Food and Agriculture Economic Summit: Summary of Major Themes

The Kansas City Fed recently explored key factors related to investment in food and agricultural industries during the Food and Agriculture Economic Summit hosted in Omaha on June 25. Around 50 executives and industry experts representing organizations connected to production and distribution of food and agricultural products gathered to share their perspectives on current trends and long-term expectations about investment. This summary highlights some of the major themes of discussion throughout the event.

Investment in food and agriculture is being shaped by a variety of factors across supply chains. Emerging technologies, consumer trends and recent economic developments have been primary considerations affecting long-term decision making. Costs associated with capital deployment, labor market conditions and uncertainty surrounding a variety of policy developments were discussed as key constraints.

Economic and demographic trends in rural areas are headwinds for some businesses and have also shaped investment.

Access to housing, childcare, healthcare and broadband has been persistently challenging in many rural communities. In addition, rural depopulation along with an aging workforce were cited as serious limitations to expanding existing operations. Lack of access to essential services like healthcare, childcare, and affordable housing has also limited the ability to attract and retain talent in many areas. In response, some employers have adopted labor saving technologies and, in some cases, collaborated with community leaders to invest in programs that improve access to services and other amenities.

Artificial intelligence and other emerging technologies are being utilized as opportunities to improve efficiency and productivity throughout the supply chain and solve labor-related challenges.

At the farm gate, artificial intelligence (AI) has the potential to improve efficiency by creating opportunities to leverage data that augments employee decision-making and improves production practices, particularly for livestock. Other technologies such as advancements in genetics also have the potential to improve and refine production. Distribution networks have quickly adopted automation powered by AI and, over the long term, widespread adoption for purchasing decisions will make connecting and engaging with customers a critical need for food retailers. Many businesses also continue to pursue technology-based solutions to address workforce availability challenges. Along with these advancements, data management and information technology infrastructure have become critical components of investment.

Technology adoption and productivity growth has been faster than the previous decade for most participants.

Consumer trends remain a primary factor in investment decisions across the food and ag sector.

For food processors and retailers, increased use of weight loss medications (GLP-1) could shift food consumption towards fresh produce and protein products over time. At the same time, purchasing through digital formats is likely to grow further. Consumer spending on food has remained firm with support from steady wage growth, but promotional pricing and customer loyalty strategies have been deployed more heavily in recent months. For some agricultural producers, investing in value-added business models is an avenue by which they plan to capture larger shares of food expenditures.

Growth of agricultural production in South America and other regions has influenced long-term strategies for agricultural producers and agribusinesses.

Increased production of key farm commodities in Brazil and food security strategies in some nations have increased global export competition, contributing to an ample supply of crops and relatively low U.S. farm prices. In response to narrow profit margins, many growers have been incentivized to focus more heavily on pursuing opportunities that add additional value to farm products and have also pursued strategies that might allow sales directly to consumers. Agribusinesses such as grain merchandisers and equipment manufacturers have focused on expansion into markets with growing agricultural production that may also be located outside the United States.

Policy uncertainty, labor availability, high costs of capital and limited rural infrastructure have led to new investments focused on efficiency rather than growth.

Lack of clarity on the path of policy related to trade, energy production and funding for certain agriculture-related programs were major sources of uncertainty that have caused delays in some major long-term investments. In many rural areas, lack of adequate energy infrastructure and scarce labor limit some forms of industry expansion. Throughout all areas of the food and ag supply chain, substantial increases in capital investment costs over the past five years have challenged the financial feasibility of some projects and led to focus on investing to improve efficiency and reduce costs. Despite lingering uncertainties about the exact path of biofuel and renewable energy policy, developments related to the connection between ag and energy continue to have a significant influence on investments. Improving infrastructure and adapting production practices to create resilience towards increased weather variability has also been a notable focus.

Food and Ag Summit participants were split about the level of certainty surrounding long-term investment decisions being made today.