Agribusiness has demonstrated its resilience over recent years, having not only endured the challenges associated with COVID-19, an inability to source labour, rising fuel, fertiliser and shipping costs, but also the disruption of global supply chains and more volatile political environments.
Many agribusinesses have flourished by remaining adaptive and innovative, and have enjoyed the combination of record crop production levels and high agricultural product prices during this period.
However, in the face of increasing economic uncertainties associated with rising interest rates, significant inflationary cost pressures, product innovation, and dynamic global markets, to mention just a few, it is critically important that managers take this opportunity to review the long-term financial health and competitiveness of their agribusinesses.
Whilst the form, depth, and focus of this review will differ by organisation, the following considerations are likely to be relevant to all.
Review budgets, cash flow forecasts, and debt facilities
A key priority should be to review budgets and cash flow forecasts across various time horizons to ensure that emerging inflationary costs are appropriately reflected in product margin and profitability analysis.
This should include consideration of existing debt facilities with particular emphasis on impacts of increasing interest rates, capacity to service debt obligations, and ability to meet existing financial covenants.
Considering current economic uncertainty in the short to medium-term, budgets and forecasts should be subjected to a range of reasonably possible sensitivities to assess the overall resilience of the business.
Broaden supply bases to avoid dependencies
The efficiency of global supply chains is likely to continue to be challenged with early planning providing a considerable competitive advantage.
Strategically, steps can be taken to broaden supply bases to avoid dependencies on any single supplier or geographical region, such as:
- Forming new partnerships or alliances to de-risk supply reliability
- Refinement of stock management protocols
- Where increased stock holdings are required, more favorable payment terms should be negotiated to reduce working capital pressures.
Perhaps equally important, consider how key competitors are positioned, as their supply chain challenges or escalating costs may provide the opportunity to disrupt existing relationships, leading to business growth and new customer acquisition.
Management of changing markets
A third consideration should be how the organisation is managing its changing markets.
Markets are being challenged more so now than ever by the changing global political landscape, product innovation, technological advancement, and consumer sentiment. Strategically, agribusinesses should challenge themselves as to whether they are overly exposed to mature markets, geographic locations, or traditional products.
Development of new markets, investment in emerging production technologies, and product innovation typically require a significant investment in time, effort, and capital – recent successes mean that agribusinesses are financially better placed than many others to invest in, and capitalise on.
Emerging market opportunities with the resilience of agribusinesses that proactively implement these measures are likely to significantly exceed that of those which are slow or unable to adapt.
Whilst many agribusinesses have successfully navigated a pathway through the challenges of recent years, an investment of time now to re-assess strategic imperatives will ensure their ongoing resilience and prosperity.
For further information
If you are involved in the agribusiness industry and would like more information, please reach out to your local RSM team today.