"The agribusiness environment is constantly evolving, reflecting ongoing changes in overall economic and business cycles, consumer preferences, demographic shifts, new product technologies, energy sources, as well as regulatory issues," said Debbie Perkins, Rabobank's Head of Food and Agribusiness Research in North America. "As a result, farmers, input suppliers, food companies and retailers are constantly being forced to rethink their business models."
In the Outlook, Rabobank's FAR team takes an in-depth look at issues that will affect the global agricultural industry in the coming year. Below are highlights of three key issues addressed in this year's Outlook: Consumer Trends, Animal Protein Exports, and Biofuels.
Consumer Trends
The main consumer trends affecting food purchases are health concerns, and increased desire for premium products and for a greater variety of products. With the increased media attention on obesity and associated health problems, consumers are trying to eat healthier foods, placing an increased focus on items such as fruits, vegetables and whole grains.
Additionally, as household disposable income increases and free time diminishes, consumers have an increased desire for better quality and more convenient products that command higher prices. For example, according to Rabobank's Outlook, one of the results of this trend is the increase in sales of specialty items such as fresh-cut fruits and vegetables. Between 1997 and 2006, fresh-cut produce sales increased by nearly 170 percent and reached an estimated $13.4 billion in sales.
"Food retailers are expected to see continued growth of many gourmet and specialty items, even if inflation continues," said FAR Vice President Stephen Rannekleiv. "Consumers can be expected to continue to trade down for items of lower importance and continue to trade up for products that they value. Inflation or even a slowing of the economy is more likely to affect mid-tier products than specialty items."
Animal Protein Exports
The United States meat (beef, pork and poultry) industry is becoming increasing reliant on international consumers. For example, in light of record pork supplies, the performance of U.S. pork exports will remain under the spotlight in 2008. Specifically, China has been touted as the next big opportunity for U.S. pork exports and is likely to become especially important given the recent decline in exports to Mexico, traditionally one of the most important markets for U.S. pork.
While the Chinese government has implemented myriad measures to stimulate domestic production, prices are expected to remain historically high for the next 12 months, because the Chinese pork inventory is barely keeping up with current demand, while demand continues to increase. and demand too strong. Additionally, while a devalued dollar will assist U.S. pork exporters in China and other export markets, competition is also expected to accelerate. U.S. poultry leg quarters are a very price competitive protein source in the Chinese market, and two other pork producing countries, Argentina and Brazil, have recently signed agreements allowing them to export to China.
"Future export performance will be influenced by: U.S. dollar movements; ongoing market access constraints and trade reform; competition from other meat exporters; cost competitiveness; and the threat of unforeseen events, such as disease," said FAR Executive Director Fiona Boal. "Despite the fact that many, if not all, of these factors are outside of the control of individual industry participants, the U.S. meat industry should not lose sight of the fact that the benefits of exporting and competing on the world stage far outweigh the risks."
Developments in Biofuels
Within the United States, feed continues to account for most of the demand in grains and oilseeds but the most important driver of growth, particularly for corn, continues to be the biofuel sector.
In 2007, the enthusiastic attitude of the market toward ethanol and corn were tempered by caution. Questions arose over issues such as whether the United States was approaching an ethanol surplus, and whether levels of transportation and infrastructure were capable of servicing the ethanol segment.
"After a strong performance in the 2007/2008 calendar year, corn acreage in the United States is likely to dip slightly, as some growers take advantage of higher soybean prices, and respond cautiously to a re-adjustment of the ethanol market structure," said FAR Vice President Michael Whitehead. "However, as the ethanol market in the United States becomes more efficient, and as U.S. government support for biofuels solidifies, a return to strong corn acreage and good prices seem likely."
The premier bank to the global food and agriculture industry, Rabobank (www.Rabobank.com) is a global financial services leader providing institutional and retail banking and agricultural finance solutions in key markets around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the 25 largest banks worldwide, with over $800 billion in total assets and operations in over 35 countries. Rabobank is the only private bank in the world with a triple A credit rating from both Standard & Poor's and Moody's, and is ranked among the world's safest banks. In the Americas, Rabobank is a leading financial partner to the entire American food and agribusiness industry and is a specialist in sophisticated, customer-driven solutions in the Global Financial Markets and Corporate Finance arenas. Rabobank also provides retail and commercial banking services in California; leasing; and real estate lending, operating loans, input financing and crop insurance to American agricultural producers, input suppliers and agricultural manufacturers.
