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    Food & Agriculture Q1 2020

    Q1 2020 Food Agriculture

    Industry Trends

    Coronavirus Impacting Essential Meat Industry

    The Coronavirus is slowing down and even halting operations at some meat plants. To avoid working side-by-side on processing lines, employees are staying home out of fear of becoming ill. These plants are necessary to keep the grocery stores and supermarkets stocked, but the meat companies are not able to maintain output and have had to scale back on their operations. The meat industry can satisfy short-term demand with high stockpiles of meat but will need to find alternative ways to offer safe work environments to their employees to increase output.1

    Export Restrictions Result in Increased Meat Stockpile

    Pork, chicken, and beef intended for exports from the U.S. are being held in cold storages due to export restrictions amid the Coronavirus pandemic. The amount of chicken in U.S. cold storage facilities increased by 12% to 957.5 million pounds. The issue of inventory control and production is further exacerbated by increasing illness among meat industry workers forcing many meat processing plants to shutdown.  While a meat shortage in America is unlikely, there is still uncertainty about the long-term impact of Coronavirus to the food supply chain.2 3

    Coronavirus Disrupting Wine Trade Events

    Concerns surrounding the Coronavirus has led many wine trade shows to postpone or cancel. Examples of large-scale events include the annual wine trade fair in Dusseldorf and 102nd China Food & Drinks Fair. Players in the industry gather at these events to learn about new products and place large orders. A disruption in this process may have huge implications and possibly damage the supply chains. The industry remains uncertain of the long-term impact of the virus to production and logistics long-term.4

    The Agricultural Resilience Act Helps U.S. Farmers Combat Climate Crisis

    In February 2020, Representative Chellie Pingree introduced a policy proposal – the Agricultural Resilience Act– to help farmers adapt to the climate crisis. The ARA will increase funding for agricultural research and education to achieve science-informed goals. The topline goal is for U.S. agriculture to reach net-zero emissions by 2040 and to reduce food waste by at least 75%. Reducing food waste will have a positive impact on climate emissions at landfills and other steps along the supply chain.5

    New Salmonella Food Testing Method Reduces Testing Times

    Researchers from Cornell University, the Mars Global Food Safety Center in Beijing, and the University of Georgia have developed a method for completing whole-genome sequencing to determine salmonella serotypes in just two hours and the whole identification process within eight hours. Some countries have testing processes that take up to two days just to send the suspected salmonella to a certified lab. The lengthy process can quickly become expensive as the contaminated food moves along the supply chain. As food supply chains become global and more connected, the potential for food to become contaminated with salmonella increases. A rapid detection process will enable different agencies to cut off the supply chain and prevent large scale contamination, helping companies save money as a result.6

    $23 Million Broadband Investment for North Dakota Farming Communities

    The USDA invested $24 million in broadband infrastructure projects in North Dakota to improve the regions' communication capabilities.  The investment is part of the USDA Broadband ReConnect Program which funds the construction of broadband service in rural areas. This program hopes to increase the economic activity of North Dakota farms and ranches.7

    Decreased Sugar Supply due to Beet Farming Issues

    The USDA estimates low sugar supply in 2020 due to lower production and reduced imports from trade restructions. The USDA estimates domestic sugar production in 2019-2020 for beet and cane will be down 841,000 tons compared to 2018-2019, totaling 8,158,000 short tons. However, the global demand for sugar is lower due to restaurant closures related to the Coronavirus pandemic.  Analysts expect global sugar consumption to decline during the pandemic and do not expect increased sugar futures prices.8 9

    Impact of Virus on Corn Price and Demand

    Corn futures in March 2020 are down 14% since the beginning of the year. This decline correlates to the corn exports from the United States, which has been slowing. The plunge in oil price reduces demand for ethanol, which makes investors worry because ethanol production accounts for a third of U.S. corn usage. High competition from South America is driving away business. Brazil and Argentina are expected to harvest near-record crops soon.10

    PepsiCo Agrees to Buy Rockstar Energy Beverages for $3.85 Billion

    Soda producers are actively trying to expand their beverage portfolio and shift away from sugary soda drinks. PepsiCo. agreed to buy Rockstar Energy Beverages for $3.85 million enabling the beverage giant to move into the fast-growing energy-drink category. This strategic acquisition enables PepsiCo to enter the energy drink market with a well-established brand name.11

    Food Sellers Experience Shock in Supply Chain

    U.S. food sellers are experiencing a surge in demand related to the coronavirus pandemic. Manufacturers and distributors are changing their strategy of keeping inventory levels low and are now bringing in as much inventory as possible to satisfy the demand. Some grocers reported selling months' worth of inventory in just a few days. This surge in demand has shocked the entire supply chain. Manufacturers are worried about labor shortages, and distributors are concerned about extended periods of stock-outs. The producers and distributors are communicating more and making decisions in real-time to move products faster and restock the shelves.12

    California Government Grant for Pest Prevention and Management

    California Department of Food and Agriculture is now accepting grant applications for its Biologically Integrated Farming Systems (BIFS) Program and its Proactive Integrated Pest Management (IPM) Solution Program. New pests can quickly devastate harvests if farmers are not equipped with the proper treatment plan. The government is trying to engage farmers and business owners by giving grant money in preparation for a pest invasion.13

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • fairlife, LLC
    • The Coca-Cola Company
    • $1,000.00
    • All Assets of Bumble Bee
    • F.C.F. Fishery Co., Ltd.
    • $925.60
    • Primo Water Corporation
    • Cott Corporation
    • $677.80
    • S&D Coffee, Inc.
    • Westrock Coffee Company, LLC
    • $405.00
    • Sadler's Smokehouse, Ltd.
    • Hormel Foods Corporation
    • $270.00
    • Arizona Production & Packaging LLC
    • Refresco Group B.V.
    • $110.00
    • NORPAC Quincy, Washington Plant
    • Oregon Potato Co.
    • $107.00
    • Fruitsmart, Inc.
    • Universal Corporation
    • $105.00
    • All Assets Of Sid Wainer & Son, Inc.
    • The Chefs' Warehouse, Inc.
    • $50.45
    • Warrender Enterprise Inc.
    • Acquired Sales Corp.
    • $20.00

     

    Source S&P Capital IQ as of 4/13/2020 and PCE Proprietary Data

    Additional Resources

    eBook- Keys to Selling Your Packaged Food & Beverage Company

    Contacts

    eBook- Keys to Selling Your Agriculture Business

     

    Michael Poole

    Michael Poole

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    407-621-2112

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    David Jasmund

    David Jasmund

    Orlando Office

    407-621-2111

    Contact Me Now

    Data Assumptions

    This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. Bunge, Jacob. "Coronavirus Hits Meat Plants as Some Workers Get Sick, Others Stay Home." The Wall Street Journal. April 6, 2020.
    2. Bunge, Jacob. “Meat Stockpiles Surge as Coronavirus Epidemic Curbs Exports.” The Wall Street Journal. March 2, 2020.
    3. Bunge, Jacob. "Coronavirus Hits Meat Plants as Some Workers Get Sick, Others Stay Home." The Wall Street Journal. April 6, 2020
    4. Horn, Jason. “Coronavirus is Disrupting Wine Trade and Major Events.” Beverage Industry Enthusiast. March 2, 2020.
    5. Delonge, Marcia, “6 Ways the Agricultural Resilience Act Equips Farmers to Fight the Climate Crisis with Science,” UCSUSA, March 8, 2020.
    6. Cornell University. "Food scientists slice time off salmonella identification process." ScienceDaily, March 5, 2020.
    7. U.S. Department of Agriculture, “USDA Invests $23 Million in Broadband for Rural North Dakota Communities,” United States Department of Agriculture, January 7, 2020.
    8. Sterk, Ron. “Sugar users facing unprecedented supply obstacles in 2020.” Food Business. January  23, 2020.
    9. Droke, Clif. "Coronavirus stockpiling won't boost sugar prices." Seeking Alpha. April 3, 2020
    10. Bruan, Karen. “ Virus fallout pushes CBOT corn to 14-year March lows.” Reuters. March 19, 2020.
    11. Lombardo, Cara. “PepsiCo Agrees to Buy Energy-Drink Maker.” The Wall Street Journal. March 11, 2020.
    12. Gasparro, Annie, Smith, Jennifer, Kang, Jaewon. “Grocers Stopped Stockpiling Food. Then Came Coronavirus.” The Wall Street Journal. March 23, 2020.
    13. The United States, California Department of Food and Agriculture, “CDFA Accepting Applications For Two Grant Programs: Biologically Integrated Farming Systems And Proactive IPM Solutions,” California Department of Food and Agriculture, February 27, 2020.

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