By Josh Smart, CIC, CRM, AFIS, Practice Leader & Chief Sales Officer – Agribusiness, Food & Cannabis Practice 

As restaurants, school districts, specialty food retailers and foreign food vendors face ongoing COVID-19 restrictions, many farmers and agribusinesses find themselves with supply that far exceeds demand. These entities can make up a substantial portion of agribusinesses’ customer base.

The global pandemic continues to create major supply and demand issues for agribusiness, dairies, meat processing plants and vegetable and nut growers in particular. Though demand has risen in some areas due to COVID-19 vaccination programs, oversupply is likely to remain a concern throughout 2021.

The industry is finding innovative ways to find new markets, often through identifying innovative delivery channels. For instance, they are selling food products directly to consumers online, while other producers have started local farmers’ markets and finding ways to diversify their product or become vertically integrated to meet changing market demands.

How to reduce risk in an era of uncertain demand

Even as the CDC recommends widespread reopening of schools and restaurant restrictions ease up, identifying new routes from farm to table will be crucial for growing profit margins.

Here’s four things that farmers and food processors can do to ensure they can deliver product to market and minimize demand risk: 

  1. Turn to the commodities markets to lock in buyers. Rather than hoping commodities prices rebound, it may be worth it to accept a lower price in return for assured demand. Commodities brokers are recommending buying contracts that deliver a price that can sustain your business. Pre-COVID-19, producers often disdained locking in a price for even half of their product, but doing so now may be the smartest move, particularly for grains, meat, fruit and nut producers.
  1. Diversify when possible. Explore new channels for sales, and if you can, produce new products. Keep an eye on market trends locally, nationally and internationally; find new platforms for marketing and selling through online distributors, farmer’s markets or specialty shops. If you have the resources, expand your product offerings. Diversification means developing variety in what you grow, make and sell. This will better position you to adjust to shifting markets at all times.
  1. Right-size your crop insurance. Producers often underinsure crops or may buy too much coverage. Work with a broker to evaluate insurance coverage so that insurance is right-sized for the business’s needs. If you want to grow new crops or raise livestock, determine the insurance needs for those new lines. In strong market years, insure your profit. In leaner years, it’s smart to insure your livelihood.
  1. Consider trade credit insurance. Trade credit insurance protects assets against unpredictable trade agreements or foreign governments taking actions that unexpectedly shut down markets. Once your product leaves the port for sales overseas, an agribusiness remains responsible for the shipment until arrival; producers are usually not paid until a load is inspected and approved. In case a producer hits bumps along the journey — perhaps a foreign port declines entry — trade credit insurance protects the producer. A $500,000 contract with an overseas buyer may warrant trade credit insurance for $250,000, for example. That insures against delivery being denied, declared defective and other types of exposure.

Contact HUB Risk Services for more information on minimizing the impact of the supply and demand issues on your farm or agribusiness.