AGRIFOOD

Even if the world share of food and beverages accounts for 55% of all consumer goods production, the agrifood industry is no longer the second best sector in terms of risk after pharmaceuticals. It has been outpaced by IT (services) since the end of last year. Though the rising global population and increased urbanization provide solid demand for food and beverages, the fact is that it is consumer spending that is the main driver for the sector eventually, with disposable income affected by macroeconomic factors, including employment and wage costs. In contrast to textiles, among the sectors hardest hit by the Covid-19 pandemic, global food and beverages output is set to be relatively unaffected since it involves necessary goods and has a lower trade intensity than textiles. So we expect it to remain in positive growth - between +1% and +2% - in 2020.  

It could have been higher had the agrifood industry not suffered from a jump in uncertainty about ongoing private consumption. Besides, agrifood ranges from agriculture to the processing of food commodities into consumable products downstream, including both alcoholic and non-alcoholic drinks. In spite of a welcome rebound in the last quarter of 2019, the FAO global food price index has fallen again since last January by -8%, largely driven by demand shortages due to the Covid-19 pandemic. And U.S. agricultural output suffered last year from flooding in the Midwest, which led to the loss of many acres of crops. Back at their 2017 levels, food commodity prices do not allow farming to be profitable enough to invest into targeting a lower carbon footprint. Besides, (global) trade is not likely to recover soon, in spite of the phase-one trade deal between the U.S. and China involving soybeans and meat.

On top of Covid-19-related supply disruptions that are set to weigh on the sector’s performance during 2020, current demand for healthier reformulations of products as well as higher quality goods are putting a near-term strain on food makers as they need to invest in new product lines. Furthermore, downstream packaged-food companies keep on struggling with limited pricing power against retailing outlets and with transport cost inflation in a context of the lockdown of half of the global population.