Agrifood Sector Risk Report

Strengths & Weaknesses

  • The market is on a steady upward trajectory, fueled by an increasing population.
  • Many companies and producers enjoy significant pricing power, allowing them to maximize profits.
  • The market is diverse, with a rising demand for alternative products such as plant-based proteins and other innovative options.
  • Agricultural sector faces significant risks from climate change, with increasing instances of extreme weather events like floods and droughts that threaten both crops and livestock.
  • Food-processing and packaged-food companies are grappling with soaring costs related to energy, transportation, and raw materials, which hampers their profitability.
  • There is a notable shortage of labor, particularly in the upstream sector and across Western Europe, which poses challenges for production and efficiency.
  • The pressures of global inflation have intensified the competition over pricing, making it even more difficult for businesses to maintain their margins.

Sector Overview

What to watch ?

  • Food security and geopolitics:The conflict in Ukraine that began in 2022 has reignited the focus on food security for many nations. Countries are now implementing various policy measures, such as strategic stockpiling and export restrictions, which are significantly altering the landscape of the market.
  • Climate change and extreme weather events:In 2024, fluctuations in temperature, humidity, and rainfall, along with an increase in extreme weather occurrences such as storms, droughts, and wildfires, are significantly impacting agricultural methods and productivity. The influence of the “El Nino” and “La Nina” phenomena further complicates these challenges, necessitating a reevaluation of farming strategies to adapt to these changing conditions.
  • Energy crisis: Even though the energy crisis has eased somewhat, fuel and fertilizer prices continue to soar, putting significant pressure on the profitability of companies in the industry.
  • New consumption trends:The emergence of weight-loss medications, the growing popularity of plant-based diets, and the increase in online grocery shopping all signal a crucial need for the industry to evolve in response to changing consumer preferences.

The global agrifood market is experiencing remarkable growth, expanding from USD 8.3 trillion in 2021 to an anticipated USD 9.1 trillion by 2024. Projections indicate it could soar to approximately USD 12.5 trillion by 2029, reflecting a robust compound annual growth rate (CAGR) of 6.5% from 2024 to 2029. This upward trajectory is fueled by several key factors, including increasing population numbers, advancements in technology, and evolving consumer preferences. However, the ongoing conflict in Ukraine has introduced new challenges and uncertainties within the industry. Since 2023, most food commodity prices have stabilized, with the notable exceptions of coffee and cocoa, which have reached unprecedented levels.

Despite a decrease in prices for many agrifood commodities, they still exceed pre-pandemic levels, impacting cost structures significantly. Although there has been a drop in both production and sales volumes, the essential nature of food products has enabled companies in this sector to offset lower volumes with increased sales prices. In 2023, food manufacturing firms reported an EBITDA margin of approximately 11%, even with a slight decline in revenues. Meanwhile, the beverage sector has thrived, achieving around 10% growth in both revenues and earnings.

Subsectors

1. Upstream: Businesses involved in the cultivation of agricultural products range from grains and fresh produce to livestock.

2. Downstream food products:Companies engaged in the processing and conversion of raw materials and animal products into ready-to-eat items play a crucial role in the food industry. This comprehensive chain encompasses not only the processing and packaging of these products but also their transportation and transformation into consumable goods.

3. Beverages:Businesses engaged in the production and distribution of various beverages play a crucial role in the beverage sector. This industry is primarily divided into two key segments: non-alcoholic beverages, which include juices, sodas, soft drinks, coffee, tea, and bottled water, and alcoholic beverages, encompassing beers, wines, and distilled spirits.