areas close to large population centers. These individuals operate their businesses in alignment with the customer, whether domestic or international. They tend to be quick and nimble, and challenge the status quo all the way from the gate to the plate. Planning, working capital and marketing are critical to their success. While agriculture is in a reset, these entrepreneurs are creating transformative trends that combine good agriculture and good business with the population’s demands.
Even as the average age of agricultural owners and operators, especially in grains, continues to increase, the younger generation is entering the industry, many full of energy and zeal. Agriculture is increasing its diversity with more women and minorities who are challenging and complementing the traditions of agriculture. Some are returning to the family farm, while others are assuming the management reins, and still others are coming from outside the industry entirely. Regardless, almost all have plans to conduct business differently from what has been done previously. Agriculture is reaping the benefit from those tired of traffic jams and long commutes, because they now bring new and expanded skill sets to the farm. For example, one couple worked for General Motors for 20 years. Ready for a change, they started an organic grain business a few years ago. Thanks to their years at GM, they put their management skills, people skills and knowledge of procedures to work in market development and the value-added process. In another example, one engineer gave up a high-salary job to return to his family’s robotic dairy. His spouse is an accountant and together they improved efficiency, capitalized on farm data and increased production to grow profitability, even in today’s challenging economics.
Another trend is the disruption of the food system as driven by the consumer. On various flights from several airlines, new foods continue to appear. For example, earlier this year GMO-free pretzels showed up on a trip with one airline, and gluten-free potato sticks were given out on a flight with another. Then came the Dancing Deer Cookie made with eggs from cage-free chickens. Another change in airline snacks is ice cream cups from a small creamery in Ohio. Of course, with Amazon’s acquisition of Whole Foods Market, more changes are undoubtedly on their way. Whether it is the domestic or international marketplace, the changes in food are in the beginning stages and will accelerate as consumer preferences advance.
To strengthen these consumer changes, Generation Z is on the move. This group is emerging as both consumers and workplace peers. Born between 1995 and 2015, this generation will have a demographic of 73 million people as opposed to the 83 million Millennials. Of course, both generations will make their indelible mark on the domestic and global landscape.
Interestingly enough, the Generation Z segment will be conservative financially and enjoy working independently instead of collaboratively. This segment will be “phigital,” where a digital presence suffices for the physical. In other words, they are able to work from anywhere and may not be dependent on a specific location. The first group of these individuals will graduate in 2017 from colleges and universities. Much like the Millennials, they are motivated by organizations with a cause and want to make a difference. They are problem solvers and will actively seek more opportunities for engagement.
Another interesting trend is the role of NGOs (nongovernmental organizations). These groups will shape agriculture’s future. As an example, consider their influence in the closing of the longtime Ringling Bros. Barnum & Bailey Circus. As America and the world continue to urbanize, this disconnect results both in challenges and opportunities for some who engage the trend.
Global trade uncertainty will continue to escalate; agriculture will remain inevitably enmeshed with political, military and social actions worldwide because of the necessity of food, fiber and fuel. In part because of world events, volatility and extremes will become the norm over the next decade.
So, after observing and examining today’s trends, what does it all mean? In short, manage the variables you can, and manage around those you cannot.
To face agriculture’s future with confidence, one must operate with focus in four areas: planning, strategizing, executing and monitoring. Whether your business is a commodity-based traditional farm, an entrepreneurial start-up, a value-added enterprise for a specific market, or a combination of them all, you’ll find many pathways to success. There is an old saying that your net worth can be equated to your network of people. Of course, this refers to one’s financial net worth and psychological well-being as well. Surround yourself with those who are open-minded and will help develop a strategy to meet your goals, within your values, in a changing world.