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How can Australian agriculture build resilience in the wake of COVID-19?

Agribusiness Bulletin

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The need to develop greater resilience across Australia’s agribusiness sector has compounded, given many operators are still reeling from the extended drought, the still recent and devastating bushfires and, right here and right now, the COVID-19 global pandemic.

While our previous Agribusiness Bulletin stepped through some of the impacts of COVID-19 on the sector and the broader economy, this edition seeks to explore the actions and tools that agribusinesses can leverage to build resilience against future disruptions.

How has agribusiness adapted to COVID-19?

No organisation could have foreseen the extent of the effect of COVID-19 on our lives, let alone the economy. No one has been untouched, but those that were slow to respond, or that had no planning or preparation in place, will have suffered worst. The virus and its impacts have certainly highlighted the cost of inaction.

For those that did act, many implemented short-term measures in response to the rapid escalation of COVID-19 – aimed at keeping their businesses open and afloat, and their employees in jobs. Key measures here have included, for example, collaborating with up or downstream partners and maintaining customer engagement and loyalty.

What can business leaders do to succeed in the longer term?

These short-term, reactive actions have been broadly effective in supporting businesses and employees through this challenging time. However, it is important to recognise that short-term results alone will not be enough, and that businesses need to build a foundation for longer term resilience.

Approaches to building resilience will, in some ways, be unique to a business and its operating environment, but there are some broad actions they can take to mould to their own individual context to identify, prepare and respond to disruptions.

  • Deploy cutting-edge technology to drive efficiency and enable a more informed future focused risk management process. Agribusinesses are increasingly leverage “Internet of Things” enabled guidance systems, variable rate technologies or drones to measure real time or nowcast key on-farm attributes such as fertiliser or chemical applications, water flow and soil-moisture. This strategic data and information promotes operational improvements giving organisations room to breathe in the event of a disruption event.
  • Embracing digital transformation also supports organisations in planning identifying, and responding to disruptions. Blockchain technologies for example have been used to rapidly respond to product contamination issues while supporting consumer traceability and quality assurance. Similar integrating of digital technology into agri-food operations has also enabled greater oversight of production systems and supply chain performance, enabling more sophisticated response planning. 

Figure 1: Emerging technologies as a driver of sustainability in agriculture

Fig 1
Click image to enlarge

Source: Adapted from “Digital technologies in agriculture and rural areas, FAO 2019”

  • Scenario analysis allows organisations to demonstrate due diligence on the long-term resilience of the business and is increasingly seen as a bare minimum.  Scenario analysis is not intended to represent an exact picture of the future, but rather it examines a scope of possible future outcomes — to understand the key factors and implications which can guide decision-making. Scenario analysis can help identify a clearer way forward in the face of COVID-19 for example by posing counter factual questions such as “What if imported fertiliser supply chains are disrupted for the long term?” and analysing how your business might respond.
  • Building an early warning system to track current and emerging risks can help management learn to separate noise from macro trends of changing stakeholder expectations. This supports adaption and mitigation of risks before they materialise. Tools powered by human insights and advanced analytics capabilities allow to monitor strategic risk indicators of events, trends, and anomalies in structured and unstructured data from internal and external sources.

Figure 2: Deloitte’s ‘Sense Nexus Risk Sensing’ tool

Fig 2
Click image to enlarge

Source: Deloitte 2020

  • Diversifying and decentralising operations, including considering investments in passive non-yield dependent income such as wind and solar farms, tourism, carbon offset farming or biodiversity credits enables businesses to decouple revenues from weather conditions. Regenerative agriculture can also be explored as decentralising and integrating agribusiness inputs, processing, and outputs. ABARES data shows that most farms (72%) rely almost exclusively on crop or livestock income. Disruptions to these markets disproportionately affect the viability of farms as they have limited options to smooth income shocks.
  • Risk specific mapping is often the first step in building out responses to identified potential impacts, and enables tracking performance against resilience targets. This includes, for example, assessing climate risks using the Taskforce for Climate-Related Financial Disclosures (TCFD) framework1. TCFD overlays climate projections on to business’s unique value drivers to understand potential financial risks and opportunities. In response to rapid growth in demand, several tools has been developed to overlay climate risk projections with geo-spatial mapping of global supply chains to assess where disruptions could arise and what the implications for a business could be.

Agribusiness must look beyond COVID-19

While COVID-19 has disrupted much of the economy with unprecedented speed, it is unlikely to dissipate in a hurry, and Australian agribusiness in particular, will need to adapt to this new normal.

The pandemic does teach us the benefits of urgent action to limit worse outcomes. These learnings can be applied to agribusiness as a proxy to build resilience against potential future disruptive events.

There is a significant opportunity to double down on broader long-term resilience as a driver of future agribusiness success, ultimately bringing lasting competitive advantage.

Improving holistic risk management and strategic planning for climate change is one important way agribusiness can succeed into the future.

Authors:

Enrico Favaro, Senior Analyst, Sustainability & Climate Change
Ben Symons, Manager, Sustainability & Climate Change
Jack Mullumby, Senior Analyst, Deloitte Access Economics

References:

1. Financial Stability Board, Task Force on Climate-related Financial Disclosures (2020) 

Published: June 2020

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