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Agrifood sector risk report

Despite challenges from climate change to geopolitics, the sector remains steady

MEDIUM RISK FOR ENTERPRISES

Last Update: July 2024

Strengths & Weaknesses

Strenghts
  • Steady and growing market thanks to growing population
  • High pricing power for most companies and producers
  • Diverse market with growing demand for alternative products (proteins, plant-based etc.)
Weaknesses
  • Vulnerable to climate change: More frequent and severe floods and droughts affect crops and livestock
  • Food-processing and packaged-food companies continue to struggle with high energy, transportation and input costs.
  • Labor shortages, especially in the upstream segment and in Western Europe
  • Global inflation has exacerbated price competition

Sector Overview

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What to watch ? 

  • Food security and geopolitics: Since 2022 and the war in Ukraine, food security is back on most countries’ agenda. From strategic stockpiling to export curbs, a number of policy decisions are reshaping the market
  • Climate change and extreme weather events: Changes in temperature, humidity and rainfall patterns, as well as the frequency of extreme weather events (storms, droughts, wildfires) and the “El Nino”/”La Nina” phenomena in 2024 are affecting farming practices and output capacity.
  • Energy crisis: Despite the energy crisis being less acute, prices for fuel and fertilizers remain high and are pressuring profitability for firms in the sector.
  • New consumption trends: From the rise of weight-loss drugs to the shift towards plant-based diets to online grocery shopping, the sector needs to adapt to shifting consumer trends.
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The global agrifood market has grown significantly, rising from USD8.3trn in 2021 to an expected USD9.1trn in 2024. It is projected to reach about USD12.5trn by 2029 (i.e. an expected +6.5% CAGR over 2024-2029). This growth is being driven by a number of factors such as population growth, technological advancements and also shifting consumer preferences. The ongoing war in Ukraine has added new challenges and uncertainties to the sector. Since 2023, most food commodity prices have consolidated with the exception of coffee and cocoa, which reached historical highs.

Overall, despite retreating prices for most agrifood commodities, they remain higher than they were before the pandemic, which has been weighing on cost structures. So far, despite declining volumes (both in production and sales), the non-reductible nature of food products has allowed firms in the sector to compensate for lower volumes with higher sales prices. In 2023, EBITDA margin for food manufacturing firms stood at about 11% despite revenues slightly declining. The beverage segment has been able to continue to grow both revenues (about 10%) and earnings

Subsectors

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1. Upstream: Companies engaged in the production of agricultural commodities from cereals to fresh fruits and vegetables to cattle

2. Downstream food products: Firms involved in processing and transforming the extracted raw materials and animal products into consumable products. The full chain includes processing, packaging, transporting and transforming the food products.

3. Beverages: Companies that produce and supply any type of beverage. The beverage industry contains two main categories: non-alcoholic beverages (such as juice, sodas, soft drinks, coffee, tea and bottled water) and alcoholic beverages (beers, wines, and distilled beverages - also known as spirits).

Contacts

Maria Latorre
Sector Advisor
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