The following is a guest post from Bill McClure, executive director of Global Food & Agribusiness at Ernst & Young.
Shifting consumer trends are driving fundamental change across the entire food and agriculture industry. The traditional farm-to-fork model has evolved to fork-from-farm and today is better described as a connected ecosystem. This raises questions about the role that companies across the value chain — processors, manufacturers, distributors and retailers — will play as this new, more connected ecosystem emerges.
And yet, while the system experiences consumer-led disruption, players across the ecosystem must prepare for multiple operating scenarios. The expectations of what food and ag companies provide drive home the need for a more connected food ecosystem.
For the last several decades, producers based their decisions primarily on commodity prices, whereas in the future, they will need to be more in tune with consumer preferences, industry trends and other market opportunities. Sustainability, climate change and new advancements in digital technology have prompted many producers to put everything on the table as they assess their future and search for ways to optimize production.
Focus is shifting from a linear feedback path to a system where connectivity across the value chain is more important than ever. Producers are exerting more control over their operations, using new tools and capabilities in pursuit of greater profitability and efficiency.
As a result, players in the middle, between the producer and the consumer, will need to evaluate their own business models to see where they fit in the new, connected ecosystem where agility and resilience have become imperative.
Consumers are changing, too. They want visibility into where and how food is produced, packaged and delivered. As transparency of physical production methods and the value systems of producers and manufacturers become baseline consumer expectations, opportunity is emerging for those who can deliver their product with authenticity to command greater trust and value with the consumer. Evidence of these changes can be found everywhere from the re-emergence of farmers’ markets to fresh menu options to heightened awareness of local sourcing and transparency. In a reimagined food system, data will be critical in addressing consumer preferences.
The latest EY Future Consumer Index (FCI) found that in the next three to four months, 35% of households will spend more on fresh food and 27% of people will track the healthiness of the products they consume. Meanwhile, 43% agree that they would pay more for products that are produced sustainably, and 41% find it influential to see sustainability scores printed on product labels.
Change is already causing ripples across the value chain. Decisions are being made that could accelerate disruption of the entire ecosystem, and create new opportunities for asset optimization, growth and a deeper connection between producers and consumers.
How the future producer persona will drive a connected ecosystem
Farms focused on a primary crop or animal product for generations continue to uproot established operating plans in response to changing climates, rising production costs and shifting consumer preferences. Changes like this present both challenges and opportunities that a connected ecosystem will need to address.
There is certainly a risk of profit pool shifts within the value chain. If more consumers want to get closer to their food, and midstream to downstream companies are not willing to facilitate that connection, a portion of consumers may choose to find alternative options.
There was a time when processors held all the data and thus, greater control. Now and into the future, producers will have valuable data at their fingertips, enabling their own efficiency and profitability.
Producers are beginning to leverage a more connected ecosystem, as well as embrace market disruptors and emerging technology by considering the following trends:
- Climate change – capturing new profitability: How can companies create a connection with producers to help ensure an ecosystem that is financially advantageous to producers and also helps to ensure that companies get the products that they need?
- Digitization and AgTech – optimizing assets: Beyond the capabilities already in the market, the future farm shows potential for the implementation of digital twins that allow producers to manipulate real-time inputs to model future scenarios. The key is that farmers need to see the payback for whatever investment they are being asked to make.
- Alternative income sources – creating economic sustainability: Today’s producer strategy going forward will be to maintain a diverse portfolio that likely goes beyond food and animal products and relies on innovative marketing approaches such as carbon credits, water rights and e-commerce to supplement income from their core business.
Implications of producers finding alternative income sources could send ripples across the value chain. Companies will need to reimagine how they do business – including finding new ways to make it more financially appealing for farmers and ranchers to sell their products to the company rather than the consumer. Critically examining all future scenarios should be a key part of future strategy development for all businesses and embracing a more connected ecosystem can help these companies be more resilient to coming disruptions.
As consumers place greater focus on where their food comes from and how it was produced, producers are exploring options to enhance profitability and better utilize their assets, such as changing the type of crops grown or incorporating technology to manage animal health. Opportunity exists throughout the value chain for companies to embrace agility and improve resiliency, while being consumer-centric and planet-friendly in the connected ecosystem.