Supply and Demand Dynamics in Food and Agribusiness
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This presentation deals with the context of food security and explains why the future value propositions and value delivery chains in food and agribusiness will be very different. Here handy tools to designing and delivering a differentiated value proposition is presented. If you are seeking for a complete experience visit lms.agribusiness.academy
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Supply and Demand Dynamics in Food and Agribusiness
- 1. Dr. Vijayender Nalla Founder and Content Director Food Value chains of the future @rvjvijayender
- 2. Food and agribusiness value chain
- 3. Value chain framework of Porter
- 4. How important are supply chains for businesses? https://www.youtube.com/wat ch?v=bNcx_E1x3D0 https://www.youtube.com/watch?v=ElYNhGb OTOQ https://www.youtube.com/watch?v=SRq- U1m2dwg
- 5. Demand – Supply dynamics in food an agribusiness Let’s discuss? • What are the demand dynamics for food? • How well is supply able to respond to these demand dynamics?
- 6. Food will change ... • Food will change more in the next 100 years than it has in the last 1000 • 2100 menu ‘unrecognisable’ to today’s consumer • Change driven by: – fierce supply/demand pressures – global scarcities – changing climates – growing health and social impacts – new science & technologies
- 7. A ‘wicked’ problem... DEMAND: 150,000 more people/day More babies + longer lives Population >11 bn by 2100 Meat demand soaring in NICs Food demand +100% by 2060s -50% climate penalty by 2100 CONSTRAINTS: ‘Peak water’ ‘Peak land’ ‘Peak oil’ ‘Peak Phosphorus’ ‘Peak fish’ ‘R&D drought’ ‘Capital drought’ ‘Climate extinction’
- 8. Peak water Disappearing rivers Vanishing lakes Groundwater mining Shrinking glaciers “"There will be no water by 2040 if we keep doing what we're doing today," Prof Benjamin Sovacool Aarhus University
- 9. Water in food... Humanity’s water ‘footprint’ : 7450 cu kms Average human uses 1240 t water / year Food Litres to grow Slice of bread 40 litres Tomato 13 litres Cup of coffee 140 litres Glass of milk 200 litres Egg 135 litres Glass of wine 120 litres Kilo of grain 1.5 tonnes Cotton T-shirt 4 tonnes 1 kg chicken 6 tonnes 1 kg grainfed beef 15 tonnes 100,000t a lifetime
- 10. Vanishing land “The Earth is losing topsoil at a rate of 75 to 100 GT. per year. If soil loss continues at present rates, it is estimated that there is only another 48 years of topsoil left.” - Marler & Wallin, Nutrition Security Institute 2006
- 11. Declining nutrient density of food Sources: Lindlahr 1914, USDA 1963, 1997.
- 12. Megacities: mega-risks By 2050... 7.7 billion will live in cities Total urban area = China Urban water use 2800 cu kms Cities cannot feed themselves By 2030...
- 13. 'Peak oil' Car numbers growing 7x faster than oil supplies Food & oil prices are in lockstepFood and oil prices: locked together: Peak Oil
- 14. The case of nutrients Peak phosphorus 5 < 30-50% of world’s food is currently wasted or lost post- harvest Sources of artificial fertilisers will be scarce by 2050 >
- 15. Food losses $ 680 Billion $ 310 Billion
- 16. Reasons for these loses? Production Processing and/or distribution Retail/distributi on Driversatthelevelof production Peak production periods Shelf-life Distribution demands related with appearance Lack of a differentiated product Lack of the proper post- harvest knowledge and/or infrastructure Demand volatility Defined: relationships/technologies /processes/transactions Driversatthelevelof processingand/ordistribution Lack of a differentiated products Shelf-life Non-confirmance to market needs Demand volatility Defined: relationships/technologies /processes/transactions DriversatthelevelofRetail Demand volatility Shelf-life Defined: relationships/technologies /processes/transactions
- 17. Knowledge drought 35 R&D stagnation World food R&D spend Stagnant crop yields
- 18. The challenge To double global food output with: - half the present fresh water - less land - no fossil fuels (eventually) - unaffordable fertilisers - less technology - inadequate investment - unreliable climate. > Huge new opportunities
- 19. • Understanding business model & value chain/network connection? • Difference between supply vs demand chains Key issues • How would the food chains of the future look like?
- 20. Critical components of a Business model
- 21. Covering all the critical elements for creating & delivering differentiated value 1. A tool to help you build a conscious and a differentiated value proposition? 2. A framework to work out a distribution strategy to suit your value proposition? 3. A framework for achieving chain commitment (complimentary partnerships)? 4. Looking at Sustainability as an integral part of the value proposition?
- 24. Value proposition map- Example Consumers active & purchasing online [1] A A1 (Customer interest) [2] A2 (Benchmark competitive dynamics) [3] A3 (Focus business standing/interest) [4] Attributes [1] Product Freshness 5 2 5 Healthy 4 2 4 Variety 5 3 4 Service Convenience 4 1 4
- 29. Why Coordination in a chain is difficult? 29 Manufacturer (Supplier raw materials) Distribution Centre Retailer Preferable order just in time in small quantities Preferably once a week in large quantities Preferable delivery in large quantities at fixed moments Production planning based on just in time deliveries Preferable delivery in large quantities at fixed moments Preferable order just in time in small quantities Based on market demand Local optimization vs. Chain optimization
- 30. Challenge : Aligning Supply & Demand chains 30 A typical supply chainSupply chain management Demand chain management Non-coordinated logistics systems
- 31. Aligning Supply & Demand chains 31 A typical supply chainSupply chain Demand Chains Optimal push-pull boundary: Where the supply and demand chains should meet
- 32. Elements of a committed chain
- 33. 1. Interdependence 2. Aligned objectives 3. Aligned values Complimentary strategic partnerships
- 34. Local Optimization vs chain wide incentives Aligned incentives • Restructuring the business relationships Moving from an arms length to risk-reward sharing engagement » Contract mechanisms that have the potential to align incentives
- 35. Contract mechanisms to align incentives Modifying the trade terms on trade parameters Pricing Product variety Order quantities Joint investments Example contract mechanisms Revenue sharing Profit sharing Quantity discounts Joint investments Buy-back contracts
- 36. 1. Aligning the business processes at an operational level 2. Integrating the information systems 3. Realizing the committment and taking the business relationship to next level Integrated processes
- 38. Sustainability components Should be embedded in the core value proposition (e.g.,) o Ensuring healthy living [freshness, better product properties, seasonality as attributes] o Local & seasonal products [ efficient production & distribution]
- 39. Case study - Honingtomaten®
- 40. Journey of Looije Tomaten (Honingtomaten®) 1946 • Tomato growing company established 1972 • Mr. Jos Looije took over the leadership 2007 •Honingtomaten was born 2013 •Voted as the best tomato
- 41. Value proposition map- Honingtomaten®
- 42. Distribution structure-Honingtomaten Honingtomaten distribution in 8 years (still here) Droomtomaten® Subliem® Pivate label brands
- 44. Honingtomaten® - Sustainability components
- 45. Take up your role/positioning in the value chain Prepare 2 slides to map your value proposition Prepare 1 slide each for other components Come back and present for 5 minutes Class exercise
- 46. 1. Delivering value to one/more segment/s of customers is critical for business success 2. Several businesses compliment each other to create and deliver value to the customer segment/s These businesses are called chains/networks/eco-system 3. The future value propositions should/would be different from that of today and so would be the value chains delivering them Changing supply/demand dynamics Key takeaway’s
- 47. 1. Value proposition better be developed than copied 2. Distribution strategy should be aligned with the value proposition & target consumer segments 3. Chain commitment is critical for continuous innovation, differentiation and long-term competitive advantage 4. Address sustainability elements that are integral part of the value proposition In essence: Every unique value proposition will require a careful value chain design and execution strategy Key Insights
Editor's Notes
- Food is poised to change – more profoundly than in any era of human history. What we eat a century from now, how we produce and consume it, its health value and composition will be as strange to us today, as the foods our own ancestors grew and ate centuries ago – before the age of cosmopolitan cuisine, cold storage, takeaway, manufactured food, celebrity chefs and cooking shows. This food revolution will arise out of fierce demand and resource pressures building up in the global food system, coupled with the advent of remarkable new technologies and emerging trends in farming, health and sustainability. Today I will make a number of predictions about the future of food, based on emerging trends and constraints – not all of them pleasing, but important nonetheless. Many, however, foreshadow magnificent new opportunities in food, nutrition, the culinary art, human health and sustainability. The chefs of the world will be leaders in this Age of Food. To you falls the responsibility for ensuring it is delectable, safe, healthy and sustainable.
- Tonight over a hundred thousand more people will sit down to dinner than dined last night. By the latter part of this century there may be 11 billion mouths to feed. To meet population growth and economic demand in places like China, India and Brazil as well as the developing world, global food output must double within fifty years. However almost everything needed to do this is becoming scarce: soil, water, nutrients, energy, technology, fish, capital and a stable, reliable climate. It is this collision between huge demands and huge scarcities that makes food the challenge of our times. The consequences of this tenfold threat to food security are not well understood, by governments or consumers. Like the Indian blind men they see only parts of the beast. It is what science calls a wicked problem.
- Worldwide, in places like China, India, the US and Middle East, groundwater is being mined to grow food faster than it replenishes. Rainfall over the great grain bowls is becoming less reliable; snowpack on high mountains is disappearing; lakes, rivers and aquifers in dry lands are vanishing. Meanwhile the world’s megacities and the energy sector are devouring more and more of the farmer’s water. The world is now asking its farmers to double food production – while taking away half their water.
- Each person now uses 1240 tonnes of water a year – three quarters of it in the form of food. The table shows the water embodied in some familiar foods. Over a lifetime, we each consume enough fresh water to float this aircraft carrier – 100,000 tonnes. The answer is recycling.
- Scientists warn the world is losing 75 billion tonnes of soil a year, mainly due to food production. Satellites reveal the world’s farm land area is shrinking by about 1 per cent a year. If this continues, they warn, the world may run out of good arable soil within 50-70 years. The only solution is to reduce the economic stress on farmers and farming systems, everywhere.
- At the same time we are mining our soils of the minerals and micro-nutrients vital for health and life. For example a US study found that we now have to eat five tomatoes or cauliflowers to get the same essential minerals as our grandparents got from eating one. Scientists suspect this nutrient depletion is linked to the global rise in diet-related disease.
- By 2050 the world’s cities will be home to 7 billion and cover an area of soil the size of China There will be many cities with 20, even 40 million people. Guangzhou-Shenzen, for example, will have 120 million inhabitants. These mighty cities have one terrible flaw. They cannot feed themselves. They rely on a river of trucks coming every night to restock the shops and markets. Any break in the flow – an oil crisis, a war, a big flood or storm – and a giant city will starve. The solution is for cities to grow far more of their own food, locally. And the answer to that is horticulture.
- The world food supply relies critically on oil: for farming, transport, chilling and cooking. We each eat 66 barrels of oil a year. But the number of new cars is growing seven times faster than the amount of new oil being discovered. This means fresh energy shocks are likely. And, because oil and food prices are now in lock-step, there will be big impacts on the price and supply of food. The solution is for the world to urgently develop a renewable source of energy for food production and transport. What that is, I shall reveal shortly.
- Ours is the first generation in the whole of human history to throw away half our food. The picture shows what the typical well-off family throws in the trash every month. Much of the effort of the world’s farmers and horticulturalists goes to landfill. This is neither moral, nor economic nor sustainable. At the same time world supplies of high-grade nutrients, which underpin the modern food system, are becoming scarce. By mid-century many producers may not be able to afford fertiliser. The solution is for the world to urgently recycle all our waste nutrients, back into food production. And horticulture is one of the primary ways of achieving that.
- We try to take perspective of businesses operating along the entire food chain which remains the core focus/target of this presentation. However, whatever business creates should have consumer/market relevance and hence these dynamics need to be put in consumer/market context to be able to create business value. Whichever metrics you subscribe to Food losses for each link of the business are considerable and hence can/do have a huge financial impact especially on the bottomline (i.e., revenue and profits). Hence, the need to seek for meaningful business propositions to change this equation. Of the total losses that happen the recent FAO report indicates the above % of losses. For businesses this however is a $1 trillion opportunity up for the taking.
- Here we try to highlight some causes for these losses. We can see that for different links of the chain the reasons could be different. People who operate in the links can relate with some if not all of these. However, other than the functional product specific reasons, the lack of flexibility of the business models/relationships/positioning is a very common reason for such loses. And this becomes a problem in a market the dynamics of which are changing on a weekly/monthly basis. All the key factors presented above can be very well understood by looking closely at the milk value chain. The chains that run most efficiently are the ones that balance the commodity-product variety trade-offs quite well. We shall continue to focus on the dairy value chains and examples associated with it through out the presentation
- For quarter of a century the world scientific effort in food and agriculture has stagnated. It is now among society’s lowest science priorities. This is having a serious impact on crop yields and our ability to develop more healthy, sustainable food systems. Global investment in food and agricultural R&D is about $50 billion. Yet we spend $1750 billion each year on new weapons. So humans invest 35 times more on better ways to kill one another than we do on better ways to feed one another. It is time for a new focus on building world peace through food – not war. The solution is to reinvest a tenth of our defence spending in food science. .
- That, I am pleased to say, is the end of the bad news. The challenge of feeding the world over the coming century is very large. But the opportunities that arise from it are boundless. Everywhere I travel I find producers and cooks reinventing food, how and where it is produced and prepared. Let us turn to the opportunities. .