Emerging markets in Asia and Africa are expected to provide the majority of growth for global agribusiness organizations over the next 20 years, thus creating a need for greater cultural and political understanding of these key growth markets. Simultaneously, today’s agricultural merchants are developing increasingly complex business models that require long- term investment to succeed, making critical the ability to lead in a very strategic manner. Together, these market shifts are bringing about an evolution in the way that leading agribusinesses are run—creating growing pressure to develop or hire new functional and cultural expertise.
We interviewed a number of corporate leaders currently working with or within major agribusiness organizations, including chief executive officers (CEO), human resources (HR) executives and others, to find out how their companies are dealing with this evolution. Our interviews reveal that many of these organizations feel unprepared, lacking the necessary cultural and political expertise to take advantage of today’s market shifts. As one investment bank’s global head of agriculture noted, “Agricultural trading businesses have the requisite pioneering attitude and underlying specialism; however, there also is the need to be able to lead across borders and internationally. Asia, Africa and South America require a very different approach from North America and Europe.”
Our proprietary research also reveals that board members and senior executives who come from emerging markets are extremely rare within leading agribusinesses. “Despite being global, our organization doesn’t really understand the benefit that diversity can contribute to the business. It’s about bringing a different point of view,” one global HR director asserted.
To take advantage of the market shifts— driving growth and innovation and benefiting from opportunities as they appear—we believe global agribusinesses need to hire senior executives from developing economies and from external industries, focusing on cultural and experiential diversity to augment existing leadership. Doing so will help these companies stay at the forefront of the industry and compete successfully both at home and abroad. Based on our extensive research, we have developed five leadership priorities for success in this endeavor. We recommend that global agribusiness organizations take immediate action on these priorities, outlined below, bringing new leaders on board who can take advantage of the market’s evolution, both today and over the next 20 years.
Market Evolution: Emerging Opportunities and a Shift Down the Supply Chain
Rising trade deficits Global food demand is increasing, driven by population growth and a rise in the number of middleincome families in developing markets. The demand for processed foods and animal protein in particular is growing at a rapid pace, as populations and incomes in these emerging markets rise. By 2023, in fact, an additional 776 million people are expected to be living on the planet, with half of the increase taking place in the Asia/Pacific region. And the OECD-FAO Agricultural Outlook 2014-2023 projects that demand for food will rise by 38% from 2013 to 2030.
Many developing countries already are finding themselves unable to provide enough food to meet the demand of their own population at an affordable cost, creating issues of food security. In China alone, beef imports have risen fivefold over the past three years. Not surprisingly, the Americas countries are expected to strengthen their position between 2014 and 2023 as dominant export regions, while Asia and Africa will increase their net imports to meet growing demand. By 2023, the largest trade deficits in volume terms will be in Asia and Africa. The impact of the growing trade imbalance on global agriculture and agricultural supply chains will be enormous.
Such statistics are concerning. Yet they also highlight a powerful opportunity for leading agribusinesses to step forward in the emerging markets of Asia—in particular China, Southeast Asia and the Indian subcontinent—and Africa over the next 20 years, whether they are supplying these growing markets with commodities or investing to produce higher-value processed food.
Both of these market shifts, while offering new opportunities for agribusiness, are not without their complications. A number of important issues are affecting the industry as businesses step up their activity in emerging markets and move further downstream, including:
- Increased consolidation in their customer base of large, multinational food processors, thus compressing margins
- The globalization of supply chains and trade flows as commodities move from surplus countries such as the United States to developing countries with rising demand, pushing Western agribusinesses to better understand and gain a foothold in developing markets
- Higher levels of pricing transparency, compelling agribusinesses to look outside their traditional trading business for new revenues
- The growing stakeholder influence of governments, non-governmental organizations and activist investors, mandating the ability to deal diplomatically with external pressures
- Greater competition from organizations originating in emerging markets, including companies that once were customers, putting additional pressure on Western agribusinesses
The Need to Evolve
To come to terms with the challenges and opportunities in today’s changing agribusiness markets, boards of directors and executive teams will need to move quickly to augment their existing knowledge and experience. This would involve strengthening their cultural and political understanding of key developing markets, actively acquiring and cultivating talent, and enhancing the focus on innovation all along the supply chain. As highlighted by Rabobank in its 2014 report Unleashing the Potential of Global F&A: “The future of global food and agriculture requires leaders with the confidence to think big and embrace change. It also requires leaders who recognize that global food and agriculture’s future depends on innovation.”
Overseas knowledge and experience
A number of factors are increasing the need within today’s global agribusinesses for international knowledge and experience, the kind that can be realized only within the ranks of the companies’ leadership. As noted by the OECD-FAO study, much of today’s growing demand is coming from the developing world. Food security is becoming a more prevalent issue, with governments in developing markets putting added pressure on agribusinesses to hold down food prices. In addition, organizations in Asia that once were customers now have origination in North and South America and are competing directly with the traditional global trading houses. A number also are at the forefront of developing supply chains and assets in Africa and are a step ahead of their European and U.S. counterparts.
As a result, it no longer is enough for CEOs and senior executives to be proficient managers and traders. They also must be politically and legally astute, not only to lobby and smooth the way for business but to exploit opportunities in new markets. These qualities particularly will be critical when global agribusinesses seek to develop business in markets with historically complex relations to the West. Penetrating these markets will depend to a large extent on having leaders who are capable of successfully navigating the challenging political landscapes that these countries present. As one regional agribusiness president put it, “An appreciation for the local culture, politics and history is critical. Leaders need to create stakeholder maps— who to know, which associations to join, how to lobby—and be more strategic in the way these issues are approached.”
Yet the leading global agribusinesses today are predominantly run by American or European executives headquartered in the United States. Rarely do these leaders have an international background or foreign experience: Of the four largest global agribusinesses, in fact, only two have either an Asian or an African national as a current non-executive director (Exhibit 1). Such leadership also is lacking at the executive level, according to the senior leaders we interviewed, most of whom note their businesses need more leaders of Asian and African origin who can understand and guide the business in those regions (Exhibit 2). As a chief HR officer at a leading agribusiness pointed out, “All of our competitors—and ourselves—are not yet looking at leadership talent from emerging markets in a strategic way. It tends to be opportunistic, which reflects the tactical nature of our business.”
In addition, while a number of senior leaders have spent a few years of their career in Asia, giving them an element of expertise, very few have spent time on the ground in Africa or have the level of connection necessary to further develop markets in either Asia or Africa. We note that a number of CEOs from fast-moving consumer goods (FMCG) companies have done this successfully and, in doing so, have shone an even greater light on the need to develop emerging markets leadership talent pools in those companies.
Finally, there is little structure in place to build this knowledge or leadership today. As a result, there is tremendous potential to develop younger Asian and African leaders over the next 10 to 15 years at a more junior level. Naturally, taking advantage of this opportunity will require a well thought-through recruitment and talent management process with a focus on cultural diversity.
Time to move
We believe organizations must begin immediately to acquire, develop and retain leaders from emerging markets such as China, Southeast Asia, India and parts of Africa. Organizations lacking cultural diversity at the board and executive committee levels may never truly understand how to navigate politically through Asia and Africa. Nurturing diversity, therefore, is a non-negotiable item for the agribusiness industry. Organizations also need to begin recruiting senior Asian and African leaders from other relevant industries if companies are to be successful in today’s changing market. There are a number of possible talent pools to explore and business leadership roles into which individuals can be placed to improve the chance of success.
Crucially for both senior leaders and high-potential talent, taking such steps will mandate a strong commitment from the CEO and executive committee. As we have seen from multinationals operating in other industries, if the commitment from the top is lacking, the development of Asian and African leaders never will succeed to the appropriate level, particularly if these executives come from outside industries. An example, therefore, must be set by the board, bringing on members from emerging markets to show the rest of the organization that it is serious about those markets. The executive team will want to follow that example and develop leadership from those markets as well.
Such a commitment also will benefit the CEO and executive leaders themselves, giving them greater political connectivity and a network of contacts that will assist the organization and the CEO from a political perspective. Additionally, recruiting non-executive directors from emerging markets undoubtedly will aid the chairman and CEO in developing a sound global strategy.
Innovation and a strategic view
As the traditional merchant trading model evolves to one in which leading agribusinesses are acquiring and building downstream processing facilities, these businesses will find themselves in increasing need of innovative ways of doing business and a more strategic view of their markets.
Major agribusinesses already have seen the benefit of acquiring greater control of their supply chains, from the farm gate to the customer, including downstream, value-added processing assets. While such acquisitions cater to the rising demand for processed food, they also benefit organizations and shareholders by delivering more predictable revenue streams and improved margins when compared with pure trading.
Yet this strategy means investing significant amounts of capital based on anticipated future trends in consumer preferences. As such, it requires a very different mindset to that traditionally found in trading organizations. Similarly, implementing such a strategy creates the need to invest additional capital in research and development, with returns that typically need years, rather than months, to be realized.
Combining the entrepreneurialism of a trading business with the strategic skills required by an industrial business will be a significant challenge. CEOs wishing to implement such a combination successfully will not only need the courage to move organizations out of their tactical comfort zone but also the expertise within their executive team to do so. CEOs will have to improve their ability to adapt and drive new processes, arrive at fresh ways of thinking and develop innovative technologies. Long-term strategic decision making will be critical, as opposed to the more tactical approach of the traditional trading business. A shift in culture and practices, therefore, will be necessary— one that can come only from an influx of novel ideas and aptitudes.
The first step for many companies may be to split the management of the trading business from the business unit and regional leadership. We already have seen a number of organizations make this division with some success. As a result, businesses are able to recruit and develop executives with the strategic capability to manage global business units and regions while avoiding, for example, over- promoting a senior trader who may not possess the skills or may not want to take on such a role. We note that a successful partnership and teamwork between the trading leader and the business leader will be critical under this scenario.
We believe that recruiting these strategic executives from outside the agribusiness arena will be essential to success. Coming from a history of trading, the industry has developed a squad of tactical “athletes.” This group now needs reinforcement with strategic playmakers capable of identifying major investment opportunities five, 10 or 20 years out.
We see two primary pools from which these strategic leaders can be drawn, although other industries also will be attractive and relevant on a case-by-case basis.
- The oil and gas and chemicals industries regularly require their executives to make long- term investment decisions. Given the recent collapse in oil prices and the resulting implications for the industry, there is a pool of talented individuals now considering where their own future lies. We already have seen executives from this industry successfully make the transition to agribusiness. Not only do they possess the strategic mindset called for but they also understand the basics of commodity trading and risk management even if they have not been traders themselves. Some will have worked across the entire commodity value chain.
- Acquiring leadership talent from major food manufacturers is another option. As agribusiness organizations move further into flavors, complex ingredients and refined oils, there is the potential to recruit relevant skills from FMCG companies. This opportunity also ties into the need for a greater focus on creating solutions for customers. Rather than taking the view “if we can make it, someone will buy it,” agribusinesses have to be looking at developing solutions that will help them deliver new products to their consumers. We have seen global supply chain and manufacturing leaders, for example, successfully leaving FMCG companies to join global agribusinesses. In fact, there is no doubt that these executives have had a strong positive impact on the way that agribusinesses achieve synergies among processing assets, improve their technical expertise, and bring greater focus on environmental, health and safety issues.
In some agribusiness organizations, a move to attract leadership from other industries will require significant cultural change. Incoming leaders will not need to possess deep grain—or oilseed—trading expertise; rather, by working in partnership with the trading teams and gaining their support, executives will create a combination that is more powerful than the individual components.
We note that, as with the development of greater cultural diversity, the onus will be on the chairman and CEO to set the example and to lead the desired cultural adjustment. Ensuring sufficient integration of new executives from outside the industry will be critical, with the chairman or CEO fully supporting these individuals, particularly as incoming leaders will face initial skepticism from internal executives—and potentially from external stakeholders as well.
With the increasing challenges and opportunities facing all global agribusiness organizations today, these companies need to bring new leaders to their board and executive team— culturally and experientially diverse individuals who understand developing markets and the political activity going on in those markets and who can help make the investments necessary to succeed. Organizations also will need leaders from outside the industry, as these external experts will better understand the new revenue streams and be able to make the appropriate long-term strategic decisions required to take advantage of business opportunities.
We know that finding and hiring the appropriate leadership will be challenging. As one agribusiness CEO put it, “It’s hard to find the leaders who have vision beyond their line of sight and are capable of acting beyond their time. The difficulty is taking the initial step against the tide: accessing capital, gaining support from the board and accelerating speed of success. Success takes time, and headwinds can be strong. Sometimes it is easier to live with the status quo, but doing so will not deliver above-market success.”
Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for Chief Executive Officers, boards of directors, and key roles within the C-suite. With more than 300 consultants in 45 offices around the world, we work closely with both public and private organizations across all industries and regions. We help our clients build boards and executive teams that can meet the challenges and opportunities presented by the digital, economic, environmental and political trends that are reshaping the global business environment. russellreynolds.com. Follow us on Twitter@RRAonLeadership