Innovation and Business Cycles in Agribusiness

The international agribusiness industry has both a broad range of opportunities and a broad range of risks. Therefore, a comprehensive strategy and strong risk management are critical factors for success. Similarly, some countries and cities are more prepared than others to receive investors and foster entrepreneurship. For example, the pro-business government of President Mauricio Macri in Argentina is working hard to establish the country as a Latin American startup hub through its “Entrepreneurs’ Law” aimed at easing the processes for establishing a business, accessing financing, and receiving preferential tax treatment. This initiative follows on the steps of Chile’s similar legislation from 2013, the “Business in One Day Law”, given that both countries seek to remain major centers for business development within Latin America.

Innovation and Business Cycles in Agribusiness

Given that a large share of global agricultural consumption growth comes from emerging markets, mainly Asia, a slowdown within these markets by way of lower demand, reduced purchasing power, and change in dietary habits could have a substantial impact on global food markets. Likewise, a rise in social tensions and political intervention around the world may exert a strong influence on the food and agribusiness sector, resulting in uncertainty for agricultural markets. Moreover, continued flaws in the legal and physical infrastructure in productive regions of the world remain a source of risk.

Global climate variations and weather patterns, such as droughts, floods, and extreme temperatures, remain one of the top risks for the agribusiness industry and they could have devastating effects on around the globe. Simultaneously, the spread of a disease or intoxication from contaminated products can affect consumers’ health in serious ways, with adverse consequences to food producers, traders, and retailers. Similarly, the widespread use of ethanol and biodiesel, among other biofuels, remains a source of sociopolitical tension as food and energy become both scarcer and more expensive. Thus, the management of available irrigations resources and arable land has a determining impact on the availability of both foods and biofuels.

Meanwhile, asset prices, particularly in emerging markets, will remain sensitive to movements in interest rates in the United States and other major economies. Exchange rate fluctuations and potential capital regulations in emerging markets can also affect the value of investments. A surge in the cost of farming inputs, including oil and its derivatives, can propel conflicts and raise food security concerns among food importing nations. Market conditions can become more volatile, with broad price oscillations, affecting raw material purchasers and adding pressure to the food value chain. Global food markets can also be affected by trade restrictions from producing or importing countries as well as by legislation on genetically engineered products.

Current expectations are that the most productive regions will refill grain and oilseed stocks, reflected in a downward forward price curve for these crops. Consequently, the new lower price level could be a good entry point for a long-term position in some key agricultural commodities, considering that the absolute levels of demand will continue to grow and volatile weather can be expected to bring production shocks again in the coming seasons. Lastly, the prospect of a strong US Dollar is a factor to consider and hedge strategies with absolute target returns can be an attractive option.

(Read more about Pineapple Cultivation and Farmfolio in Panama)