Three disrupters that will reshape the global food system

EY research shows that executives at many food and agriculture companies may be underestimating the potential impacts of converging industry dynamics and are unprepared for changes on the horizon that have the potential to upend business models and disrupt industries. Many may be missing opportunities to improve competitiveness and create new value as the industry evolves.

And while the challenge seems large given the magnitude, unpredictability and number of factors at play, companies can take practical steps, using forward-looking strategic frameworks and methodologies, to examine the relevant disrupters, identify potential future scenarios and establish a stronger, more future-ready position in the industry.

Disrupters and accelerators

While there are many changes taking place across the food system, three broad disrupters have the potential to fundamentally reshape the industry.

Energy transition

The transition from traditional fossil fuels to sustainable energy sources will continue to play a significant role in the path to decarbonization. Global companies have made significant commitments to decarbonize, and these efforts will be carried out amid evolving technical, political and economic realities to chart a path to more sustainable energy that is also reliable and affordable. As a major global consumer of energy, as well as a producer of grain-based biofuels, the food industry stands to be impacted in significant ways.

Protein transition

The global protein market is transitioning as consumers diversify their protein sources and seek to reduce overall meat consumption. A result is the growing consumer adoption of vegetarian or “flexitarian” diets and newer solutions, such as alternative proteins. Although the alternative protein industry has attracted a large amount of capital in recent years, uncertainty remains as consumer adoption of currently available products has slowed. Furthermore, technical product development and manufacturing hurdles remain in the pursuit of products that fully mimic or surpass animal-based protein in quality, taste and nutritional value.

Future of globalization 

The uncertain future of globalization, with developments that include the war in Ukraine, conflict in the Middle East and continued trade tensions, will have significant implications for the global food system. The war in Ukraine, for example, has caused meaningful price spikes in fertilizer, wheat, corn and vegetable oils. Trade constraints have the potential to increase global competition for food and for key agriculture inputs, such as fertilizer and energy.

These disruptive trends will be accelerated by social, economic and political pressures, including the growing importance of sustainability, lingering fallout from the COVID-19 pandemic, convergence within the global food industry and adjacent sectors, changing customer demands and technological innovation.

The food system is uniquely vulnerable given the strategic importance of food commodities, the tight linkage with energy markets, the ecological impact of food and energy, and dependence on global trade.

Electric vehicles are an important component of the energy transition, and they will likely have a negative impact on long-term demand for biofuels. Corn-based ethanol is an ingredient in virtually all gasoline sold in the US, and corn-based biofuels represent an end market that requires 30 million acres of corn each year. It’s estimated that, for every nine combustion engine cars removed from the road, one acre of corn ethanol land is released.

At the same time, new markets for next-generation biofuels are also developing. For example, sustainable aviation fuel (SAF), which will require significant quantities of agricultural feedstocks, has growth potential and is receiving attention from corporate, private equity and startup investors. The pace of development is uncertain, however, and SAF faces international regulatory challenges. The food system is also a tremendous global consumer of energy, and companies throughout the system are exploring ways to make their operations and supply chains more sustainable and energy efficient.

What is still unclear is the timing and pace of the changes to come. Two key drivers are:

Figure 2: Electric vehicles and renewable power

Global markets are becoming more open to alternative food sources due to customers’ growing sustainability concerns and willingness to try new things, as well as governments’ national food security and sustainability objectives. The alternative protein industry is focused on developing products with similar taste, texture and nutrition to animal-based protein. Alternative proteins have the potential to reduce environmental impacts by using a broader array of nontraditional protein sources and production methodologies, such as plant-based, cellular cultivation and fermentation. While the market for alternative proteins has seen significant new investment, growth has recently slowed, and technological challenges remain. Rapid growth of alternative proteins would affect long-term demand for traditional proteins and related products, such as animal feed. Two key scenario drivers will determine the future for protein:

Figure 3: Alternative proteins

Globalization has encountered headwinds as the world experiences disruptions to long-standing trade patterns and weakening confidence in global institutions. Protectionism and nationalism have increased, global trade has declined as a share of global GDP, and foreign direct investment has decreased.

The food system is heavily reliant on global trade due to the inherent regionality of production and availability of natural resources. Agriculture is especially vulnerable to disruption because it depends on a fixed and limited resource — land — and on factors outside of human control — weather and climate. Meanwhile, investments in production infrastructure and global supply chains are based on global markets and prices, which are constantly changing.

Disruptions, from wars to rising trade protectionism, are causing significant shifts in the distribution of large-scale commodities, risking food insecurity worldwide. An example is the war in Ukraine. Together, Ukraine and Russia, before the war, produced an estimated 12% of traded food calories in the world, including staples such as wheat, barley and sunflower oil. The war has disrupted Ukraine’s exports and reduced or threatened Russia’s, forcing companies and nations to focus on regional food production to improve reliability of supply. This type of disruption and realignment could result in the emergence of stronger local and regional food systems that could increase food system resilience while also reshaping the supply base and trade flows globally.

Key scenario drivers for the future of globalization include:

Figure 4: Geopolitical risks

The three major disruptions will converge and influence each other in unpredictable ways. Some developing trends may reinforce each other to create new or unforeseen challenges, while others may play out in contradictory ways, diminishing the overall impact.

Company leaders facing these uncertainties can benefit from rigorous scenario planning that helps them understand how their organizations could be impacted. Companies across the food value chain should begin to assess their future market strength in the face of a changing environment and adapt their approach and investments based on the assessed risks and opportunities. The companies most likely to succeed will be those that are best positioned to understand what the future might bring and adapt their business and operating models accordingly. Successful strategies are likely to include a combination of:

• Portfolio diversification to participate in adjacent markets with high growth potential
• Strategic mergers, acquisitions and partnerships to support growth ambitions and build new capabilities
• Investment in more agile and resilient operating models and supply chains

Given the massive shifts underway and the multiple potential outcomes, the task of identifying likely scenarios and developing appropriate strategies may seem daunting. However, planning frameworks and toolkits can be used to create a qualitative and quantitative view of the future to support decision-making. These approaches should be data driven, based on known trends and drivers, and incorporate effective “future-back” analysis to understand the potential future scenarios and their likely impact on the business. The goal is to evaluate the implications and identify strategic options to capitalize on opportunities and mitigate risks.

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