V.imp - Food for Thought the Future of Agribusiness

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Global Research Report by Capgemini Consulting

Food for ThoughtThe Future of Agribusiness

Life Sciences the way we see it


http://slidepdf.com/reader/full/vimp-food-for-thought-the-future-of-agribusiness 2/402 Food for Thought – The Future of Agribusiness

With grateful thanks to the executives

who contributed from the following

organizations:

— BASF Plant Science

— Bayer CropScience

— Chr. Hansen A/S

— Danisco A/S

— Dow

— EuropaBio

— European Commission, Directorate-

General for Research, Unit

Biotechnologies

— Hofkontor AG— KWS Saat AG

— Novozymes

— Swiss Federal Institute of Technology

Zurich, Institute of Plant Sciences

— Syngenta AG




Contents 3

Contents

Executive Summary 4

1. Introduction 6

2. Background: Market Growth that Looks Set to Continue 7

3. Mounting Pressure on the World's Resources 16

4. Dealing with the Demand-Supply Gap 26

5. Future Scenarios and their Implications for the Industry 28

6. Conclusion 35



The agribusiness sector has seen impressive growth in recent yearsand most companies in the sector have performed well. Mostinterviewees in our recent survey believe this trend will continue.

In 2005, when major players were constructing their strategic plans, it was

envisaged that the crop protection segment would decrease in importanceas growth in seeds businesses escalated. In reality, crop protectionproducts have enjoyed a very good run in terms of sales and profitabilityin the intervening four years. The factors driving this have includedincreased crop prices and increased demand from countries in emerginggeographies such as Eastern Europe, Latin America and Asia Pacific. Thecomparative success of the crop protection segment has forced agribusinesscompanies to reflect on their strategies and future business model.

They do so against a background of growing demand and potentiallyconstrained supply. It is well documented that demand for food, feed andfuel crops will continue to grow, with acknowledged drivers including theincreasing population; rising incomes leading to an increase in demand for

food generally and in particular for more resource-intensive foods such asmeats; and more demand for crop-based energy. Less well documented is thegrowing demand for biomass for industrial use, from which biorefineries willproduce not only energy and fuel but also plastics and chemicals analogouswith those traditionally obtained from petroleum based resources.

Although expansion of the market is a cause of justifiable optimism on the partof agribusiness companies, generic manufacturers – not currently regarded as athreat by most of our respondents – are a rapidly growing source of competition.

While demand is growing, there is also a squeeze on the supply side.Expansion in arable land will not be able to match population growth, so

that there will be a significant decline in the amount of arable land percapita. Another constraint is the limited availability of water, particularlyin developing countries. These factors mean that farmers need to findnew ways – both practices and technologies – to increase their yields.

Executive Summary




Executive Summary 5

While this situation presents important opportunities for agribusiness,companies need to adopt a responsible stance and avoid being seenas exploiting the situation. Action to address the demand-supply gapis required from all stakeholder groups: political decision-makers,retailers and consumers, as well as agribusiness and growers.

The industry will be tackling these challenges within a business environmentthat is becoming increasingly complex. In addition to the traditional complexitydrivers of the weather and prevailing economic conditions, other sourcesof complexity will include the variable stringency of legislation in differentcountries, changing and possibly divergent public perception of GMOs andagrichemicals, the need for product differentiation between an expanding setof markets, and the inevitable shift from product- to service-based offerings.

These complexities will require increased organizational flexibility, in the form oftraits like greater process adaptability, a better understanding of future capabilityrequirements and the agility to adapt to global, regional and local needs.

To succeed in this environment, organizations will need to make surethey have the capabilities that enable flexibility. Among the necessarycapabilities highlighted in this report are a robust strategic planning processthat anticipates and allows for multiple outcomes in key dimensionsof change. Another vital capability is accelerated execution both of theresponses to these trends and of broader transformational activities.

Our findings suggest that the companies that fare best in the next three to fiveyears will be those most able to adapt to their increasingly complex environmentand to capitalize on continued growth in established and emerging markets.


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1. Introduction

Why this study now?

The twin issues of rising demand forfood and competition for land, waterand other resources have attractedconsiderable attention over the lasttwo to three years, and are likely tocontinue doing so. This situationcreates significant opportunities foragribusiness companies, but at thesame time they must not be seen to beexploiting the misfortunes of others.(Here there are lessons to be learnedfrom the pharmaceutical sector,which has recently been taking stepsto demonstrate social responsibilityto stave off accusations of profitingunduly from the H1N1 outbreak.)

Capgemini has been serving thebiggest names in this sector forover a decade and traditionallyproduces a major global thoughtleadership report into life sciencesannually, usually looking acrossthe industry as a whole.1 From ourconversations with senior executivesacross the agribusiness sector, wehave noticed some consistent themesin the issues that they are facing.By far the greatest of these is thegrowing complexity posed by anincreasing number of internationalmarkets, coupled with the increasingspecificity (and in some casesdivergence) of needs at a local level.

It is in response to these themesthat we have decided to produceour first specialist report on thissector. We have set out to investigateboth the current debate aboutfood supply and natural resourceusage and, more importantly fromagribusiness’s point of view, theimplications of some surroundingtrends on the future of the industry.

Scope of study

The agricultural industry spans a widevariety of businesses relating to orsupporting the cultivation of plants,animal husbandry, forestry, fisheriesand agriculture. This study focuseson the provision of inputs to thecultivation of plants. These includeon the one hand agrichemicals forthe protection of crops against pestsand disease, and on the other handseeds, which may be conventional,hybrid (that is, produced by artificiallycross-breeding compatible types ofplants) or genetically modified. Thesechemicals and seeds are relevant notonly to farming but also to widerapplications in gardening, forestry and

the maintenance of public spaces suchas parks, airports and railway verges.

Approach

Three main research methodshave informed this study. We haveconducted interviews with executivesfrom across the industry to help shapethe thinking and define the areas tofocus on. Desk research from ourglobal strategic research group hasprovided hard data which largely

substantiates what we have beenhearing from the industry. Finally, ourglobal network of 50+ experts hashelped us to interpret our findings andto formulate some ideas about whatthe industry should be doing now.

Source: EU-AgriNet European portalunder European Commission accessed9th October 2009; “Who Owns Nature?Corporate Power and the FinalFrontier in the Commodification ofLife” – ETC Group, November 2008

1 Pharmaceuticals, biotechnology, medical devices andagribusiness




2 Background: Market Growth that Looks Set to Continue 7

Growth in all sub-segments

The agribusiness sector has seenimpressive growth in recent years,with current revenues in excess of$70bn. All four sub-segments – crop

protection, non-crop agrichemicals,conventional and hybrid seeds andGM seeds – have grown in the pastfive years. As Figure 1 shows, GMseeds constitute the fastest-growingsub-segment, while crop protection isthe largest; as we shall see, it lookslikely to remain so for the foreseeablefuture. Rising demand for foodtogether with increases in grain pricesand in the area planted havecontributed to the overall upwardtrend.

2 Background: Market Growth that Looks Set to

Continue

Figure 1. Past growth of the four sub-segments

0

10

20

30

40

50

60

70

80

90

100

2003 2004 2005 2006 2007 2008

R e v e n u e s U S D b

i l l i o n s

Crop protection Non-crop agrichemicals

Genetically modif ied seeds Conventional/hybrid seeds

Capgemini 2010

4.9%

17.4%

5.3%

9.3%

5 year CAGR (2003 – 2008) Revenues

2008

$ 73.0bn

$ 41.7bn

$ 5.7bn

$ 8.7bn

$ 16.9bn







All four sub-segments have shown positive growth in the last five years (cont'd)

Seeds: conventional and hybrid

The market for conventional and hybrid seed has shown fluctuating growth patterns, almost certainly because of the advent

of GM seeds, which offer advantages such as better resilience to shifting weather conditions. However, the anti-GMO stance

of most European countries means that there is continuing demand for conventional and hybrid products, with associated

opportunities for agribusiness companies. High-growth areas within this segment include vegetable seeds, which offer

comparatively high margins.

Seeds: genetically modified

For the past ten years the GM seeds market has achieved double-digit growth, led by the U.S. and U.S.-affiliated countries

where attitudes are more favorable than in Europe. Globally, GM crop acreage has increased consistently by 14% over

the last five years to reach 309 million acres (approximately 3% of total agricultural land). In 2008, the number of countries

planting biotech crops increased to 25 (up from 18 in 2003). A key factor contributing to the rise of GM seeds was an increase

in the adoption of “stacked trait”2 varieties of maize, and to a lesser extent cotton.

Capgemini 2010

Figure 4. Past growth: conventional and hybrid seeds

Conventional/hybrid seeds

14,3 13,813,3 12,9

14,3 14,4 14,3 14,4

16,9

0

2

4

6

8

10

12

14

16

18

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

CAGR -2%CAGR 4%

13,3

$ billion

Figure 5. Past growth: GM seeds

Capgemini 2010

Genetically modified seeds

2,2 2,42,8

3,3

4,75,3

6,1

7,3

8,7

0123456789

10

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

CAGR 17%

CAGR 16%

3,9

$ billion

2 Stacked trait varieties are those with more than one gene from other organisms, and hence more than one GM trait



The upward trend in these foursub-sectors means that most of thebig companies in the sector haveperformed well in recent years, asshown in Figure 6. It can be seen

that Monsanto and Syngenta haveboth shown a steep upward trend interms of revenue, while Monsanto hasblazed a trail in terms of profitability.

While our survey respondents didnot generally see generics as a majorissue, it should be noted that genericcompanies were growing twice asfast as innovators over the 2003-08period (12% vs 6% CAGR), asshown in Figure 7. The observedrevenue growth in the market as a

whole may be hiding an emergingthreat from generic providers whoare gaining overall market share.

Sources for this section: The Global Agrochemical and Seed Market,Industry Prospects, Presentation atCPDA Annual Conference – PhillipsMcDougall, July 2008; Facts and figures – The status of globalagriculture – CropLife International, 2009; “Seize the opportunity” – Rod

Parker, AGROW magazine, August 2008Issue;) Informative Meeting – Vilmorin,07 October 2009; US AgricultureIndustry Trends – Makhteshim AGAN of North America, May 2009;Citigroup Global Market Report onCrop Science- 14 January 2009;company annual reports, 2004-2008

Capgemini 2010

Trends in EBIT, indexed at 2003, 2003 - 2008Trends in revenues, indexed at 2003, 2003 - 2008

Figure 6. Recent trends in revenue and operating profit

for a group of leading companies

90

100

110

120

130

140

150

160

170

180

190

200

210

220

230240

2003 2004 2005 2006 2007 2008

Indexed revenues

BASF

Dupont

Bayer

Monsanto

Syngenta

MARKET

Dow

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

2.200

2003 2004 2005 2006 2007 2008

Indexed EBIT

BASF

Dupont

Bayer

Monsanto

Syngenta

Dow

Capgemini 2010

Figure 7. Comparing revenue trends for innovators and generic companies

Innovators vs Generic companies

80

90

100

110

120

130

140

150

160

170

180

2003 2004 2005 2006 2007 2008

Generic companies

Innovators

I n d e x e d r

e v e n u e s





can flex to accommodate marketdifferences – a requirement that addsto the complexity of both marketentry and subsequent growth.

Sources: The Global Agrochemicaland Seed Market, Industry Prospects,Presentation at CPDA AnnualConference – Phillips McDougall, July 2008; Facts and figures – Thestatus of global agriculture – CropLifeInternational, 2009; InformativeMeeting – Vilmorin, 07 October 2009; US Agriculture IndustryTrends – Makhteshim AGAN ofNorth America, May 2009; CitigroupGlobal Market Report on CropScience – 14 January 2009

report) and the relative strength orweakness of its product portfolio.

These responses are underpinnedby a shared expectation that the

market will continue to grow. Asshown in Figure 9, future growth isanticipated in all sub-segments, albeitat a reduced rate compared with thelast five years. The reduction is partlydue to the fact that some of the recentgrowth arises from high prices from2008 onwards – prices which expertsbelieve are not sustainable over thelonger term. This is particularlytrue in the case of GM seeds, wheremost growth in planted acreage isexpected to come from emerging

markets, which are price-sensitive.To meet their growth targets in theseprice-sensitive markets, companiesare employing pricing models that

With some caveats, growth

can be expected to continue

This track record has left the industryfeeling bullish. In our survey, themajority of respondents believedtheir organizations would somewhatoutperform the market in the nextthree to five years (Figure 8). While inpractice not everyone can outperform,there are many good reasons forgeneral optimism about the sector,the biggest of which is growth fromemerging markets and, more generally,continued growth of demand forfood. The critical factors determininga company's success relative to therest of the market, in the eyes of ourrespondents, included the strength

of an individual company's R&Dpipeline, its agility compared withthe competition (a point that informsmuch of the latter portion of this

Capgemini 2010

Figure 8. Respondents' expectations

of how their company will perform

in the next 3-5 years

Somewhat outperform

Significantly outperform

Somewhat underperform

Significantly underperform

11%

62%

11%

16%

Capgemini 2010

Figure 9. Past and projected growth of the four sub-segments

0

10

20

30

40

50

60

70

80

90

100

2003 2004 2005 2006 2007 2008 2009(E) 2010(E) 2011(E) 2012(E) 2013(E)

R e v e n u e s U S D b

i l l i o n s

Crop protection Non-crop agrichemicals

Genetically modified seeds Conventional/hybrid seeds

2.3%

10.9%

4.7%

3.5%

4.9%

17.4%

5.3%

9.3%

5 year CAGR (2003 – 2008) 5 year forecast CAGR (2008 – 2013) Estimated

revenues

2013

$ 90.2bn

$ 49.5bn

$ 7.1bn

$ 14.6bn

$ 18.9bn



Re-evaluating the

business model

In 2005, when the major players wereconstructing their strategic plans,it was envisaged that the relative

importance of the crop protectionsub-segment – the largest of the four,then and now – would decrease,particularly compared with GM seeds.Looking at the figures and trends forthe period between 2004 and 2006in Figure 9 (page 11), it is easy to seewhy they would have taken this view.

At this time, the companies expectedto have to adjust their businessmodels to reflect the changing relativeimportance of the different sub-

segments. Contrary to expectations,however, crop protection productshave enjoyed a very good run (interms of sales and profitability) inthe intervening four years. Thereseem to be two main reasons for thissuccess: increased crop prices andnew demand from emerging markets.

We look at these in more detail below.

Increased crop prices

Demand for crop chemicals appearsto be related to the volume of grainproduced and its average sellingprice. Higher crop prices encourage

higher planted acreage as farmerstry to maximize their revenuepotential, which in turn leads togreater demand for agrichemicals.

This pattern is also partly due tothe fact that higher grain pricesand/or volumes result in higherfarm income and more disposableincome to purchase inputs likefertilizers and agrichemicals,an explanation that is to someextent borne out by Figure 10.

This relationship may offer anopportunity for agribusinesscompanies to add a servicecomponent to their offerings. Whencrop prices are lower there is potentialto support farmers to help themmaximize their income through thecorrect usage of chemicals. This couldhelp farmers to minimize the inputcosts of agrichemicals by ensuringthat products are used correctly (for

example, only at the most appropriatetimes). Opportunities such as this callfor some creativity on behalf of thechemical producers but also offer thechance to build deeper relationshipswith growers which in turn mayhelp insulate them from bothbranded and generic competition.

Sources for this section: USDA.gov,accessed 02 December 2009; CitigroupGlobal Market Report on Crop Science

- 14 January 2009; Syngenta analystreport – Deutsche Bank, 01 July 2009





Capgemini 2010

Figure 10. Trends in average indexed crop prices and farm incomes

compared with agrichemical volumes

Growth trends of U.S. farm incomes and agrichemical volumes, 1999 - 2008

Average indexed crop prices and agrichemicals market, 1998 - 2009

G r o w t h %

-40

-30

-20

-10

0

10

20

30

40

50

60

70

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US farm income

Agrichem volumes

80

90

100

110

120

130

140

150

160

170

180

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Agrichem volumes (1998=100)

Average crop prices (1990-1992=100)

I n d e x e d V a l u e s



Demand from emerging markets

The second factor in the recentsuccess of crop protection productsis increased demand from emerginggeographies such as Eastern Europe,Latin America and Asia Pacific. Figure11 shows that markets like theseare relatively small at present butare growing rapidly. While WesternEurope shows healthy short-termgrowth for agrichemicals, it is in the

developing markets that the nextphase of growth is expected to occur.

Source: Citigroup Global Market Reporton Crop Science – 14 January 2009

Implications for agribusiness

Against expectations, then, the cropprotection sub-sector is continuingto grow. There are a couple ofcaveats: firstly, its 2008 growth ispartly due to low food stocks, and

secondly, in future EU regulationson pesticides3 may negatively impactit. Nonetheless, the continuedimportance of this sub-sector hasforced agrichemical companies tore-think their business plans andmodels. We asked participants in oursurvey to say which they thoughtwas the more likely outcome in fivekey areas; the results are summarizedin Figure 12 and discussed below.

Capgemini 2010

Figure 11. Comparing growth patterns in regional demand for

seeds and agrichemicals

Regional growth agrichemicals, per cent, 2007 - 2008

11,6%

41,8%

27,1%

35%

21%14,9%

0%

10%

20%

30%

40%

North America

Latin America

WestEurope

EastEurope

Asia ROW % g

r o w t h ( 2 0 0 7 – 2 0 0 8 )

Regional growth seeds, per cent, 2007 - 2008

9%13%

50%

15%

50%

0%

10%

20%

30%

40%

50%

60%

North America

Latin America

WestEurope

EastEurope

Asia ROW % g

r o w t h ( 2 0 0 7 – 2 0 0 8 )

Regional split agrichemicals, per cent, 2008

North America

Latin America21%

West Europe

25%East Europe

Asia

ROW

Regional split seeds, per cent, 2008

North America75%

Latin America

AsiaROW; 1%

NA

19%

5%

20%

4%

23%

8%

Capgemini 2010

Figure 12. Respondents predict the business models of the future.

Driver Scenario 1 Scenario 2

Combination of

seeds and crop

protection

Branding

Role of

acquisition vs.

collaboration

Global vs. local

Established vs.

emergingmarkets

Source

: Primary interviews

“We now need to look at how we

move from a product to a service

offering and see what value added

services we can offer”

“We need to

manage the

complexityof our

offerings if we are

to serve highly

fragmented,differentiated

market

segments”

The seed and crop protection

business will stay separate

Establishment of strong and global

market brands even in front of the end

consumer

Network of issue-specific

collaborations to increase and

foster an “ecosystem” of

development and marketing —IP

owner consortium

New products and capabilities will be

acquired by dominant players –

primarily in-house development and

marketing — usually a single IP owner

Globally diversified markets and

customer base. Strong regional/local

stewardship in marketing and sales

approaches as well as logistics

Clear split between established and

emerging markets: highly innovativeproducts and hybrid seeds for

established markets — more

conventional products for emerging

markets

Integrated solutions model for

seed and crop protection

Different brands in different

markets —no branding in front

of the end consumer

Globally harmonized market

approaches with only minor,

specific elements being adapted

locally to serve market needs

Equal split of innovation

between established andemerging markets

3 For example, since September 2008, the EU hasrequired agrichemical manufacturers to providestudies on expected maximum residue levels (MRLs)

for pesticides as part of the product registrationprocess; if the MRL of a pesticide at normal use isfound to be above its MRL threshold (usually 0.01 mg/ Kg), its use is banned on that specific crop. The EUlegislators have also proposed new regulations oncrop protection products which could lead to bans onmany active substances based on hazardmeasurements of the ingredients.





Acquisition versus collaboration

Although there was not such a strongconsensus here, most respondents

expected that new products andcapabilities would be acquiredby dominant players, rather thanthrough collaborative “ecosystems”.Development and marketing wouldprimarily be in-house and IP wouldnormally be owned by a specificcompany rather than a consortium.

Most respondents also suggestedthat the majority of innovationwould be focused on establishedmarkets, and that emergingmarkets would be offered a moreconventional product set.

The responses to the five questionscan be summarized by the threeaxes shown in Figure 13: namely thedegree to which products are globallyharmonised versus locally tailored, theextent to which seeds and chemicalproducts are offered as separate orintegrated solutions, and the natureof the R&D model (that is, whetherit is acquisitive versus collaborative).

Combination of seedsand crop protection

There was a considerable degreeof consensus that the companiesproducing both chemical and seedproducts will increasingly movetowards integrated solutions (i.e.bundling seed and crop protectionproducts together). There is alsomotivation to include value-addedservice elements, either to add to orto protect current revenue streams.

Global versus local

Most respondents recognized theneed to offer diverse productsbetween geographies, rather than tobe harmonized with only minor localadaptations. This trend will be animportant driver of complexity in thebusiness model as it requires strongregional and local stewardship of themarketing and sales approaches, aswell as of productions and globallogistics. “We need to manage thecomplexity of our offerings if weare to serve highly fragmented,differentiated market segments,”commented one respondent.

Branding is another area whererespondents were mostly inagreement. Instead of offering differentbrands in different markets, theyexpected to establish strong, globalmarket brands. They also expectedto increase the positioning of these

brands in front of the end consumer.

Capgemini 2010

Figure 13. Three major axes for future business models

Global vs. Local

G l o b a l y

H a r m o n i s e d

L o c a l l y

T a i l o r e d Separate vs. Integrated

Seeds & Chemical S e p a

r a t e

I n t e

g r a t e d

Acquisitive vs. Collaborative

R&D

A c q u i s i t i v e

C o l l a b o r a t i v e



Why resource constraints

matter to the industry

As we saw in the previous chapter,there is reason to expect continuedgrowth in demand for agribusinessproducts in the coming years,not least in the area of cropprotection. This growth will arisemainly from increasing demandfor the products of the sector'smajor customers – farmers.

In this chapter, we will discuss thedemand for these products in threewell-established areas: food, feed andbiofuels. In addition we will discussa less familiar source of demand:the industrial use of biomass inrefineries, to replace fossil fuels asinput to the production of energy,plastics, chemicals and the like.

We will then look at the resourceconstraints that could limit farmers'ability to meet these demands, andtheir implications. Agribusinessneeds to be concerned with theseissues for two main reasons: firstlythe need to show a responsibleattitude to the market, and secondly

3 Mounting Pressure on the World's Resources




3 Mounting Pressure on the World's Resources 17

more than doubled since the 1950sand is projected to reach 9bn by

2050, maintaining a growth rate of1% per annum until at least 2050.

Increasing population

Population growth is considered to be

the biggest factor impacting growth indemand: our respondents' views areconfirmed by research linking historicpopulation growth to increasing fooddemand. The world population has

the commercial consideration thatconstraints on farmers' efforts tosatisfy demand could also limit theirdemand for chemicals and seeds.

Looking more closely at the need

for responsibility, if farmers' abilityto meet demand is constrained byresource shortages, for example ofland and water, there is an obviousknock-on effect in terms of foodsecurity and related issues. Theindustry therefore needs to adopt aresponsible stance in order to avoidbeing seen to exploit shortages offood and other farming outputs.

There is a parallel here with the

pharmaceutical industry, wherecompanies are concerned aboutbeing seen as profiteering fromthe swine flu epidemic and aretaking steps to improve their image.Similarly, agribusiness companiesneed to be seen to be helping theircustomers grapple with the issuesthat they are currently facing ratherthan simply seeking to exploit thesituation to sell more products.

Factors increasing demand

for crops and hence

agribusiness products

Our survey respondents agreed thatfour major factors will combine toincrease demand: global populationgrowth, rising per capita incomeleading to a shift in consumptionpatterns (these linked factorsare shown separately in Figure14), and growing demand foralternative energy sources.

Below we discuss each of thesefactors, before considering themore general use of biomassfor industrial purposes.

Figure 14. How respondents ranked drivers of growth in the industry

Capgemini 2010

Drivers of growth, as per cent in top 3

0

5

10

15

20

25

30

35

40

Increasing population Rising incomes Shifting diet patterns Demand for crop-

based energy

% o

f t i m e s c i t e d a s o n e o f t o p 3 d r i v e r s

Drivers

3735

22

10

Figure 15. Global population growth

Capgemini 2010

Rising global population and implications

2,5

4,1

6,1

8

9,2

0

1

2

3

4

5

6

7

8

9

10

1950 1975 2000 2025 2050

B i l l i o n s

M i l l i o n s

Average annual increase in population (millions)

World population (billions)

64

80

75

48

0

10

20

3040

50

60

70

80

90

100



Regional variations in population growth

Though the pace of global population

growth is slowing, it is expected to continue

at 1% annually until 2025. Figure 16 showswhere the growth is expected to occur.

Until 2025 the increase in population will

be mainly in Asia. However, post 2025, it is

expected that a downward trend in China’s

population will significantly reduce Asia’s

overall population growth. After 2025, Africa

will have the fastest increase in population.

It is interesting to compare the rates of

growth in agricultural production between

the same regions, bearing in mind that the

United Nations Environment Programme

predicts that global demand for food will

increase by at least 2.5 times the current

amount by 2050. What this indicates is

a mismatch in demand for and supply of

food, particularly on the African continent.

Sources for this section: United NationsPopulation Department-World Population

prospects-The 2008 revision; FAO

Statistics- Production indices - accessed

05 November 2009

Figure 16. Annual increase in population across major regions

Capgemini 2010

8,416,2

24 26,4

42,8

53,444,3

20,3

-10

0

10

20

30

40

50

60

70

80

1950 – 1975 1975 – 2000 2000 – 2025 2025 – 2050

M i l l i o n s

Oceania AmericaEurope Asia Africa

Total

increase 64 80 75 48

Average annual increase in population across major regions, millions

6,9

16,6

21,25,2

-5

0

5

10

15

20

25

30

35

1960 -1975 1975 - 2000 2000 - 2007

B i l l i o n s

18 24 31

Figure 17. Average annual increase in gross agricultural productionin major regions, international $

Capgemini 2010

Oceania AmericaEurope Asia Africa

Total

increase

Average annual increase in gross agricultural production in major regions, international $ billions

4,2

6,1

7,6





Rising incomes and

shifting diet patterns

Less developed countries are expectedto witness strong economic growthand a significant rise in income levelsby 2020. History shows that thegrowing affluence of consumers inthese countries is likely to shift dietarypatterns towards more resource-intensive foods, particularly animalprotein. As well as putting pressureon natural resources such as water,this trend will increase the demandfor animal feed and the agribusinessproducts used in its production.

Demand for crop-based energy

Rising global energy requirements

and environmental concerns meanagricultural crops must increasinglybe available as an energy source,as well as providing food, feed andfiber. The so called “first generation”of biofuels have been produced fromfeed crops such as maize (a feedstockfor the production of ethanol)and rapeseed (a feedstock for theproduction of biodiesel) which has inturn caused political, environmentaland ethical debate about the use

such crops for energy generation.

These first-generation fuels are likelyto be superseded in due course bya second generation produced fromplant material whose production doesnot compete for resources with foodsupplies: these can be made withwaste material from food plants orfrom plants grown on non-arable land.

The emergence of the “secondgeneration” of biofuels has avery significant implication foragribusiness. Whilst the crops usedto produce first-generation fuelsrequired agrichemical products thatwere already used for food crops,

some second-generation fuels willcome from entirely different plantsand technologies. These plants willbe susceptible to different pestsand natural plant competitors

which may or may not be coveredby current agrichemical portfolios.Companies that wish to maintaintheir revenue streams will need toconsider producing biofuel-specificproducts – perhaps GM seeds that aredisease-resistant and high-yielding,or pesticides and fertilizers specificto plants that in some cases havenever been commercially cultivatedin significant volumes before.

This presents both an opportunity and

a risk as these products will requiresignificant R&D investment at a timewhen the fuel producing technologiesare still relatively untested toenable agribusiness companies todevelop competitive advantage.



Industrial use of biomass

There is an important trend that is likely to affect the demand for crops and hence

agribusiness products – one that the industry is not yet widely aware of, though

certain players are already very interested. This is the industrial use of biomass.

Here plant materials are fed into “biorefineries” in order to produce not only fuels but

also power and heat plus plastics and chemicals that would traditionally be derived

from petrochemicals. Biorefining is of enormous potential value as a way to lessen

or remove the world's reliance on fossil fuels such as crude oil before the supply of

these resources dries up.

Clearly, industrial use of biomass could be an additional source of demand for cropsand hence for agribusiness products such as fertilizer and seed. However, there is a

danger that industrial biomass will be competing with food and feed for other natural

resources such as land and water. Therefore it will be important to find ways to

create additional biomass without needing more land.

Part of the answer is likely to lie in making the land more productive by breeding

better plants, using agrichemicals to increase their yield and generally cultivating

them more efficiently. For example, in the case of sugar beet, a beet that comes out

of the ground clean, without soil attached, is preferable, so that energy and water do

not have to be used to wash it. This might mean breeding a beet with fewer external

roots and fibers for earth to cling to.

In addition, as in the case of second-generation biofuels, it will be important to findways to convert the otherwise unusable residues from food plants into energy and

plastics. The advantages of using plant residues are clear, but the drawback is that

it takes longer, for example, to refine wood chips than sugar beet, whose sugars

are readily convertible into energy. Our ability to produce bioenergy from residues

depends on the emergence of technology to make the process more efficient.

The agribusiness industry has a part to play in developing the relevant technologies,

in collaboration with energy companies. For example, agrichemical companies can

develop enzymes that can serve as a catalyst to free usable molecules faster and

more efficiently from residues such as wood chips and corn stalks.




Industrial use of biomass (cont'd)

The United States Department of Agriculture’s “Billion Ton Annual Supply” biomass report estimates that biomass consumption

for the industrial sector will increase at an annual rate of 2% until 2030. Additionally, biomass consumption in electrical utilities

will double every 10 years until 2030. The production of transportation fuels from biomass will increase significantly, with

biomass use increasing from 0.5% of U.S. transportation fuel consumption in 2001 to 4% in 2010 and 20% in 2030. Production

of chemicals and materials from bio-based products will increase from approximately 5% of U.S. chemical commodities in 2001

to 12% in 2010 and 25% in 2030.

The same USDA study suggests that 73% of the biomass supply will come from agricultural sources, including both dedicated

energy crops and residues from other crops. Other likely inputs include forestry, aquatic biomass and waste.

Source: Modelling of Energy-Crops in Agricultural Sector Models – Witzke et al, EU Commission, 2008

As Figure 19 shows, in 2000 already 20% of total biomass was being used for industrial purposes globally; not all of the sources

mentioned in Figure 18 were so far being exploited to a significant extent.

Sources: Biorefinica 2009 - MinDirig Günther Jikeli, Federal Ministry for nutrition, agriculture and consumer protection, January

2009; Krausmann et al. 2008

Figure 18. Sources of biomass for industrial use

Capgemini 2010

Energy

crops

Agricultural

residues

Forestry Aquatic

biomass

Waste

• Hay crops

• Sugar crops

• Wood crops

• Oil crops

• Hay residues

• Sugar

residues

• Wood

residues

• Oil residues

• Wood

platform

• Wood

residues

• Algae • Industrial solid

• Industrial pulp

• Used vegetable oil

• Municipal solid

• Sewage sludge

• Landfill gas

• Organic manure

• Animal platform

Primary biomass production

Figure 19. Usage and supply of biomass in 2000

Capgemini 2010

Raw materials &

bioenergy

Fuelwood10%

Food

Feed forlivestock

58%

Total biomass = 12.14 bn ton dry matter

Harvested

crops

Crop

residues

Grazed

biomass

32%

Woodremoval

Usage Supply

20%

12%24%

28%

16%




The supply side: limiting factors

While demand from all these sourcesis likely to grow rapidly, the supply ofcrops will come up against a numberof constraints. Availability of land

is the most obvious, but the limitedsupply of water, though much lessdiscussed, is at least as important.

In this section, we look at three majordeterminants of supply: the limitedamount of arable land available, theshortage of water, and the ability ofagriculture to increase productivity.

Limits on arable land

Land usage cannot expand enoughto support population growth with

productivity held constant. To do soit would have to increase at the samerate as the population, which as wehave seen is expected to increaseat 1% per annum until 2050.

In practice, however, the area ofland under cultivation is expectedto increase only marginally: by0.1% according to a study bythe FAO. Arable land area in

developed countries peaked in themid-1980s and has since declinedsignificantly – a trend that is likelyto continue. In developing countriesland use will continue to grow, butonly very slowly. Globally, between2m and 5m hectares of arable landare estimated to be lost annuallythrough soil erosion, urbanizationand industrial pollution.

The fact that arable land cannotexpand to match the growth in

population will clearly resultin a significant decrease in thearea of arable land availableper capita (see Figure 21).

While the rate of decline is slowing,the earlier decline was offset byhigher yields resulting from themore efficient agricultural techniquesintroduced following WWII (duringthe so-called “green revolution”).Most analysts feel that that rate of

productivity increase will not besustained over the next half-centuryunless new techniques are developed.

Those techniques are urgentlyneeded. It is estimated that arableland expansion will be able to meetonly 9% of increased food demandby 2050; the rest will have to bemet by increasing productivity.





Capgemini 2010

Figure 20. Area of arable land under cultivation, 1961 - 2050

13751521

1602 1648 1673

679 678 635 609 587

693837

9661040 1086

0

200

400

600

800

1000

1200

1400

1600

1800

1961 - 63 1989 - 91 2005 2030 2050

M i l l i o n h e c t a r e s

World Developed countries Developing countries

Trends in arable land, 1961 - 2050

Capgemini 2010

Figure 21. Arable land per capital 1960 - 2050

Trends in arable land per capita, hectares per person, 1960 - 2050

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

H e c t a r e p e r p e r s o n

World Developed countriesDeveloping countries

0,45

0,39

0,33

0,290,26 0,25

0,22 0,210,20 0,19

0,69

0,64

0,57

0,520,48 0,48 0,46 0,45 0,44

0,42

0,330,29

0,230,21 0,19 0,19 0,18 0,17 0,16 0,15



The example of cereals production shows why it is impossible to meet

increasing demand through land expansion alone

Cereals currently occupy 51% of the world's total harvested area. In 1961, total

cereal production was 877 million tonnes, harvested from 688 million hectares of land

– a yield of 1353 kg/hectare. In 2007, while total production had increased by 168%since 1961, available land had grown at only 15%.

This increase in land, even with the use of multiple cropping practices, would have

been able to meet only 20% of the increased cereals demand. To meet it in full

would have required an additional 1737m hectares - and so there would have been

a shortfall of almost 1000m hectares. Only with a yield increase of 149% was it

possible to achieve this level of production.

Source for this section: The resource outlook to 2050 - Paper presented at the FAO

Expert Meeting, 24-26 June 2009, Rome on “How to Feed the World in 2050”, Jelle

Bruinsma

Capgemini 2010

Figure 22. Comparison of land required for cereal production

at constant 1961 yields, 1960 - 2007 and 2050

Case example: comparison of land required for cereal production at constant 1961 yields, millions, 1960 - 2007 and 2050

0

500

1.000

1.500

2.000

2.500

3.000

M i l l i o n s

20502005200019951990198519801975197019651960

Production,

million tonnes

Land required,

million hectares

Land available,

million hectares

Land harvested,

million hectares





Limits on water availability

Water is becoming scarcer,particularly in developing countries.The average number of droughtshas been increasing. Worldwide,around 1.2bn people live in areasof absolute water scarcity (wherehuman water use has surpassedsustainable limits). By 2025, it isestimated that the figure will haverisen to 1.8bn. The problem is likelyto be aggravated in future by waterpollution and by over-exploitation ofsurface and ground water resources. Increasingly, agriculture itself isbeing seen as a major cause of globalwater scarcity. Currently, it accounts

for as much as 70% of the freshwater withdrawals in the world.

Water withdrawal for irrigation willincrease by 13% between 2000 and2050, with virtually all the increaseoccurring in developing countries.

As populations grow, competitionbetween agricultural use of water andother uses is expected to increase.

The limited supply of water foragricultural purposes is expected to

constrain agricultural productionseverely, especially in water-scarceregions like the Near East, North

Africa and South Asia. Here theindustry is active in breedingprograms for drought resistanceand water use efficiency.

Source for this section:Comprehensive Assessment of

Water Management in Agriculture,2007, International WaterManagement and Earthscan

Agricultural productivity

In the past, the majority of increasesin the food supply have comefrom higher yields made possibleby better agricultural and farm

management practices (such ascrop rotation), farm equipmentand machinery, the use of chemicalfertilizers and pesticides and morerecently by genetic improvements.Given the above-mentioned resourceconstraints, agricultural productivityis the main lever available toincrease supply in future, and it isalso the area where agribusinesscan make a major contribution.

A gap that must be bridged

We have seen in this section that aprojected increase in global demand isgoing to be coupled with limitationsof supply resulting from scarcityof natural resources like land andwater. This gap between supply anddemand dictates that those resourcesneed to be used more effectively,and agribusiness is one of severalmajor stakeholder groups that canhelp to make that happen, as weshall discuss in the next chapter.

Additional sources for chapter 3:World population to reach 9.1 bn in 2050 — UN news center, February 2005; Innovative Agriculture Helpsto Meet Basic Needs of Life – Dr.Günther Eberz, Environmental andScientific Affairs, Bayer CropScience; Agricultural Outlook 2008–2017,OECD–FAO, 2008; How to feed 2 billionmore mouths in 2030? Here are someanswers, FAO newsroom, July 2007



A shared responsibility

In the preceding chapter we sawthat meeting anticipated growth indemand for the outputs of agricultureis bound to be challenging given

the constraints on supply. Managingdemand and eliminating waste bothhave their part to play, but the mostimportant success factor will befinding new ways to increase yield.This will require significant efforton behalf of all those concerned,including political decision-makers,agribusiness companies, growers,retailers and consumers.

In this section we summarize(Figure 23) and describe the part

that each of these groups can play.

Political decision-makers

Political decision-makers shouldbuild a platform to support a stableagricultural environment, for examplethrough their ability to influence

economic, social, environmentaland educational conditions. Theyshould encourage long term yieldimprovements and support the freeflow of products between nations,making appropriate use of levers suchas regulation and subsidies, and wherepossible increasing the consistencyof regulations between regions.

They must also facilitate the debatearound the acceptance of GM crops– a debate which has proved fiery in

Europe – by providing the populationwith clear, balanced informationto enable reasoned judgments.

Agribusiness companies

Companies should support thedevelopment of safe seed andchemical solutions to increaseyield. They have an opportunity towork with growers in a variety ofways to improve conventional farmmanagement processes, as part of a

shift from product- to service-basedofferings. Specifically, they shouldaim to increase the benefit of theirproducts by training famers in, forexample, the application of spraysand powders to maximize efficiency,or the selection of seed products bestsuited to local growing conditions.

Companies should also strive to createpricing models that will work forstakeholders, shareholders and those

in most need. This is particularlyimportant where the increase indemand for products comes fromthose countries least able to payconventional prices for them.

4 Dealing with the Demand-Supply Gap

Capgemini 2010

Figure 23. Summary of actions required from each stakeholder group

Political decision-makers Agribusiness Growers Retailers & consumers

Stakeholder actions

• Facilitate debate on

GMOs

• Providing Europe

with accurate and

balanced

information to

support their views

• Regulatory – being clearand co-operative with

the industry

• Use appropriate

financial levers to

stimulate the markets

• Subsidies

• Trade agreements

• Grants/incentives

• Stop counterproductive

incentives

• Develop products that

support the growers to

deliver yield gains

• Work with growers to

improve farm

management practices

and use of products

• Create economicmodels that work for

developing countries

and shareholders alike

• Facilitate the sharing of

best practices between

growers

• Adopt relevant products

and practices to drive

yield improvement

• Share best practices re

yields with other

growers

Retailers

• Drive responsible

sourcing

• Encourage responsible

usage (via responsible

selling)

Consumers

• Purchase more local

produce

• Buy only what is needed

(drive down waste)

• Buy seasonally




4 Dealing with the Demand-Supply Gap 27

is wasted. Bread and potatoes arethe two most common waste groupsbut vegetables make up one fifthof all wasted food. More sensibleusage of multiple purchase offers

(e.g. “buy one get one free”) is oneof the ways retailers can help toreduce wastage. In the UK, therehave been proposals to legislate inthis area if retailers do not voluntarilymodify their use of these offers.

Retailers can also help theircustomers to make informeddecisions – for example they canraise awareness of where foods aresourced through clear labeling.

Consumers

It is down to consumers to purchaseand eat responsibly, that is to say,buy what they need and eat whatthey buy: 60% of all wasted foodin the UK is not only uneatenbut still in its package. As well asmeal planning, there is significantscope for reduction in waste levelsthrough better storage of food.

Where possible, consumers should

buy seasonally available, locallyproduced food. They should reduceconsumption of those goods thatplace greatest pressure on the foodnetwork, such as red meat; some suchsteps may also result in a healthierdiet. Another example of potentialchange is that on Valentine's Day inthe Western world we like to sendroses as a token of our affections. Wedo so with little thought of where theyare sourced, or the natural resources

and land used to grow them.

Growers

Growers need to improve andmaximize the yields of chosencrops, with facilitation frompolitical decision-makers and tradeassociations. Currently there is awide variation in yields of a singlecrop between countries. Differencescan be explained to some extent byagro-ecological environments, socio-economic and policy environments– all of which are difficult toovercome. However, there is alsowide variation in farm managementpractices and selection and use ofseeds, fertilizers, herbicides, pesticidesand so on, suggesting that there issometimes room for improvement in

this area. Trade associations can helpby sharing best practice with theircounterparts in other countries.

In countries where yields arenearing the present global maximumlevels, the ability to increase yieldsfurther depends on the continuedprogress of agricultural research,and in particular on agribusiness'ssuccess in developing higher yieldvarieties (whether through genetic

modifications, hybridization orconventional selective breeding).

Retailers

Retailers can play a major part inencouraging the responsible purchaseand use of foods. There is an obviousconflict here, as retailers are generallymeasured on sales and sales growth,which means they would ratherthat consumers bought more fromthem, even if it ends up as waste.

Food wastage is particularly commonin developed countries in Europeand the Americas, and is increasing.Studies in Western Europe suggestthat as much as 40% of food bought



The industry enters a

period of uncertainty

In previous chapters we haveoutlined the challenges agribusinessplayers face with respect to the

global tension between demand,supply and resource constraints. As they plan their approach tothis problem, organizations willalso have to deal with a numberof other changes to the businessenvironment, and in many cases todesign strategies that accommodatemore than one possible outcome.

During our interviews for this study,we explored a number of alternative

scenarios that we believed

would shape

the industry over the next three tofive years. Interviewees clearly toldus that several of these scenarioswould have a particularly significantimpact on the future of the industry.

In this chapter, we discuss someof the most important of thosescenarios, and consider how theywill affect agribusiness, particularlyin terms of companies' increasingneed to manage complexity.

When so many imponderableslie ahead, it is fortunate thatagribusiness is more used to dealingwith uncertainties than many othersectors. It has always been, and

continues to be, heavily impacted bytwo key uncertainties: the weather

and economic conditions.

5 Future Scenarios and their Implications for the

Industry




5 Future Scenarios and their Implications for the Industry 29

Industry insiders predict

future scenarios

Along with the major challenge ofbridging the demand-supply gap,a number of future trends willshape the industry's next decade.

We asked our survey respondentsto state how they expected theindustry and its environment todevelop over the next five years interms of a number of drivers. Theresults are shown in Figure 24. Theblue circles indicate the averageof responses in each category.

From this exercise, and from theearlier discussion of business models(see section 2), we have identified

four key drivers of complexity.

These are:

• The impact of legislation onproduct portfolios

• Changing public perception ofchemicals and GMOs

• The degree of productdifferentiation required betweendifferent markets, and

• The shift from products to service-

based offerings

Combining the possible scenarios foreach of these four drivers, as shownin Figure 25, illustrates the increasingcomplexity faced by the industry.

We now review each of the fourdrivers in turn, commenting on thepossible outcomes, before movingon to a more general discussionof the implied complexity.

Capgemini 2010

Figure 24. Predicted scenarios in 12 key dimensions

Population growth

Regulation

Credit availability

Competition from

rivals

Competition from

generics

Price/availability of

raw materials

Counterfeits

Subsidies

Stance on GMOs

Growth potential in

markets

Serving emerging

markets

Government policy

Population growth in line

with UN projections

Minor impact of regulations

on current products and

near-term prospects

Free cash flow

Competitive situation as

current

Low/no penetration of

generics

Continue to drive value from

purchasing power

Low penetration of

counterfeits

Significant and stable

subsidy environment

Public increasingly

supportiveEstablished market sizes

remain static or even

shrinking

Can access and profitably

serve new significantly

growing markets

Political decision-makers

support free market

Significantly increased

population growth

Drastic impact on current

and future portfolio

Defaulting debtors and poor

credit

Drastically increased

competition

High/increasing threat from

generics

Increase in population and

demand leads to availability

and prices

High penetration by

counterfeit products

Significant reduction of

subsidies, and unpredictable

changes

Public increasingly resistant

to GMOsContinued growth in

established markets

Issues impacting pricing and

logistics in emerging markets

– not profitable

Intervention e.g.

subsidies/tariffs

Driver Best case Worst case

EUU.S.

Capgemini 2010

Figure 25. Combining scenarios for four key drivers

reveals increasing complexity

Degree of product

differentiation by market(Business model differentiation

driven by specific requirements in

local markets)

Legislative impact

(More significant split in portfolio

in terms of what can legally be sold

in each region )

Product - or service-based

offerings

(Competition from branded and

generic competitors forces

innovative offer development)

Increasingcomplexity

Public perception of

chemicals/GMOs(More significant split in portfolio

of what is likely to be bought in

each region)

1

2

3

4

• Drastic impact on current

and future portfolio

• Minor impact on

current/future products

• Public increasingly resistant

• Public increasingly supportive

• Homogeneous productsacross all markets

• Many products differentiatedby market

• Service-based offerings

• Product-based offerings



The legislative impact Tougheningregulation, particularly in Europe,suggests that a likely outcome isan increasingly significant split inportfolio in terms of what can legally

be sold in each region. It is widelyexpected that the EU and U.S. willcontinue to differ widely as to what isapproved or not approved. There aretwo potential outcomes for countriesthat do not ban the use of products inthe current portfolio. Firstly, the U.S.could become a “cash cow”: a marketin which high or stable margins canbe earned on more mature products.Secondly, a country like Brazil couldbecome a high-growth market. Bycontrast, markets that maintain a

more restrictive regulatory stance(including EU countries) couldbecome costlier and more complexto serve as they will require increasedR&D expenditure to develop productsaligned to emerging regulation.

Public perception of chemicalsand GMOs The historic trend hasbeen the emergence of two camps.The first, led by the U.S., has a proor open stance towards the use of

GMOs to drive yield and nutritionalbenefits. The second, led by the EU,has an anti or closed stance. Onceagain, the likelihood, as confirmedby those interviewed in our survey,is a continuing divergence in thesetwo camps. If realized, this trendwill have a significant impact onthe ability of EU-aligned countriesto increase yields and support thesupply side of the food shortageequation. A moral question could

even be raised as to whether thedeveloped countries in WesternEurope should be able to make thedemands they do on the internationalfood network (such as year-roundavailability of all foods) if they are

unwilling to maximize their ownproduction through use of GMOs.

Degree of product differentiationby market The growth that is being

seen in emerging markets brings anadditional layer of complexity in termsof local and regional requirementsfor products. The combination ofdiversity and specificity requiredby differences in local climate, soiland pest conditions means the likelyoutcome will be a greater need for anincreasing number of differentiatedproducts. Companies will also usethese differentiated and configurableproducts to respond quickly toevolving conditions: for example

certain pests become more prevalentin certain weather patterns, so thepesticides that a company will need tosupply in a given region will dependto some extent on the weather there.

Product- or service-based offeringsTwin competitive pressures frombranded and generic companiessuggest that successful companieswill be forced to augment productofferings with specific services, such

as training and support to growers,in order to protect revenues andmargins. This scenario will requirea greatly increased understandingof the needs of the growers in localmarkets driven in part by informationfrom distributors and also throughstronger relationships with growers.

In isolation, these changes suggest thatbusinesses will need to cope with anincreasingly complex environment in

order to succeed. When the changesare combined, the likely degree ofcomplexity increases exponentially.





set. Monitoring and early sensingof the evolving scenarios will bevital to enable a fast response; thismonitoring activity will require carefulmanagement to ensure that it remainsa continuous and ongoing process.

Agile organization Once trendsare understood and the capabilitiesrequired to satisfy them have beenidentified, the organization mustbe able to adapt. In the case ofsome climate- or pest-driven localconditions, the company must be agileenough to deliver specific products

to specific geographies within specifictimescales. The need for agility isperhaps greatest with respect to theemerging markets in Asia Pacific andLatin America, with their diverseclimate and local conditions.

Ongoing monitoring of evolvingscenarios The trends we have beendiscussing will interact in complexways as companies strive to meetthe divergent requirements ofdifferent geographies. For example,companies may find themselvesmoving from products towardsservices at the same time as theyare moving from a homogeneousto a highly differentiated product

Complexity – the traits that

organizations need to succeed

Figure 26 shows how thesecomplexities will affect organizations,both in terms of the types offlexible traits that they willrequire and the capabilitiesneeded to support these traits.

The flexible traits that will be requiredto deal with the new complexity canbe grouped into three categories:strategic (that is, those requiringan improved understanding ofcustomer and competitor trends),operational (those requiringimprovements or adjustmentsin how agribusiness companies

execute) or technical. We now lookat the requirements in each of thesethree categories in more detail.

Strategic requirements

Rapid global visibility of changes This visibility is needed to anticipate,predict and react to evolving marketconditions. Companies must collectdata on what is happening in eachcountry they deal in, and from thatdata should build an understanding

of local, regional and global trends.

Good understanding of futurecapabilities needed Understandingfuture trends is only half of thebattle. To ensure they are adequatelyprepared, companies must map thesetrends to the capabilities required tomeet them. By performing somethingas simple as a gap analysis betweencurrent and future organizationalcapabilities, they can then decidehow best to fill each gap, whetherthrough re-training, recruiting oroutsourcing services. The followingsection outlines major capabilitiesthat we believe will be important.

Capgemini 2010

Figure 26. Traits and capabilities that companies will need to deal

with future complexity

Degree of product- orservice-based offering

Legislative impact

Degree of productdifferentiation by

market

Changing public

perceptions of GMOs

Drivers of complexity

Agile organization – adapt toglobal/regional/local needs

Process adaptability

Good understanding of futurecapabilities needed

Strong local product launchcapabilities

Ongoing monitoring of earlyemerging scenarios

Rapid decision making

Capable resources

Strong business case analysis

Accelerated execution of chosenpriorities

Rapid prioritization of initiativesand resources

Robust, ongoing strategic planning

Successful organizations will need … … and the following capabilities

Rapid global visibility of changes

Sound relationships across thevalue chain

Flexible approach to sales & marketing

Global information visibility &

consistency

Relationship building with endcustomers and distributors

Reliable, up-to-date business

intelligence

Rapid exchange between centraland local stakeholders

Key

= strategicrequirement

= operationalrequirement

= technicalrequirement



Operational requirements

Strong local product launchcapabilities Historically, many ofthe crop protection products havebeen launched globally, or at least

in accordance with a global roll-outplan (according to which theywere launched sequentially in localmarkets). This approach means thatmost product launch capability residesin global teams, which provide localsupport as necessary. In a scenariowith more locally-tailored products,product launch skills will increasinglybe needed locally. The challenge willbe to provide these skills at a cost lowenough to safeguard profitability.

Process adaptability In order to beagile enough to respond to a changingenvironment, organizations will needefficient and streamlined processesthat are harmonized where possibleand standardized where required.

Active ownership and managementof these processes is essential to

provide the flexibility needed. Anorganizational ethic

such as Lean (where all processes aredesigned to deliver maximum value tothe customer with minimum wastage)is a perfect starting point for thistype of active process management.

Sound relationships across the value chain If the sector doesindeed shift towards an increasinglyservice-based offering then there willbe a need to develop much deeperrelationships with other stakeholdersin the value chain – particularlythe R&D and end customers(distributors and growers). Findinga cost efficient and effective way ofengaging with end customers will bea key part of successful medium- to

long-term strategies, as will formingcollaborative partnerships withacademia to drive plant science.

Flexible approach to sales &marketing The increasing needfor local customization of productmarketing and selling will requireflexibility in the model, togetherwith a greater understanding of theneeds of the end customer. As withproduct launch, the challenge will

be to find efficient ways of providingthis flexibility without erodingprofits or competitive advantage.

Technical requirements

Global information visibility andconsistency If they are to obtainrapid visibility of shifts in marketdynamics, companies will need amuch improved ability to see andinterrogate global data, and to doso rapidly. Data must be clean,

consistent and collected in or nearreal time. All this puts greateremphasis on the implementationand management of master data andbusiness intelligence strategies.




who embrace it as part of their jobof driving competitive advantage.

Accelerated execution of chosenpriorities Sensing and planning

are only one half of the equation.It is equally important to be ableto execute the identified prioritiesquickly and effectively.

Relationship building with endcustomers and distributors In orderto offer more tailored products andservices to growers and distributors,companies will need a betterunderstanding of their current andfuture needs. That understanding canonly be achieved by forging closer

relationships with both groups.

Reliable, up-to-date businessintelligence As we stated above,complex and rapidly-changingbusiness environment requires datathat is clean, consistent and collectedin or near real time, with consequentrequirements for implementationand management of master data andbusiness intelligence strategies.

Rapid prioritization of initiativesand resources Organizations arealready faced with a plethora ofprojects requiring investments ofboth capital and human resources.

Increasing demands for flexibility andaccelerated execution will compoundthese choices. It will be vital tohave a robust process for portfolioprioritization and management – aprocess that must itself respondflexibly to shifting dynamics.

Rapid decision making Businesseswill need to be able to preparefor, make, communicate and thenimplement decisions more rapidly.This ability will depend on a clear

awareness of the “burning platform”that necessitates the decision.

Rapid exchange between centraland local stakeholders Enhancedcommunications will be needed inboth directions – from individualcountries up to the organization'sglobal leadership, and back downagain from leadership to countries.Local stakeholders will have to informleadership of what developments they

are seeing, and what they believe theopportunities and challenges are. Theorganization's leadership will need tocommunicate to local stakeholdersthe decisions made on priorities,programs and changes. Clear andunambiguous communication,both upwards and downwards,will be vital if the organization isto capitalize on its opportunities.

Capable resources Companies

need people who are readily able toadapt to evolving scenarios, as theybecome clearer, by acquiring andapplying new capabilities alongsidetheir existing ones. They need peoplewho expect change to happen, and

Complexity – what capabilities

will organizations need?

We have just outlined the traits thatwe believe organizations will needto manage complexity successfullyin the agribusiness sector of thefuture. To demonstrate these traits,a company will need to make sureit has sufficient capabilities in thefollowing areas. As we argued above,it is advisable to conduct gap analysisto identify any shortfalls in theseareas, and then take steps to acquireor develop the necessary capabilities.

Robust, ongoing strategicplanning Given the number ofpossible scenarios and the interplay

between them, sound scenariomodeling capabilities will beneeded. Companies also need toidentify a set of lead measures tohelp identify how the scenarios areactually playing out. Also requiredwill be a clear, “evergreen” (thatis, constantly revisited) set ofplans for what is to happen undereach of the different scenarios.

Strong business case analysis

Firms must be able to modelbusiness scenarios, apply businesscase techniques to all projectsand programs, and, critically,map these business cases to theirP&Ls. In this way they will obtainabsolute transparency of whyany given program is running;it will become easy to decidewhich projects and programs tostop, and which to prioritize,when a new scenario emerges.




Complexity – organizations are up for the challenge

The majority of interviewees believe that their organization has the right growth strategy, that it is well communicated and they

are resourced to deliver it, as shown in Figure 27.

However, consistently with our discussion above, interviewees felt less confident that they had the capabilities to deliver

their strategy. When asked about the internal challenges to their strategy, most interviewees stated that the capability of their

resources was the most likely barrier to success (Figure 28).

Capgemini 2010

Figure 27. Companies generally feel well equipped to deal with the future

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Everyoneunderstands it

Most peopleunderstand it

Some peopleunderstand it

Very fewunderstand it

How well understood is your

company's strategy?

% o

f r e s p o n s e s

0%

10%

20%

30%

40%

50%

60%

Very confident Somewhatconfident

Somewhatunconfident

Veryunconfident

How confident are you it's the right one?

% o

f r e s p o n s e s

0%

10%

20%

30%

40%

50%

60%

70%


Somewhatunconfident

Veryunconfident

To what extent do you have the resources

to deliver it?

% o

f r e s p o n s e s

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


Somewhatunconfident

Veryunconfident

To what extent do you have the capabilitiesto deliver it?

% o

f r e s p o n s e s

26,3%

42,1%

31,6%36,8%

52,6%

10,6%

21,1%

57,9%

21,1%

26,3%

21,1%

42,1%

10,5%

Capgemini 2010

Figure 28. Internal challenges to realization of strategy

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

Capability of

resources

Prioritization of

initiatives

Effective decision

making

Managing product

lifecycles

R&D pipeline

productivity

% o

f t i m e s r a n k e d i n t o p 5 a n s w e r s

25,5%

20%18,2% 18,2% 18,2%




These complexities will, aboveall, require greater organizationalflexibility. We have identified a groupof capabilities that will be required toenable it, such as a robust strategic

planning process that anticipatesand allows for multiple outcomesin key dimensions of change, andaccelerated execution of both of theresponses to these trends and ofbroader transformational activities.

It all adds up to a tall order. Thenext few years promise to be aninteresting period for the industry.For companies that find a wayto manage the complexities, itcould be a highly lucrative one.

The agribusiness sector has seenimpressive growth in recent years, andmost companies in the sector haveperformed well. Challenges on thesupply side of the international foodnetwork, combined with increasingdemand, mean that this growth islikely to continue, though it should beremembered that the market is equallyattractive to generic manufacturers.However, the intensifying difficultyof satisfying demand, given limitedavailability of land and water, placespressure on all stakeholders to takeaction, whether they are politicaldecision-makers, agribusinesscompanies, growers, retailers orconsumers. The industry needs to

be seen to be acting responsibly,forestalling accusations of profiteering.

Whilst the agribusiness industry isused to dealing with uncertaintiessuch as the weather and economicslowdowns, its dynamics are likelyto become increasingly complex.This complexity is expected tobe driven predominantly by theimpact of legislation in certaingeographies, the changing and varied

public perception of GMOs andagrichemicals, the degree of productdifferentiation needed by the marketand the potential shift from pureproduct to service-based offerings.

6 Conclusion

6 Conclusion 35



Suday KarkeraManager of Life Sciences StrategicInsights Team, India+91 22 6755 [email protected]

Suday has more than ten years ofresearch and consulting experience inthe Life Sciences sector. He holds aBachelors degree in PharmaceuticalSciences and a Masters degree inBusiness Administration.

Matthew WhitsonUK Life Sciences+44 870 366 [email protected]

Matthew has broad experience inhelping clients deliver strategic andoperational improvement projectsacross the value chain. He previouslymanaged Capgemini’s StrategicResearch Group in the UK.

Tom SwansonUK Life Sciences+44 870 904 [email protected]

Tom is a Senior Vice President in theLife Sciences Practice with abackground in Development andInnovation, he is one of the creatorsof Capgemini’s Accelerated ExecutionFramework and is a recognised expert

in this field.

Guenther IllertCentral Europe Life Sciences+49 69 9515 [email protected]

During his 18 years in consulting,Guenther has worked among otherswith clients on strategic issues in thecrop protection, seeds, farmmanagement and dairy industry.

Hanne Buus van der KamGlobal Life Sciences+46 8 5368 [email protected]

Hanne leads the Life Sciences practiceglobally and has more than 20 yearsof experience from strategic andoperational work across the lifesciences industry.

Study Team and Contributors

Tim DulleyHead of UK Life Sciences+44 870 905 [email protected]

Tim leads the Life Sciences practice inthe UK and has extensive experiencein pharmaceutical sales and marketingand agribusiness.




37

Study Team

Hanne Buus van der KamTim DulleyGuenther IllertSuday KarkeraTom SwansonMatthew Whitson

Other Contributors

Mattias BergstromRikke Decara

Dr. Jochen KohlerKarin Olivier

Research

Jenny Ritchie-CampbellSuday KarkeraPrachi Chowdhury

Abhinav Sahai

Design and Production

Monika Hespe, Frank Schubert

For questions regarding this

research report please contact

Matthew WhitsonUK Life Sciences+46 70 377 [email protected]

76 Wardour Street -London - W1F 0UU



Capgemini, one of the world's foremost providers of consulting,technology and outsourcing services, enables its clients to transform

and perform through technologies. Capgemini provides its clients withinsights and capabilities that boost their freedom to achieve superior results througha unique way of working, the Collaborative Business ExperienceTM. The Group relies

on its global delivery model called Rightshore®, which aims to get the right balance ofthe best talent from multiple locations, working as one team to create and deliver theoptimum solution for clients. Present in more than 30 countries, Capgemini reported

2009 global revenues of EUR 8.4 billion and employs 90,000 people worldwide.

More information is available at www.capgemini.com

Rightshore® is a trademark belonging to Capgemini.

Capgemini Consulting is the Global Strategy and Transformation Consulting brand of theCapgemini Group, specializing in advising and supporting organizations in transformingtheir business, from the development of innovative strategy through to execution, with

a consistent focus on sustainable results. Capgemini Consulting proposes to leadingcompanies and governments a fresh approach which uses innovative methods, technologyand the talents of over 4,000 consultants world-wide.

For more information: www.capgemini.com/services-and-solutions/consulting/

About Capgemini

The information contained in this document is proprietary.

Copyright © 2010 Capgemini. All rights reserved.





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