New risks looming ahead

Companies are facing five new challenges. These operating costs on the rise are decomposed into five key factors: Change in eating habits, especially in the West, with consumers seeking out healthier foods; the need to reduce the carbon footprint of food production; trade disputes that are forcing companies to diversify food supply channels; upside pressure on wages, which account for 11% of all operating costs in agrifood and the inability of food processors to pass higher input costs on to customers due to a lack of pricing power.

 

What do these new risks mean for agrifood companies? We expect further deterioration in the operating margin rate of the whole agrifood industry, down to +9% in 2020 in comparison with +10.2% in 2018 (i.e. down 1.2 percentage points over the last two years on a global average). Overall, agrifood operating costs expressed as a % of revenues will increase by +1.4 percentage points to 21.8% in 2020, from 20.4% in 2015, growing faster than the rise in revenues. Even if the sector is still not close to a loss position, the impact of these new risks on agrifood companies’ operating costs bodes ill for their future profitability.

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Marc Livinec
Euler Hermes