Navigating critical challenges in agricultural processing
In the vast tapestry of industries that sustain human life, including agriculture and the food supply chain, processors play a crucial role in converting agricultural outputs into food, fuel, fiber, and animal feed. Their unique position between farming and the products on shelves presents an intricate set of challenges.
From adapting to geopolitical changes to staying ahead of consumer trends and balancing costs with demand to integrating yield-optimizing technology, processors juggle multiple factors that affect their operations. Understanding the dynamics within this essential space is required to navigate the challenges and trends shaping its course.
Defining Processors in Agriculture
Processors are companies in the agriculture and food supply chain whose primary responsibility is to purchase raw inputs from individual farmers and industrial grow operations. These inputs are diverse, ranging from grains and corn to soy—but share a common theme. Each will eventually be converted into food, fuel, fiber, or animal feed for use in those various supply chains.
Processors convert raw inputs from farmers into products for the next step of the supply chain. For instance, corn is processed to become ethanol, soy can be processed into oils, and grain can become flour. This intermediary role positions processors as the nexus between the growers and the ultimate productization of the raw inputs they generate.
Challenges Faced by Agricultural Processors
From keeping a finger on the pulse of ever-changing consumer preferences to navigating market volatility spurred by geopolitical tension, processors within the agriculture industry grapple with a myriad of challenges. Their ability to stay ahead of the curve and respond quickly to evolving markets dictates their success.
Staying ahead of these challenges requires processors to glean insights from a myriad of internal and market data. Creating actionable insights for a human to make a decision on isn’t always enough—automating decisions based on trustworthy data is the direction processors need to move in. Exposing internal data will eventually become commonplace for processors as CPG companies begin to demand more environmental sustainability data from their processor partners. Data is the one thread weaving through the three main challenges faced by processors.
1. Staying Ahead of Consumer Demand
The landscape of consumer preferences is ever-evolving. A social media trend could suddenly spike demand for gluten-free options. Increased demand for high-protein foods in Asia leads to a greater need for the soybeans that go into the soy protein products consumers now want. Adapting to these changes demands processors stay agile and use data to reduce their risk exposure.
One specific challenge in terms of forecasting consumer demand is trying to get value from third-party data, such as Nielsen and IRI data about what consumers are buying in stores. That data has to be harmonized with the processor’s own data to be of ongoing value. Getting the data cleansed and harmonized may be no small feat, especially in the world of processors where margins are thin.
Another challenge is how processors should be responding to sustainability as not just a megatrend, but the new normal. Processors have to understand how to meet consumer demand for more sustainable food, and what that actually means in terms of price and specific sustainability measurements. Is it more important to consumers that their food be local or organic or low-carbon? Understanding the value consumers place on sustainability is nuanced. Understanding consumers at a data level helps processors determine whether paying farmers a premium for organic crops or low-carbon crops is beneficial, and thus try to motivate them to grow more of a certain type to meet rising demand.
2. Providing Additional Value to Farmers and Growers Such as More Data-Driven Advisory Services
The agriculture industry is susceptible to various external factors, including geopolitical events and trade volatility. Recently, disruptions due to the war in Ukraine and trade tensions with China have significantly impacted the availability of certain inputs. Processors must proactively manage similar instances of volatility by closely monitoring factors such as trade agreements, geopolitics, and harvesting forecasts to build resilient and reliable supply chains.
In practice, this looks like having a supply chain that you control, using forecasts of demand (external data) matched with forecasts of supply (internal data). The better a processor can forecast and hedge accordingly using a strong Data Foundation with accurate models built on top, the more success they will have.
However, while a strong Data Foundation helps processors, it also can help growers. Processors can use this data to offer more selling options to growers, as well as offer better predictions of wait times at their grain elevators. Farm equipment, seed, and crop protection companies offer compelling digital experiences to growers as part of their total value proposition. As processors' data estates mature, part of the advisory services that many processors offer growers today could expand to include advising using the vast data assets they have access to.
3. Meeting Sustainability Expectations
In today’s era, where environmental impact is a paramount concern, agricultural processors face pressure from both investors and their customers—food companies and grocery stores—to offer more sustainable products. This involves not only ensuring the sustainability of raw inputs but also providing transparent and verifiable data from across the entire production process.
Concerned parties have questions about how crops were grown, what sustainable practices were used, and whether the products going on the shelf can be marketed as low-carbon or organic. The latter, notably, dictates the price products can be sold for since sustainable products are more attractive to consumers and often fetch a higher sale price.
Nurturing Relationships Between Growers and Processors
The relationship between growers and processors is delicate. A variety of factors are at play and both parties are constantly seeking ways to decrease costs and boost efficiency. Growers, aiming to maximize profits, consider not only the price a processor offers for their raw input but also the convenience of selling it. Processor A might offer a higher price for grain, but Processor B’s drop-off silo is closer. What’s the right choice? The grower weighs the cost of transportation and time against the price and decides which processor offers the greatest benefit.
Pushing to increase convenience also drives processors beyond mere transactions. Offering growers valuable insights, particularly real-time information about wait times at drop-off facilities, is another useful tactic for attracting business. Armed with actionable insights, growers can increase their efficiency and decrease their risk—making processors who use these tools more attractive buyers.
The Role of Data and Digital Tools in Agricultural Processing
The technological landscape in agriculture is rapidly evolving, and processors should leverage these advancements to their advantage. Processors need strong Data Foundations to ensure their data is trustworthy so they can make decisions that maximize its value. For processors, Data Foundations require cleansed, harmonized, and well-governed data assets such as market data, sales data, logistics data, competitive data, and much more. Precision agriculture, adopted by an increasing number of farmers, generates more accurate yield predictions and offers assurances about the quality of products by monitoring every aspect of their production and storage.
Internet of Things (IoT) sensors connect nearly every aspect of today’s agricultural supply chain. On the farm, where tractors monitor how many seeds were sown and silos measure the temperature of corn in storage, technology plays a pivotal role in preventing quality degradation and optimizing yield.
One notable shift is the farmer’s increasing role in quality control. With processors paying a premium for inputs meeting specific quality parameters, growers are motivated to improve their on-farm storage management. In the past, inputs went directly from the field to the processor. Now, equipped with data, insights, and better storage tools, growers are well-positioned to control the timing of their sales to secure higher prices based on market forecasts.
For processors, sensors covering the supply chain from farm to table provide a better understanding of what yields will be. This eliminates some degree of risk and improves the accuracy of planning for the future. Moreover, supply chain insights allow their customers to create precise marketing that can be backed up by data, allowing goods with labels like gluten-free, low-carbon, and organic to be sold for a premium.
The Future of Agriculture Processing
Looking ahead, the agriculture processing landscape will continue to evolve in response to ongoing technological advancements, market dynamics, and global events. Sustainability will remain a focal point, with processors striving to meet the demands of both conscious consumers and investors.
The persistent issue of labor shortages and high turnover will also continue to plague processors. In the coming years, the industry must grapple with the task of attracting and retaining skilled workers.
Processors already know that data-driven decision making is the future of the business. The next few years will see processors invest in building Data Foundations with their hard-won budget dollars in a thin-margin industry.
As processors navigate these challenges, their ability to embrace innovation, foster strong relationships with growers, and adapt to changing consumer preferences and geopolitical landscape will be paramount. The intricate balance between growers and processors will remain in flux. Technology, meanwhile, will serve as a key enabler for efficiency and transparency throughout the supply chain.
As we move forward, the industry's resilience and ability to adapt will be tested. But with strategic foresight and continued technological integration, processors are poised to shape the future of agriculture in a positive direction.