October 4, 2018

Northwest FCS News

I joined agriculture bankers from New York for a tour of agribusinesses in the central New York area. The two host businesses were a horticulture business and a vegetable and food processing entity. Both firms are multiple-generation family businesses. During these types of visits, I often see characteristics of the future of agriculture.

First, both businesses are in rapid ascent in the integration of automation and technology. Robotics and other systems to reduce labor are their top priorities. It was interesting that a good share of the automation was purchased from European manufacturers. One agribusiness owner indicated that the European businesses are about a decade ahead of the U.S. in business innovation and the development of automation.

Both businesses are focused on a drive toward efficiency. They integrate technology to increase their output per unit. The technology also collects data that can provide evidence of food safety protocols, quality control and product uniformity, which is truly impressive. Surprisingly, the labor force was not reduced considerably due to technology adoption; however, the employees now have new responsibilities that have taken their skills to another level.

One component of the businesses that is impacting the bottom line is the cost of distribution and transportation. These costs are squeezing margins. Distribution costs are up by almost one-third over the past two years. The shortage of truck drivers and the new trucking rules regarding electronic logs are impacting their ability to deliver products on a timely basis.

I confirmed a major megatrend that is shaping the agriculture industry – the marketplace is splintering. Amazon has been a major disruptor in the food and fiber marketplace. As a result, big chains are in a state of confusion and transition on which strategic direction to go. Both businesses that I visited are working side by side with larger chains to provide solutions to align with customer needs.

Despite the obvious size and sophistication of these businesses, the biggest challenge for both is transition planning as a formal process. One firm had no next generation and intends to sell the business as the most attractive option. The second firm is informally transferring the ownership and intellectual capital to the next generation, but very little formal arrangements have been made.

Visiting businesses outside of your commodity sector or norm can be a great energizer, particularly in this challenging part of the business cycle.