The Macro View - How the world is changing post COVID-19
“We’re all in this together.” No matter our location, politics, profession or personal situation, there is no doubt that we are not only affected in the short-term by COVID-19, but that there will be long lingering impacts that may change a lot of fundamentals in how we live.
While many of us will have been head down, focusing on just getting our jobs done while dealing with the necessary constraints to keep our families and colleagues safe, we have also been learning about the drastic impact of this virus on our consumer markets, our access to labour, supply-chains and even the basis of our national economy.
While it would take a book to cover the full implications, here are some of things that we are learning about the new order.
Firstly, let’s just step back and remind ourselves of what was important just prior to COVID-19.
Consumers care. Mostly they care about price and convenience – those are fundamentals that don’t go away. Recently they have increasingly been caring about nutrition – fat, sugar, carbohydrates and protein are now regular points of discussion, and some are even reading nutrition panels!
Now we are seeing the environmentally conscious consumer stand up. Comparative reports emerge of different food footprints, and not as naïve as they used to be, for instance considering local growing conditions rather than over-generalised foreign methodologies. Younger consumers, for all of their apparent “influencer” traits, are also often the ones who share fact-checking reports highlighting “greenwashing”, where token environmental statements can be exposed as mere propaganda.
These changes in consumer preferences are driving an entirely new business sector, where the technology sector has crossed over into the food industry. This “Foodtech” sector has seen over US$25b of venture capital investment in the past decade, and enabled market disruption to relatively traditional markets.
Take for example the rise of fresh-food delivery services. While Uber Eats and similar delivery services may appear to dominate the conversation, international fresh food "meal kits" from the likes of Blue Apron (or New Zealand’s own versions such as My Food Bag, Woop! and HelloFRESH) continue to expand. A business model that emerged from Sweden in 2007, this sector is still seeing strong growth, with 56% of the 2019 food-tech venture investment going to meal kit services. Despite the growth, there are still concerns with the supply-chain management and cost-of-customer-acquisition in this market, however we are now seeing a second-wave where mainstream food-service players are embracing the concept.
Alternative proteins have also been a hot topic of conversation, with vegans no longer just viewed as the hemp-wearing hippies of old, but now a mainstream part of the market. Non-meat proteins are now not thought of as chunks of tofu, but instead of carefully engineered meat substitutes. For all the hype however, the reality is that this is still a market which is relatively immature, relying on imported (primarily pea) protein, serving a relatively small (but growing) group of consumers, and consequently investment in this sector is only 10% of 2019’s food-tech investment (compared for example to 16% in food-related eCommerce solutions).
The hot space emerging is undoubtedly environmentally sustainable foods. Globally the discussion is “How do we feed 10 billion people by 2050, without destroying the planet in the process?” At a time when climate change is reducing the amount of arable land available globally, we must produce more with less. This is a science, political, economic and societal challenge that can’t be ignored. Capital markets know it – and are channeling investment funds into solutions (and not only in food – but also sustainable energy, transport and consumables).
And then we have COVID-19.
New Zealand entered Alert Level 4 at midnight on March 25, which mean that large parts of the economy were effectively placed on life-support while the nation’s health needs were the primary focus. This strained the viability of many businesses, challenged supply chains and gave us all a sharp reset in our thinking.
At midnight April 27 we moved into Level 3, with very limited trading and some relief that maybe we had dodged the calamity that has devastated many other countries. In fact, New Zealand has been heralded around the world, enhancing the value of our national identity internationally.
In North America retail produce sales are down by an estimated 20%, and food-service 30% - 50%. Stories are emerging of produce being left to rot in fields as the supply chains are broken. Globally restaurants have been closed, and many may not re-emerge, while those that do will certainly be different to how they were before. Consumers have changed how they behave – in some cases learning to cook for the first time. Families have started preparing meals together, even baking. Food delivery services have exploded.
The rapid change in supply has also driven a rapid need for information. Food safety systems and security of supply has been put under strain, and better solutions are needed. The ability to even track labour activities on farm has come under scrutiny – who touched what, when and who could have been cross-infected? In North America, where growers can be private farms that are $500m+ businesses, they are facing real concerns with access to immigrant labour for harvest.
Food security has become a government priority around the world – talk of unilateralism, closed borders, social license (supporting those producers considered to be “good citizens”) and even production for an “age of austerity”. Exporters are nervous about increased credit risk, and importers are nervous about supply chains.
What we are seeing immediately is market nervousness. Investment funds have issued a “hold”. Most funds are focused on just keeping their existing investments alive in the immediate term, with larger funds saying that they have determined they will make no new investments until the end of 2021 – and their existing investments must survive until then, often without the prospect of any further capital injection.
In a matter of weeks we have seen a massive surge in global unemployment – over 30 million in the USA alone. Terms such as “furloughed” are now commonplace, some sort of employment purgatory, where you haven’t been laid off, but you’re just not needed for a while.
Locally, government is focusing on keeping people employed. Not every business can be saved, and there is a “survival of the fittest” mentality emerging. The challenge for economies around the world is the balance between health outcomes, socio-economic needs and avoiding creating debt that will take generations to recover.
Despite the realities of a likely global recession (and the billions of dollars being spent to soften its impact), New Zealand has a tremendous opportunity to position itself as a leader in supplying high-quality, safe and highly nutritious foods with excellent sustainable practices, and telling our story to our customers. We will grow our domestic markets first, but we will see innovative companies find ways of connecting to high-value international markets that tick the boxes for (the growing number of) consumers that care.
Microsoft has just announced its investment (pending regulatory approval) into a new datacenter in New Zealand. We happen to know that one of their focuses in this market is on agritech, and they are looking to form partnerships here that can be scaled globally.
Through adversity comes innovation. This is a great time for us to shake out the old habits that have been holding us back, challenge the way we have been doing things and position for the way the world will operate as we emerge from our current challenges. Not only does this ensure more value for us as an economy, but will drive more, valuable employment in our food and fibre industry, and drive the positive environmental change that will give us sustainable growth for generations to come.
Ensure our Food Safety and Quality plan is reviewed and ingrained in the business, and meets the heightened needs of the post-COVID world.
Sharpen our sustainability game. We must be ready to have the light shone on how we operate, and be proud when it is.
Use our resources wisely. Ensure we are growing the right foods in the right places – get the best yields with minimal inputs and protect the soil and water resources.
Get close to the consumer. We should always have the consumer in mind with our activities, and ensure we are ready for what they need (not only with the right product, but the right information on demand). We have a good story to tell, and need to be able to share it.
We’re in this together.