4 minute read 11 Aug 2020
An investor reacts as he monitors the share index in a stock market gallery

Agribusiness fuels growth with strategic M&A, regular portfolio reviews

By

Rob Dongoski

EY Agribusiness Leader

Focused on strategy, digital transformation and M&A for EY clients in the agribusiness and food sectors.

4 minute read 11 Aug 2020

Accelerating shifts in consumer trends during the pandemic has agribusiness making strategic moves to increase agility and drive growth.

As the pandemic continues to unfold, many companies are beginning to transition from a crisis response to planning for what’s next in the short term, while also preparing for long-term changes in the beyond.

Consumer behaviors were already shifting pre-pandemic. The current crisis has only served to accelerate these changes. For example, the EY Future Consumer Index indicates that while 16% of consumers prioritized locally sourced products in their shopping prior to the COVID-19 crisis, 49% of respondents view this as more important now. Also, 58% of consumers have changed the way they eat during the pandemic, with 52% cooking more meals at home. Agribusiness companies need to consider what impacts these trends may have on their business.

The EY Global Capital Confidence Barometer (pdf) confirms the significance of anticipating future trends. Four out of five agribusiness companies had activated more future-facing modeling of market changes. Given the heightened levels of uncertainty, this will become increasingly important.

To plan for the future, take steps now to align your strategy review process

Agribusiness companies are following the trend of their global peers in increasing the frequency of their strategy reviews. The accelerated change in consumer trends and market segmentation requires agribusiness companies to make more use of data and analytics. This is reflected in the way companies conduct strategic reviews, with 65% of agribusiness respondents reporting they had changed their processes.

As part of these changes, agribusiness companies are more frequently utilizing customer data and better market data in strategic planning, driven primarily by the market’s increasing pace of change. 

biggest difference in your strategy review process compared with three years ago

Next, take stock of transformation

The pandemic is exacerbating shifting consumer trends. The EY Future Consumer Index shows that consumers are changing their product preferences. Whilst 56% are making healthier choices in food and beverages, 49% are shopping more locally and 53% of consumers are paying more attention to environmental issues. As agribusiness companies reimagine their supply chains and new routes through existing supply chains, further innovation and business model disruption will likely occur. In fact, the latest Capital Confidence Barometer shows that 59% of agribusiness respondents already have a significant business and technology program underway.

Nevertheless, responding to disruption and successfully implementing initiatives are difficult if agribusiness companies can’t keep up with the pace of change and have insufficient ecosystem to achieve success.

What do you consider to be the most significant barriers to transforming your business model

Looking beyond, agribusiness executives need to focus strategic priorities on areas that can drive growth

Early this year, companies identified M&A as a key strategic driver of growth. At the time of the EY M&A survey, 75% of agribusiness respondents expected the M&A market to improve in the next 12 months. Over half expected to actively pursue M&A in the next 12 months.

Strategic drivers for pursuing acquisitions responded to much of the uncertainty driven by COVID-19 crisis, such as securing supply chain. Other drivers are likely to gain importance as companies search to protect against future disruption driven by technology and automation.

The pandemic has continued to disrupt M&A plans respondents identified in the EY survey. Looking beyond, it will be interesting to see how M&A will evolve and whether agribusiness positivity was well-founded.

What are the main strategic drivers to pursuing acquisitions

The post-pandemic environment may bear little resemblance to the pre-pandemic world as consumer trends accelerate a shift that has been underway for years. Agribusiness executives need to be bold in their reviews to ensure they take advantage of new market dynamics and develop systems that allow them to pivot quickly as circumstances change. At the same time, they need to be ready to make acquisitions that will help them supercharge growth as businesses open and economies recover.

Summary

The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By

Rob Dongoski

EY Agribusiness Leader

Focused on strategy, digital transformation and M&A for EY clients in the agribusiness and food sectors.