Exit strategy after the lockdown - What could this look like in the agricultural sector?
No industry will have the same orientation after the Corona crisis as before
The agricultural industry is currently facing massive challenges. Business models are under threat or have already collapsed in some cases. A lack of harvest workers, the closure of restaurants and catering businesses, resulting in a drop in customers, a considerable decline in the level of value added and the weakening of the international economy. More than half of all short-term losses are caused by declining international demand and supply bottlenecks.
The current problems of the agricultural and food industry were initially triggered by a massive supply shock to consumers due to the pandemic. Supply chains - in Europe and worldwide - have been disrupted and therefore fewer goods and agricultural commodities could be traded and sold, which has consequently reduced the supply of goods.
The shortage of available labour also reduces production and thus the potential supply. At the same time, however, there are consumer hoarding purchases, which in many countries and regions has led to export restrictions on food and other supply bottlenecks. Meanwhile, many agricultural companies are facing further, massive problems: many large importing countries and regions such as the USA, the EU and also Asia and North Africa have imposed far-reaching quarantine measures. As a result, the economies of these countries are also collapsing - sometimes the entire demand for goods even collapses.
What happens in the agricultural industry?
Many farms try to keep their cash flow above water by optimizing their cash flow and see this as the only viable way forward. But what comes next? The entrepreneurial view should also be adjusted to the future in order to be able to operate successfully in the post-corona phase. Leaner processes and increased transparency could be a successful measure in the agricultural sector.
In addition, the crop protection industry is strongly affected by political regulatory changes and limitations and is therefore rethinking its existing range of products. This leads to stagnating sales and the loss of approvals. As a consequence, there is a decline in the number of suppliers of machinery and thus declining sales figures. This vicious circle is further compounded by the threat of a drought in the third year of the following year, which completely jeopardizes the harvests.
This tricky situation calls for an optimisation of business processes. "Lean through digitalisation" can make a not inconsiderable contribution to improving the economic situation in this area.
As a result of the influences described above, the willingness of agricultural enterprises to invest in the renewal of machinery has currently fallen sharply, and as a result the entire supply industry is affected to the same extent.
"Based on my many years of experience in the agricultural industry, I can only encourage those responsible in this sector to push the issue of digitization further in order to streamline processes and increase transparency". Explains Hans-Gerd Birlenberg, head of the Agribusiness & Distribution business unit at Hager Unternehmensberatung.
The agricultural industry should make even greater use of the opportunities offered by digitalisation for its sector than it has done to date. The agricultural sector, which was already one of the pioneers in the use of GPS data, should switch to digital, as should the digital 'Büro Deutschland'. Intelligent new approaches are currently more necessary than ever. Digitisation can provide relaxation and survival in the future in many places. It does not always have to be the expensive agricultural machine that navigates the fields via satellite or applies fertilisers and fungicides. An intelligent farm management system can also do a lot, for example for personnel planning, documentation or even applying for agricultural subsidies.
By using such measures, processes can be streamlined, capacities better utilised, resources conserved and ultimately production costs reduced. Those responsible in the agricultural industry should consider this issue for their exit strategies in the corona phase and not be put off by high investment costs or the complexity of the issue.
Focus on change in personnel policy
An equally important aspect for a forward-looking strategy is the succession of personnel in the management area. When making new appointments at management level, it is advisable to focus on 'change agents' and not on 'keepers'. The agricultural sector is also in a state of upheaval, so managers are needed who support, demand and, at best, even initiate change.
"Another focus in the agricultural industry should be to find ways and means to expand the B2C business more strongly. In general, there is a high degree of primary contact in this industry, and this should no longer be the sole focus of attention due to digitalisation". So Birlenberg continues.
Especially in the current corona phase, many companies have converted their sales networks. Due to the sometimes limited supply chains, direct sales to the consumer can also be another way of opening up new avenues in the agricultural sector. In addition, the consumer market is often larger and also more varied, which ultimately increases the number of potential customers. In addition, consumers like to know where their food comes from. Therefore, consumer business could be a successful way to open up new sales channels.
It is not easy for any industry to define a complete exit strategy, as no one knows what the next step will be. However, one thing is certain, sticking to the tried and tested is not a suitable way to achieve long-term economic success. By driving the digital transformation, farms can operate more effectively, suffer fewer production losses and ultimately become more profitable. In addition, a combination of B2B and B2C can provide an additional mainstay so that agricultural products find their way to consumers even in times of crisis.
In the short and medium term, new fields of activity and more complex tasks will also be required in the agricultural industry. Here, in addition to sound specialist knowledge, special skills such as quality management, communication and risk and crisis management will be added to agricultural knowledge.