We are constantly asked how the Food and Agri sector is performing in these uncertain times.
People expect to hear that the sector is resilient and not as affected as other sectors because surely everyone needs to eat. At a very high level, this is true. Most food companies across different countries have remained open during the lockdowns and farmers are still planting their fields. Barring issues caused due to logistics, there have been no food shortages across the globe due to the virus.
However, the value chain is complex and varies by sub-sector, country, and region. Making general statements about the industry is fraught with risks. I wanted to share a few observations that both the casual reader and the agri expert might find insightful.
The poultry industry in India has suffered greatly during the lockdown due to a perception that chicken can transmit Covid-19 when eaten. Despite efforts by the industry to dispel this belief, chicken sales in India were down c. 90% in the last two months. Globally, India is a top five producer of chickens and eggs making the drop significant for everyone involved in the industry including feed providers.
Fruit Juice Industry
The fruit juice industry in India has come to a virtual standstill as well. It turns out that most fruit juice is consumed “on-the-go” rather than at-home within India. To add on, home juice consumption is usually hand-made, as opposed to consuming from a PET bottle or tetrapak. Meanwhile, in the West, fruit juice consumption has gone up as more people stay at home and enjoy breakfast at home with a glass of juice.
Fresh Fruits & Vegetables
Similarly diverse reactions are seen in fresh fruits and vegetable consumption. India has seen a spike as more people revert to cooking at home with fresh fruits and vegetables, whereas the West has seen a growth in processed/ canned foods for home consumption over fresh fruits and vegetables.
The most interesting observation has been around milk consumption – which is surprisingly largely consumed in the office or by sweet makers in India. The unorganised and pouch milk segments in India have seen a significant drop in volumes while UHT milk has continued to perform well.
Ice cream is another product that has shown diverging trends in India versus the West. Ice cream consumption has stayed strong in the West as consumers are accustomed to buying and storing ice-cream at home as well as consuming at home. On the other hand, ice cream sales in India have come to a virtual standstill because it is something people typically eat when out of the home. There is also a societal notion that Ice cream is linked to potentially catching a cold and thus being vulnerable to Covid-19!
So while the above might seem obvious to some and bizarre to others, I hope it has highlighted the differing trends and shifting landscape in the food and agriculture sector.
On a more serious note, these different locations and habits of food consumption are causing serious pain for the sector where one might least expect it. The recent woes of the dairy sector and meat processing industry in the USA have been well publicised in recent articles shared on our Twitter and LinkedIn accounts.
We continue to believe that the sector is a standout in times like this for its relative stability on the demand side. But not all value chains are built alike and identifying the right sub-sectors and the right parts of the value chain for investments will remain a key factor for successful investing in the sector.
Uday Garg is the founder of Mandala Capital and has since 2008 been exclusively focused on investments in the food value chain. Prior to Mandala Capital, he worked at Altima Partners focusing on private investments in global Emerging Markets across sectors (including agribusiness). He began his career in the Investment Banking division of Deutsche Bank (New York), followed by Portfolio Manager roles at Amaranth Advisors (Connecticut) and Duet Group (London).