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Dr. David KohlThere has been much discussion and conjecture during the pandemic concerning people’s desire to return to “normal.” Others are indicating that the convergence of events are forming a new normal or plateau for the next decade. Both ends of the spectrum are difficult to achieve. The environment, economic conditions, and people’s business, family, and personal lives are in a constant state of change. Within this context, let’s discuss some of the strategic shocks that may impact the world of normal and what management practices will be critical for success.

Global Trade

A major challenge of returning to normal will be whether de-globalization accelerates or abates. This is critical to many in the agriculture industry as one in five dollars of revenue is generated through export markets. Will “normal” see more U.S. and China tensions? Will the United States and our possible trade agreements, such as the Trans-Pacific Trade Agreement (TPP), be used as a blocking strategy to China’s Silk and Belt Road where the initiative is to gain economic and political influence? The United States may form alliances with others, such as Europe, Japan, and emerging nations, as a method of moving toward fair and equitable trade practices to deter China’s aggressive global, economic, and military expansion.

In this environment, producers will be required to manage extreme volatility. Designing and monitoring a marketing and risk management plan will be critical. Building and maintaining working capital reserves will be necessary for times of adversity and opportunity.

Government’s Role

Government’s role in agriculture may be much different in the post-COVID era. Less direct government checks to boost incomes may be an outcome as global deficits and debt balloon. Will “normal” find scarce dollars being challenged by other segments of society in terms of agricultural payments? Will ballooning deficits and government spending devalue the U.S. dollar against other major currencies, resulting in the rise of interest rates? This could result in extreme price and expense volatility as a result of market competition which could ripple back to farm and ranch income statements and cash flows initially and eventually to balance sheets.

Examine the trends of net farm income and government payments as a percent of total revenue since 2016. Conduct financial sensitivity analysis using 10, 25, and 50 percent declines in government payments. What strategies must be employed to replace this income?

Regulatory Shift

The world of “normal” may observe more swagger from regulators pertaining to environmental issues, food safety, labor, water, and air quality. Soil and water health will be an accelerating trend of the 2020s. Incentive payments for desired practices that improve natural resource bases will provide common ground between agriculture and non-agriculture segments of society. 

Weather and climate change will be at the top of the agenda for many countries throughout the globe. The advancement of seed, crop, and livestock genetics and other technology will alter where production occurs globally. Who could have imagined five decades ago that soybeans would be one of the leading crops in Canada? Terms such as flash floods will find a parallel with flash droughts. If you desire, weather analytics will come to your farm or ranch to provide your business a competitive edge in the production and harvesting of crops and livestock. Soil and water conservation practices will reduce water consumption and improve soil quality, while also enhancing products that will be desirable to the consumer and society.

As producers, sound record-keeping systems will be imperative in order to be in a position to take advantage of these shifts. Compliance and documentation will be buzzwords of the 2020s.

Marketplace

Black swan events accelerate change and disruption, but also create opportunities. “Normal” could mean greater opportunities for niche and value-added markets, even commodity markets, that are aligned with segments of the marketplace that desire specific attributes. Consumers in these markets desire transparency, convenience, and an experience with a purchased product or service. While this trend was occurring pre-pandemic, the alignment of young farmers and ranchers with integrated production, marketing, financial management, and operational skills within a rapidly changing marketplace could be economically viable. The younger generation of agriculturalists will be entrepreneurial and have a management mindset.

The key to success will be strategies and actions that are three steps ahead of the big box stores. Empty grocery store shelves and no toilet paper immediately demonstrated to the nonfarm public the importance of the agriculture industry. The interface of messaging using the latest technologies and media outlets will be a best practice with the younger generation of agriculturalists.

Conclusion

It appears that “normal” does not reside in the agriculture sector anymore. However, normal really never existed in the past either. When managing change, be flexible, maintain focus, and be adaptive as conditions change. Having this mindset will place the odds of success in your favor.
 

 

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