Test Report

Agribusiness & Food Value Chain 2H24: What to Know

In 2024, there was a lot in play, and maybe some lessons learned. Cracks in the food processing industry were exposed, resulting in a series of high-profile recalls and blunders, triggering renewed governmental interest in safety and regulation across the agribusiness and food value chain.

Governments again created uncertainty in agriculture as questions arose about threatened tariffs worldwide, a crackdown on immigration, and renewed interest in the regulation of ingredients and ultraprocessed foods that affect the broader agribusiness sector.

Nevertheless, we continued to see big moves. We are seeing a realignment to address consumer tastes and inflation-strained wallets, plus new ways to incorporate technology and automation in the food chain from production to processing.

Growth, Sales & Consumption: The Role of Governments

The stories and factors that whipsawed the agricultural production and food value chain sector throughout 2H24 appear likely to challenge and expose opportunities across the sector as we head into the first half of 2025. Governmental actions will affect core elements of food production and distribution, including food safety, immigration, tariffs, inflation, and trade. All three of the big North American trading partners, Canada, Mexico, and the United States, saw or will see changes in administration heading into 2025 ¹²³.

Higher tariffs threatened by the new United States administration could significantly impact the traditionally low-margin production and sale of food across borders, a key issue in agribusiness M&A trends and global trade. The United States imports a lot of oil and gas from Canada, which could impact farm input costs. The United States sells a lot of food to China, another potential tariff target. Tinker with this delicate dance, and agricultural production and processing could face a major shakeup. If China retaliates, American farmers could see increased input costs such as machinery, Canadian fuel, and fertilizer, and also a steep decline in corn exports to China while losing market share to Argentina and Brazil ⁴⁵⁶⁷.

Uncertainty about United States and Canadian immigration policy shifts also stands to challenge producers. The new United States administration has threatened to deport an estimated 11 million undocumented aliens, which could reshape labor availability and efficiency in the food and agribusiness industry. Those aliens are also workers, which raises questions about higher prices or whether the vacuum will spur efficiencies and automation. Canada is also looking to reduce the number of temporary work visas it issues. In the United States, about two-thirds of farmworkers are foreign-born, and more than 40 percent are not authorized to work ⁸⁹¹⁰¹¹.

Even after food is planted and picked, another United States government wildcard is looming. Processors are watching to see what Robert F. Kennedy Jr., the new administration’s pick to run Health and Human Services, will do. Kennedy would oversee the Food and Drug Administration’s authority over about 80 percent of the United States food supply and has pledged a campaign against processed foods and pesticides. Considering that about 60 percent of processed American foods contain additives, up roughly 10 percent since 2001, the impact could be significant ¹²¹³.

Tariffs, immigration, and regulations create an interesting stage for food production and delivery in 2025. Nothing is certain in this vital sector, but it will not be boring.

You Are What You Eat, Playing It Safer

While tariffs and the impact on consumer pricing and agricultural trade may be getting the headlines, we are watching for the additional impact of governmental action as well. Food safety was big news involving big brands in 2H24, further highlighting risks and opportunities in agribusiness investment banking and deal-making across the industry.

McDonald’s briefly stopped selling its Quarter Pounder in several states due to an E. coli outbreak. The Boar’s Head brand recalled roughly 7 million pounds of deli meat possibly tainted with listeria, involving 71 products. Another 10 million pounds of meat was recalled from popular grocers Walmart, Publix, Target, and Trader Joe’s. It is hard to know if our food is less safe than it used to be, but for a period in November the United States saw new food recalls nearly every day ^1415161718.

An airplane door panel falling off mid-flight in early 2024 drew attention to the concept of zero-defect production. In airline safety, being pretty good is not enough, it has to be perfect every time. We can avoid airplanes, but not food. Where else is zero-defect as critical as in food production. Patchwork government regulation, consumers eating more processed foods, a complex supply chain with imported goods, and a longer, less integrated processing chain have all created more potential points of contamination and failure. In the United States, officials estimate 48 million people experience some kind of foodborne illness and 3,000 die annually. From cantaloupes to liverwurst, recalls were an important story in 2024 ¹⁹²⁰²¹.

If that is unacceptable, watch how regulations will evolve. In 2H24 the Food and Drug Administration enacted new traceability rules that require strict monitoring and apply new responsibilities along every part of the food chain, from production to processing to distribution. The evolution of technologies to meet these requirements and protect brand reputation may create opportunities for innovators across the sector, including AI supply chain management and tracking, advanced pathogen detection, real-time monitoring, thermal processing, and foreign materials detection ²²²³.

Where there is a critical need, there is business to be done. In October, Merieux NutriSciences spent about 375 million dollars to acquire Bureau Veritas’ food testing business. In December, Hygiena acquired Nexcor Food Safety Technologies Inc., developer of KLEANZ and CAMS-PM software for sanitation and equipment maintenance in food and beverage manufacturing facilities. Overall, the roughly 25 billion dollar food safety and testing segment is seeing an estimated compound annual growth rate near 10 percent ²⁴²⁵²⁶.

The Headwinds of Commodity Pricing, Tariffs & Immigration

The business of growing, processing, and distributing our most basic needs operates at the whims of exterior forces. Weather, labor availability, regulations, and trade barriers can shift faster than the seasons. The quest for solutions never ends, including advanced gene editing for crops, precision livestock management, and robotics and automation to maximize efficiencies and reduce demand for seasonal labor ²⁷²⁸²⁹.

In the United States, as the new administration moves forward with a promised plan to deport an estimated 11 million undocumented aliens, farmers are on edge. Nearly half of the approximately 2 million farm workers, and many more in dairy and meat processing and packing, lack documentation. Farmers worry that mass deportations would cripple the industry and raise grocery prices. In Canada, Prime Minister Justin Trudeau moved to decrease the number of legally allowed temporary foreign workers often employed on farms. Farms need labor, and labor is in short supply ¹⁹³¹³².

Pricing is also a problem from input to output, largely due to unpredictable conditions. Input costs have been driven by sticky inflation that appears likely to linger. Producer price inflation in the ag industry has been driven by hurricanes, droughts, fungi, and avian influenza. Coffee bean prices doubled over the past year due to bad weather. Raw sugar prices hit their highest relative level in more than a decade in 2H24 as fires and drought ravaged Brazil ^3334353637.

Threatened tariffs add to the challenge. With about 60 percent of its agri-exports, roughly 40 billion dollars, bound for the United States, Canada stands to suffer if the United States enacts proposed import tariffs as high as 25 percent. If China reacts with its own tariffs on United States goods, expect that retaliation to reverberate through American food exports, including oilseed, grain, and dairy. Grocers and shoppers are not immune, since higher prices tend to roll downhill. Higher prices are also pushing consumers to ditch brand loyalty for value pricing ^38394041.

The Shopping Cart: Mergers & Acquisitions

• CPG pivot to value and core categories. PepsiCo acquired Garza Food Ventures, producer of private label snacker Siete Foods, for about 1.2 billion dollars in October, aligning with value-conscious shoppers. General Mills divested its North American yogurt brands Yoplait and Go-Gurt in aggregate 2.1 billion dollar deals in September, pivoting toward snacks and pet food ⁴²⁴³.
• Founder liquidity with strategic capital. In 3Q24, family-owned Badia Spices sold a majority stake valued around 1.2 billion dollars to investors, including BDT & MSD Partners and Grupo Mariposa’s Bia Foods, preserving heritage while fueling expansion ⁴⁴.
• Cold storage consolidation. In December, Lineage acquired ColdPoint Logistics for roughly 223 to 225 million dollars, strengthening rail-linked protein flows from the Midwest and West to ports ⁴⁵.
• Inputs scale-up. Koch Ag & Energy Solutions completed a 3.6 billion dollar acquisition of OCI Global’s Wever, Iowa fertilizer plant, which can produce about 3.5 million metric tons of nitrogen fertilizers and diesel exhaust fluid annually ⁴⁶.

Tomorrow’s Recipe? The Ingredients Are All There

On the upside, several distractions clear as we head into 2025, including elections in Mexico and the United States, and expected direction in Canada. Talk of tariffs may be resolved in the first half. Regardless of outcome, clarity should improve planning.

We anticipate larger operators will pursue rollups as rates trend lower and supply chain frictions recede. The 2024 Mars acquisition of Kellanova, think Pringles, may hint at an appetite for deals across food and agribusiness. Changing consumer tastes and spending, regulatory attention, and labor substitution via automation should spur innovation and activity ⁴⁷⁴⁸.

We will continue to watch avian flu and hope it does not develop into something more. Policy shifts on farm and labor remain pivotal. Agritech developments can surprise, including drones, autonomous combines, and AI-driven efficiencies ⁴⁹⁵⁰⁵¹.

There are unknowns with a new administration, including possible tariffs, weather patterns, and the impact of Robert F. Kennedy Jr. if he leads HHS. He has focused on ultra-processed foods and additives, has discussed school lunch changes, and would guide the FDA, which oversees about 80 percent of the United States food supply ⁵²⁵³.

One thing is certain. People need to eat. With that bedrock truth, we remain optimistic that the business of growing, shipping, producing, selling, and serving food will adapt and create opportunity for those who are inquisitive, adventurous, and innovative.

Comprehensive Agribusiness & Food Value Chain Expertise

SDR Ventures’ Agribusiness & Food Value Chain Team has completed numerous M&A transactions with strategic and financial buyers and sellers across manufacturing, distribution, and service-related businesses in agribusiness, horticultural, agrifood, and greenspace industries. This experience helps your company approach the market with the right strategy and resources.

Investment banking expertise includes:

• Diversified Agribusiness
• Crop, Turf, Ornamental Inputs
• Animal Health & Nutrition
• Machinery & Equipment
• Agriproducts Distribution
• Food Distribution
• Agricultural Technology & Services
• Oilseeds & Ingredients
• Copackers & Comanufacturers

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About SDR

Established in 2002, Denver-based SDR Ventures provides transaction advisory, private capital formation, and business consulting services across a wide range of industries. We serve owners and operators of privately held companies and deliver a professional-class experience.

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