Agro-food sector struggles with price competition
Companies in the agro-food sector - whatever their position in the chain - are struggling with the consequences of price competition. For the food industry, that price competition is the most important strategic issue. For commercial businesses and suppliers and for companies in the primary sector, price competition is in 2nd and 3rd place respectively. This appears from the Agrofood Strategy Trends Survey 2013, carried out by Berenschot in cooperation with the journal VMT, the Southern Agricultural and Horticultural Organisation ZLTO and LTO Noord. 300 entrepreneurs, directors and senior managers from the agro-food sector were involved.
Although the agricultural sectors and the food industry vary considerably, according to Edwin Lambregts (consultant at Berenschot) they have important issues in common: "The pressure on all links in the chain is becoming greater and this is having a negative impact on prices and revenue. Cost cuts and process improvement are the classic responses to the recession and the purchasing power of the retail and the out-of-home segment. But this route is limited. Businesses would therefore be sensible to make themselves less interchangeable and distinguish themselves from the competition".
That means, says colleague Lindy van der Veen, a stronger emphasis on their distinguishing capacity and other business models: "Interestingly, agro-food businesses do not or hardly see new business models as a strategic issue, although this subject has had priority in other sectors in the Netherlands for years. A majority (63%) of agro-food businesses wish to distinguish themselves on the quality of their product. But if this is the aim of the majority, as a business you are no longer distinguishing and you still become embroiled in price competition."
This year, the second Agrofood Strategy Trends Survey was conducted. This survey offers insight into the strategic choices facing businesses and the trends within various sectors. Besides the partnership with VMT, this year was the first time that LTO Noord and ZLTO joined in. This therefore widened the scope of the survey to businesses in the agricultural sector. The report contains an analysis of the main results per sector and practical tips for entrepreneurs on how to address strategic challenges.
The trend analysis shows that 60% of the entrepreneurs in the primary sector feel that the tighter policy concerning the use of antibiotics has had a huge impact on their business. Of those 60%, 70% plans to invest in this specific area in the coming years. Other important trends are animal welfare, the new manure policy, sustainability of production and the abolition of the milk quota. Also in that respect, many of the entrepreneurs questioned plan to invest.
Another result of the survey is that 75% of the food industry feels that the changing composition of food (e.g. salt, fat and sugar reduction) will have a great impact on businesses in the short term. For that reason, 70% of this group is responding to this trend by investing. Strengthening cooperation in the chain is another top trend in the food industry: over 60% of respondents recognise its impact on the business and of these 60% plan investments. The main trends among service providers are certification, the changing composition of food, chain cooperation and regulations relating to food safety.
The full Agrofood Strategy Trends 2013 can be downloaded free of charge from www.berenschot.nl/agrofood2013.
If you would like to receive more information, you can contact:
- Edwin Lambregts
senior consultant at Berenschot
+31 (0) 6-54 26 00 29