by Prof Marcos Fava Neves

Trading companies in agriculture

The world of trading companies has been impacted by several factors

Trading companies serve many functions in the agricultural supply chain
supply chain.jpg

Trading companies (TCos) perform several functions in agribusiness markets, but the most important is the trade. Find the sellers of crops (or what we call sourcing), and then help to find buyers. 

Most of TCos have gone backwards (vertical integration) and have gotten involved in processing (industrial phase). They also play an important role in logistics and in financing agribusiness, being this last fundamental in some markets.

Most of them have access to capital, fleets of vessels, world-class selling teams, and several other resources. Within the food chain, from agricultural supplies towards the final consumer, TCos operate in several ways. Some are more focused at the initial parts of the chain and others move forwards, towards final consumption via branded products. 

Several facts are impacting the world of TCos. As new entrants start to operate in the growing food business, we have a tougher competition in commodities, mostly in grain origination. In this way, some companies needed to expand operations through the value chain and others are reinforcing their position in the trading and/or input business.

Which are the facts happening at the global environment of TCOs that are influencing strategies of these companies?

  • Due to increase in consumption, the food trading business is growing fast in all parts of the world;
  • World is facing a mid term challenge of insufficient grain and other commodities origination;
  • Concentration of TCo’s via mergers and acquisitions;
  • Increase in transport costs and pressure over logistic resources;
  • Fast rate of internationalization of TCo’s, global operations and sourcing mostly to become bigger and also to take advantage of the different production cycles of the products in different regions of the world, making possible better usage of logistical and management assets;
  • New entrants in the traditional TCo’s market, like buying groups, selling groups, farmers, Cooperatives, crop input dealers and other agroindustry;
  • Access to information, one of the key competitive advantages of TCo’s is now worldwide available via web and other sources;
  • At the same time that TCo’s face an increasing market, it also faces increasing complexity in Governmental regulations (import taxes, export taxes);
  • Some Governments are transferring logistic infrastructure to private sector, creating important challenges and opportunities for TCo’s;
  • Consumer demands towards traceability, safety, security and certifications create more difficulties for the TCo’s traditional business;
  • NGO’s increasing pressure over TCo’s operation.

These facts, or environmental changes bring several impacts within the food chains and TCo’s global operations:

  • TCo’s core business remains grain origination, but to increase this capacity, TCo’s offers to farmers a complete package of products, like seeds, fertilizers, crop protection and other services;
  • Financial services gives a important competitive advantage in markets with lack of credit;
  • Some TCo’s are diversifying and moving backwards in the chain, increasing their operation as agri-input dealers offering complete solutions to farmers;
  • With this strategy, they will represent a new marketing channel for crop protection companies but also may increase channel conflict;
  • TCos are focusing in final consumer marketing products;
  • TCos are increasing activities and mostly investments over ports and other logistic infrastructure that has being privatized;
  • Some TCos are integrating operations with coops, farmers and fertilizer companies trying to build a lock in strategy to secure grain origination;
  • As other important food chain participants, TCos are increasing their demand driven behavior and building closer also with marketing activities; 
  • Also the integration of TCos and large farmers/coops can stimulate the development of crop input generics and private label strategies; 

 

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