Introduction

Powerful and persuasive forces are propelling the agricultural industry toward new dimensions for the 21^st Century. The drastic changes you are experiencing now and into the next century are due to the emergence of two powerful sources: revolutionary scientific developments in bio and information technology and social and political activism. These two areas have exploded on the scene simultaneously.

Opportunities for making money and accelerating the quality of life for the agricultural industry over the next 10 to 20 years are excellent. This is an era that will bring prosperity to those who have the savvy to recognise new opportunities and perpetuate change in their business and personal lives.

The number one best sellers worldwide in business, "Mega Trends" and "Mega Trends 2000" by John Naisbitt, have been powerful sources used by business people in strategic planning. Simply put, the books allow a person to step back and examine the big picture or macro trends that are occurring in agriculture as well as seeing what is shaping business and society. These forces will affect people of all occupations, and are bringing fundamental changes to agriculture and the world economy.

These national and global changes or mega trends are occurring in agriculture. Professionals who want to prosper, whether it’s input suppliers, lenders, producers, academicians, policymakers, or general agribusiness must capitalise on them or risk falling by the wayside.

Catalyst for Change

There will be seven key catalysts for change that will shape the agribusiness community over the next 20 years. These components for change are highly interrelated with change in one aspect creating or offsetting change by the other components.

Information and Biotechnology Explosion

Most recently, the information explosion and biotechnology have been a major contributing factor to increased productivity in most developed agricultural countries. With these two powerful forces converging, the changes are forecast for agriculture in most developed regions of the world. These changes are (1)-increased productivity; (2) fewer farms and a bimodal farm and support services sector; (3) consolidated productivity in more commercialised and industrialised segments; and (4) an accelerated shift from hand power toward mind power.

The central role of information technology is going to allow the agribusiness firms serving agriculture to move up the information value chain. According to a recent Gallop poll, 59 percent of large agricultural producers will purchase products over the Internet in the next three years. The use of the computer and data mapping to collect data, organise it into information, and then customise it into knowledge and provide solutions will become more standard to high-valued customers.

Most highly successful organisations or high valued customers can be coached if they are convinced that coaching can lead them to greater success. They are willing to pay top dollar for coaching and solutions that provide value-added on both short and long-term issues.

More agribusinesses will form strategic alliances across input sectors, ie. lenders, input supply services, and e-commerce delivery systems to provide products at a low cost in a real time format, but with customised solutions through coaching.

 For example, in North America a firm is now coordinating lenders and agribusinesses to sell direct to the top 20 percent of customers over the Internet. Strategically placed local consultants will work with a centralised knowledge centre of information and leading global experts in many fields of agriculture to provide customised solutions.

Products from many of the firms under the Internet banner will be sold. One firm may sell the fertiliser; another feed, while the other provides the financing. The key to success will be coordination and address of logistics in challenges of delivery.

The implications are that an agribusiness, which has not strategically thought about an e-commerce launch, may be out of the mainstream of agricultural sales. Second, strategic alliances are going to be critical, even with competitors, as the information society blurs marketing channels. Latest studies in North America finds that firms who join forces with others despite being competitors are 43 percent more profitable.

Advances in information collection and dissemination, and the biosciences will succeed the mechanical and chemical revolution of the past 70 years as the keys to profit and quality of life. The biotechnology revolution will reshape agriculture, affecting livestock and crop genetics, tillage systems, crop protection, individual human health, and more.

Agribusinesses will have to ask four major questions before making the investment in new technology:

• Does management have the knowledge and skills as well as the capital to adopt and implement the technology?

• Will it be economical and cost effective?
• What are the short and long run impacts on the consumer and marketplace if they purchase the product as a result of the technology used?
• What are the social and political implications in the adoption of the technology?

As farm sizes increase and with information more widely available than ever before, technologies that add value will be embraced more quickly. Product life cycles will be dramatically shortened by the introduction of new technologies. The rapid adoption will place tremendous pressure on firms’ research and development activities.

For example, to date farmer adoption of biotechnology advances that truly provide greater production efficiencies has been very quick. (Round up) resistance in soybeans has easily measurable results.

Longer term, more value-added crops and livestock with specific quality/output traits for food, industrialised and perhaps medical use will explode on the marketplace about 2005. Within the past 10 years, two firms that are located within 20 miles of my farm in Virginia are positioning their businesses and local experiment farms in the sale of animal by-products for medical uses throughout the world.

My neighbour’s farm that once sold milk, pork, and beef is now an experimental farm employing 20 individuals that are using the latest biotechnology in animals for human health.

In the crop sector improved high-lysine and high-methionine corn and soybeans oil, protein, and carbohydrate composition are being developed. In animal agriculture, similar developments are allowing genetic firms to link with agribusinesses to control and influence characteristics such as feed efficiency and meat quality. However, public reaction to these developments in animal agriculture may slow adoption in the markets, which has recently happened in Europe.

Consumer Preference

The evolving preferences and attitudes of the end consumer will continue to have major implications for agribusinesses in the next decade. Globally changing lifestyles, levels and distribution of incomes, changing demographics of the food consumer, and an increased awareness of food safety, health, and environmental issues have created a fragmented agribusiness sector and marketplace. Consumer demands for safety, convenience, nutrition, variety, and what is perceived as value will continue to escalate in the next decade.

Consumer demands will break the marketplace into three distinct areas. The first is industrialised contracts driven as the agribusinesses coordinate production to deliver. Second is the traditional commodity marketplace as it has existed over the years, and finally the value-added niche market producer. The industrialised and value-added sectors will see increases in the marketplace while the traditional commodity producer market will be in decline in market share.

Food safety issues will cut across all three sectors. The potential market risks associated with food safety problems, whether it is a branded food company, private label, local or global market regulation will be more stringent. The biggest fear of a food executive CEO will be a perceived product scare that could potentially put the firm out of business. The ability to track the product from the farm gate to the end user will be critical.

Environment

Increasingly, economic change around the world is adversely affecting the public perceptions of the environment and these affects are resulting in governmental efforts to protect the ecosystems. Fundamental differences between growth and profit objectives and environmental concerns will force government to enact legislation for environmental protection.

In the United States, the industrialised hog sector has seen farm numbers reduced by 80 percent in the last five years. The result has been a geographic migration of the industry along with consolidation. The biggest issue to agribusiness producers has been the disposal of waste. In some areas the waste issue has resulted in a stoppage of any new units, and migration to other areas with less stringent standards, where water is less of an issue. Water shortages and quality will be troublesome in some regions of the world as competition intensifies between agriculture and the public. Water in the 21^st Century will become what oil was as a resource in the 1970s globally.

Agribusinesses will be required to track environmental practices and keep the non-farm public informed. In the next 25 years, top producers will have to develop a system to obtain the most out of their resources like soil, water, and livestock, in a more natural biological manner. The long-term survivors will be the ones who take the best care of their factory or natural resources.

Globalisation of World Markets

Global demand for food and fibre, perhaps as much as any other factor, will drive demand for agriculture in agribusiness firms in the next decade. Issues of competitiveness as they affect global location of agricultural production will drive market opportunities.

Profits for most commercial producers will be a simple equation: (P = E+W+G+I). Explaining the equation, profits are equal to exports potential, plus worldwide weather patterns plus government policy, plus interest rates that influence exchange rates.

In most developed agricultural countries managers produce more than is consumed. The "E" in the equation is important to the bottom line. The producer is often competing against block economics rather than a specific country. In the next decade we will see the emergence of international block economics, ie. North America, South America, Europe, and Asia, including the South Pacific.

A government trade policy or a general economic cycle can have a direct impact on the bottom line. For example, the Asian crisis and the Japanese recession have created a farm recession for nearly 80 percent of United States and Canadian agriculture with similar effects observed throughout the world that ship products to Asia.

An agribusiness’s understanding of cultural differences and social and political aspects of these power blocks will be critical to the success of any country’s agriculture. The key for the firm to be successful in this environment is the following equation (P=0+C+L+M²). That is, a firm’s profits in global economics are equal to low overhead or fixed cost, being the low cost producer in most instances having liquidity to bear the economic cycles and marketing and management squared. In marketing and management doing one thing 1,000 percent better will not be enough. It will require a totally integrated risk management system doing 1,000 things 1 percent better. Attention to detail will be critical.

Government Policy

In theory we are moving to a free market world; in reality, it is still less than a level playing field. Environmental regulations, food safety, farm subsidies, along with intellectual and property rights and anti-trust trade sanctions will play a major role in an agribusiness firm’s strategic plan.

Some areas of the world have or are moving to free markets. However, major players, such as the United States, have reacted in a manner to re-couple farm program payments. This places producers in both the United States and throughout the world on an uneven playing field. For example, 60 percent of the farms in the Midwestern United States have at least 50 percent of their net income in the past five years from direct farm program payments.

This is most likely to continue as long as we have favourable general economics, cheap food policy, use food as a political tool, and attempt to save the family farm. This places other countries at a competitive disadvantage.

Government regulation at the provincial, state, and local levels is another risk management component for agribusiness. Concentration and bigness in agriculture will be questioned. Food safety and environmental and intellectual property issues by countries will result in trade business and uncertain times.

The bottom line is that government programs and policy in the next decade will trend toward:

• fewer direct farm program payments
• matching producer and government rainy day funds to combat farm economic cycles
• provincial, state, and local governments playing an increased role
• compliance costs being shared by the public and farm operator

The General Economy

The general world economy will have a significant impact on the health of the agricultural and rural sector. Seventy percent of agricultural businesses in developed countries have a dependence on non-farm revenue streams. Changes that happen in general business economic cycles with the leading economic players can have a dramatic impact on agricultural profits and demand for food.

Macro economic policy changes, shifts in the equity markets, and consumer and federal debt levels, oil and energy consumption will be factors on every agribusiness’s radar screen as they strategically position themselves in the 21^st Century.

Alan Greenspan (the United States Federal Reserve Chairman) changes the interest rates, and in so doing, he influences currency exchange rates, equity market values, and debt patterns of citizens throughout the world. For example, for every dollar increase in the equity markets, the consumer increases spending by four cents.

Thus, any restructuring of the world economics will change trading partners and wealth centres throughout the world. This in turn will suggest a moving target in agricultural markets.

Implications to the Business Environment

The drivers described above will shape a new business environment for agribusiness in the 21^st Century. The following are some of the keys in the new business environment. They are an attempt to stimulate curiosity and to provoke thought and discussion, and provide salient points to be elaborated on at the conference. The key factors of this new environment include:

1. Managing greater volatility and risk in agribusiness incomes worldwide.
2. Increase use of strategic alliances for profits.
3. Consolidation and concentration of agriculture increasing potential profits but risk.
4. A total integrated risk management program for producers and agribusinesses.
5. An increased tolerance for failure in products and services, "the 80 percent rule."
6. Increase focus on value by the consumer.
7. Tri-modal production sector.
8. Linkages across agribusiness: bundles of solutions.
9. DNA the customer (customer mapping).
10. A renewed commitment to the public to inform them of agriculture and change.

To be successful in this business, environment will require you to:

• be innovative
• be thinkers, not processors
• use the bar napkin approach
• think outside the boxes
• use the whole cow approach

Boejlje, Michael, Kirk Clark, Chris Hurt, Don Jones, Alan Miller, Brian Richert, Wayne Singleton, Allan Schinckel. Food System 21. Purdue University, Department of Agricultural Economics, West Lafayette, Indiana. December, 1997. 33 pp.

Dychtwald, Ken. Age Wave. New York, NY: Bantam Doubleday Dell, 1990.

Naisbett, John. Megatrends. New York, NY: Warner Books, Inc., 1982. 416 pp.

Naisbett, John and Patricia Aburdene. Megatrends 2000. New York, NY: William and Morrow Company, Inc., 1990.