As a Partner at Ernst & Young LLP, Rob Dongoski has over 20 years of experience serving clients in the food and agribusiness sectors. He works with a number of Fortune 500, Global 1000 and private companies in advisory and transaction capacities.
He has helped clients develop growth strategies, complete buy-side and sell-side transactions, designed digital strategies and lead significant enterprise transformations. His experience provides clients and colleagues with a unique perspective on their business, innovation and growth issues.
As the founder of the EY Global Agribusiness Center, Rob leads EY professionals in all regions of the world to serve agribusiness clients.
As a Partner at Ernst & Young LLP, Rob Dongoski has over 20 years of experience serving clients in the food and agribusiness sectors. He works with a number of Fortune 500, Global 1000 and private companies in advisory and transaction capacities.
He has helped clients develop growth strategies, complete buy-side and sell-side transactions, designed digital strategies and lead significant enterprise transformations. His experience provides clients and colleagues with a unique perspective on their business, innovation and growth issues.
As the founder of the EY Global Agribusiness Center, Rob leads EY professionals in all regions of the world to serve agribusiness clients.
U S Farmers and Ranchers in action would like to recognize the sponsors of the 2020 Honor the Harvest Forum. Welcome to farm food facts, where every farmer, every acre and every voice matter for today. Wednesday, August 12th, 2020, I'm your host. Phil Lempert. Rob Dongoski is a partner at Ernst& Young with over 20 years of experience serving clients in the food and agribusiness sectors. Rob has helped clients develop growth strategies, complete buy side and sell side transactions, design digital strategies, and lead significant enterprise transformations. He's the founder of the Ernst and Young global agribusiness center. And he leads Ernst and young professionals in all regions of the world to serve their agribusiness clients. With many aspects of the agribusiness already in a state of flux COVID-19 is dramatically impacting key areas of value chain in unimaginable ways. He says extraordinary changes in consumer behavior and unforeseen labor complications, compound pressures on business leaders to keep the organization operating a mid one of the most chaotic business environments in history, how organizations pivot to address these unprecedented conditions will significantly shape what comes next. What changes will have lasting power? How can businesses be ready for the new normal that emerges post-crisis and to get those answers. Rob joins us today. Rob, welcome to Farm Food Facts,
Rob:Pleasure to join you.
Phil:So Rob, you've been doing this awhile, give me some background on how ag economics have changed over the past five years to put it all in context.
Rob:I mean, we've seen, you know, farm profits continue to struggle for the last several years. We went from an environment not too long ago. You know, there's a lot of, a lot of room at the, at the gate for a lot of, lot of activities, a lot of investment, a lot of attraction to the industry with commodity prices being one of the, um, you know, interest rates will help a little, you know, capital intensity is struggling because there's not a lot left at the farm gate. So I think the economics, it had been a real challenge. I think there was real hope that 2020 was a turning point year, whether you're talking about, uh, in the pork industry or in the row crop industry, I think we were really looking for 2020. It'd be one of those turnaround years, right in the middle of it. And I think we'd seen it go the other direction.
Phil:So I don't know if you saw, but in this past, uh, Sunday's New York times, there was a great story, uh, and unfortunate story, but a great story about a farmer, a small farmer, um, who is now making more money on social media than he does on the farm. Um, he, he has a blog, he does videos and he's now making about$4,000 a month, um, from that versus on the farm where he's losing about$6,000 a year. Um, one of the biggest issues that I'm deeply concerned about is labor on the farm in meat, packing plants and supermarkets and restaurants. What are you seeing as the workforce issue?
Rob:Yeah, I think it's a great story to highlight in that, you know, when it really highlights that farmers are some of the most, you know, the greatest innovators we've had, you know, they figured out how to, how to get, you know, crops in the ground, get them out and make money, do the things you need to do. And they just wear so many hats that, that I don't think most of us realize. So I think that's a real, real great story to highlight that. I think when you look at the labor issues, I think they're really two fold. So one is we still rely on a lot of manual labor for harvest of specialty crops, you know, soft fruits, you know, that don't lend themselves easy to full automation. And so how do we manage the immigration issues, the migrant labor forces to the harvest, some of those, those specialty crops, I think that becomes, you know, is, and will continue to be a pretty key issue. I think the other issue is how do we attract talent, young talent to enter the agriculture workforce? You know, whether that goes through, um, formal education into the workforce, you know, but how do we, how do we attract them into the industry so that we're getting the best talent into, into a vital sector of our economy? You know, it's easy to say, you know, let's, let's go build software and video games and things like that, but how do we make the ag and food industry? Something that is attractive to our youth, I think is more of a longterm play we need to be thinking about.
Phil:So how do we do that? If I take a look at somebody going to college or graduating from college and say, Hey, you should be in agriculture. And then they do some research, simple Googling, and they say, you know, people are losing money. It's a hard job. I'm working 12 or 14 hours a day. Um, you know, I've got labor issues I have to spend, I dunno, half a million dollars to buy, you know, a tractor or a combine or something. Um, how, how do we change this conversation to, to get them excited about joining our industry?
Rob:Yeah, I think first off we recognized that in agriculture, most of the folks, the farmers ranchers that work the fields every day, there are a humble group, you know, and so getting them to tout their stories, tout the attracts is what they do. It's just, it's kind of contrary to their nature and most, most cases. So, but it's needed, we need to explain to our young folks of why this is a pretty cool industry, you know, and I think as purpose becomes a really important factor going forward, particularly for our gen Z and younger generations purposes, a lot of behaviors that maybe the baby boomers didn't put as much emphasis on. So I think explain, you know, how this industry aligns to their purpose. And then frankly, really understate is, is how kind of technology advances industry is and how, how technology advanced it could be. You know, so we're all kind of wild about, you know, driverless cars. And I think that's an interesting thing to think about in the future, but, you know, we've had auto steer on tractors for years, you know, and we've had GPS, we've had mapping and multi-spectral mapping and all kinds of things in the ag industry that, you know, some is just capturing up catching up to where there's other technologies that maybe I can continue to capitalize on it. We haven't gotten there yet. So if I'm a young person I'm thinking this is actually industry, I didn't know a whole lot about lines of my purpose and is actually far more high tech and innovative than I ever thought,
Phil:Well, you, you mentioned it twice. Uh, and I hadn't thought about this, um, aligning with their values with their purposes. When we look at, um, generation Z, um, in particular who are very concerned about the environment, having the kind of, uh, technology tools that you just described and having people have a passion to save the planet, um, by, by the products that they buy, the ingredients that they look for. And so on really does put, put the whole story into a very different place. Um, and again, let's not forget this generation grew up with cell phones, they grew up with technology. They're not afraid of it. Um, so that's a very interesting approach and a very good story. Thank you for that. Um, I guess the topic that I have to bring up is COVID-19 and what kind of disruption did, um, COVID-19 have on economics and agriculture and why?
Rob:Yeah, I guess the first thing is the story is not, not yet fully written, right? So the impact is still gonna kind of unfold here as we go forward. But you know, a few of the things that definitely highlighted is the fact that we have the evil, the most efficient system in the world when it comes to food, you know, we spend less than 8% of our incomes on average on, on food. It's the lowest in the world. It's an incredibly efficient system, but what COBIT highlighted were a few things. One is that we've got a system that bent it had been really far, but it didn't break. You know, that up to the resilience of farmers, ranchers, all the folks, you know, from the farm all the way through to the distribution cycle to work consumers buy whether it's restaurants or grocery, um, we showed, uh, you know, a lot of flexibility to make things happen.
Speaker 2:But I think now we look at and go, we were close. Let's maybe not do that again. And let's build more resiliency into the system, which may offset some of our efficiencies as we look at it, but resiliency may become more important as we go forward. So that could come in. The form of sustainability could come in the form of shorter supply chains, uh, could, you know, instead of just in time could be just in case inventory, you know, so lots of, lots of innovations I think, are yet to come from from COVID. But I think, you know, the definitely the one thing that I walk away from is consumers got a better appreciation for those who bring food into their table and they want to know more about their food. Where did it come from? How is it treated, you know, who's producing this and what do they stand for? I think some of those things were pre COVID and I think COVID is just making those more, more important and more in outline life than ever before.
Phil:You talk about, you know, shortening the supply chain, um, clearly when a consumer, um, and a retailer. So other stories about, you know, dumping milk in the Midwest, or, you know, having to euthanized kettles and hogs because of transportation, because there weren't trucks in the right place at the right time. Um, I think that also opened up a lot of people's eyes and, and really to your point about a shorter supply chain, when we think about, you know, I'm on, I'm in California, I love California in 95% of all of our lettuces come from California and are shipped cross country. That's absurd when you really think about it, um, with respect to the lettuce, you know, farmers in California, um, you know, we're seeing a lot more advances in indoor farms, uh, presumably, um, there there'll be some open office space as people continue to work at home. Do you see the point where we're going to start to see indoor farms, um, you know, in New York city or in Chicago, in, in part of these empty office buildings as a way to shorten that supply chain?
Rob:Yeah, I think the whole area of controlled environment agriculture, whether it's indoor vertical, greenhouse rooftop, you know, that whole area where you're starting to control the environment is a, it's a great option as we look forward. Now, do I think we're going to put 97 million acres of corn under, uh, you know, in a controlled environment, probably not. Um, but sort of supply chains in a vertical, you know, urban environment. Absolutely. I mean, the efficiencies of lighting and ventilation systems have all, all put that forward. Um, you know, the consumers wanting more sustainability puts that forward. So, I mean, I think we're a precipice of change in, in that, in that particular area. You know, I think the other is, you know, when you think about some of the struggles that got highlighted here, you know, it was about the last mile pivot. It was the, the challenge for all that food supply running through the system that was geared for food service to go to restaurants or, you know, or, you know, a large cafeterias. And all of a sudden we said those are closed and let's pivot over to grocery, or let's pivot over something else where consumers are going to buy our inability to pivot their felt last mile is really the bottleneck that got created on a phone with a, a large beer distributor earlier today. And they said, you know, the, the shift for them is they went from kegs to cans. You know, when you think about that, we just, we say we can't have gatherings of 50 more people that means people would drink out of a can versus a cake. You know what I mean, simple things like that. I think we just take for granted, like it can just shift easily, but it's, um, it's those last mile pivots. I think they're going to be really, really fundamental going forward.
Phil:And I, and I also think coming out of this, uh, to your earlier point, that consumers retailers, restaurant tours, got got a peek under the hood of how complicated our food system really is. And I think they have a new appreciation for, um, for the first time in so many people's lives, they walked into a grocery store and so empty shelves and they panic. They, they hoarded, you know, everything that they could buy, even though they might not have liked it, uh, they were afraid. And I think that to your point, we come out of this with a whole new appreciation for farmers ranchers for, for the supply chain. Um, so with that, you know, our farmers managing economic risk, um, during this period and in the future, and, you know, is the profit pool shifting and where's it headed?
Rob:Yeah, I think for, you know, one thought is just for American consumers and saw for the first time there wasn't meat in the freezer or some of the food on their shelves, you know, part of that is welcome to the real world that, that actually happens the possible world. Right? And so again, we should all be very, you know, grateful for the hard work that puts food in the freezers and on the grocery shelves every single day. So hats off to unsung heroes who I think are farmers or ranchers in this country. Right. Um, but I think how do we manage the economics? I think profit pools are gonna shift. I think the consumers are speaking, speaking really, really loud right now. They want to know who's producing their food. You know, so if you stand in between a producer and a consumer, you're really going to challenge, what's your role, what's your value that you're adding. If you're just moving bulk food from one more house to a distribution center, to a restaurant, or, you know, what, what is your role? What value are you adding into the process is going to continue to be under, under scrutiny going forward. So I think that's a, that's a big piece of managing economics and we'll see those profit pools shift accordingly. I think when you look at producers getting better demand signals at the consumer level of what they want and how they want it is going to be paramount. And that's a data conversation. That's about trusting data flowing right, and left through the value chain so that they get those signals and they can produce on time and at the qualities that are expecting. So I think those are, those are a couple of things that manage the economics. Then I think the relationships that, you know, I'm supplier for farmers and ranchers have starts to lend itself to different kind of operating models. You know, we've seen that in the real crop industry where we see things like, you know, outcome based or risk based pricing, where it's no longer about selling bags and drugs, it's about let's up and let's get an outcome here. That's good for everybody. So I think those kinds of pricing models and relationship models are, are really a, a great lever in managing everyone's economics and risk.
Phil:So do farmers and ranchers, um, have the tools that they need to, to manage risk, to, to get to where you're describing. They need to be
Rob:Not, not across the board. I mean, there's a lot of technology, there's a lot of tools out there. Um, but when you're you're trading on$3 corn, you know, it's hard to make the investment that you really need to make. And there's so many options, your appetite to, you know, take a fly or risk on an uninvested is really low. I mean, you, you're, you're really scraping by, you know, the difference between core train at two 80 and corn train at three 40 is, I mean, it's massive, you know, if you're running a farm. So the appetite for investment is really low. I think the tools we've, we've kind of created tools that are actor specific. So it's, this is good for a row crop farmer. This is good for a, you know, a food manufacturer. I think we need to start to see greater collaboration across the value chain and find tools that bring value through the system versus individual actors. And I think that's where we really start to unlock some incredible opportunities. You know, we we've, we've launched a program called innovation studio, which is focused strictly on creating value across the, across the chain, putting people together in the same room, focused on a problem and saying, let's figure this one out together. I think that's ultimately what we're going to need going forward.
Phil:Yeah, I would agree. Um, I recently had a conversation with a mushroom grower and a big operation and what he shared with me, uh, he and his daughter run it, um, is that the demand for mushrooms in the U S is greater than production, which I didn't know, uh, which is why we now have a lot of mushrooms coming in from Canada. So I said to him, why don't you just, Just build more of these mushrooms rooms, um, if you would. So, so they can meet that demand. And to your point, he said, I don't have the money. I just don't have the money. So, you know, we, we have these situations where demand is more than output. Uh, we have the other situation as well. Um, and to your point about collaboration, um, to your point of what you do every day is, is figuring out how to get farmers and ranchers money or investment or bank loans or whatever they need to do to grow and to survive. Um, what does an economically sustainable future look like in agriculture and in food?
Rob:Well, you know, I think part of it is you got to really understand that the customer segments that you want to serve, you know, and let's face it. You know, my generation was all about get the most convenient food and the cheapest food, you know, and it was all about kind of three meals a day. And you're, and you're kind of off, off to the races ever generation or stay away. I know my genetic makeup, I know what kind of diet I want to, you know, have I know how different foods affect my health and what ultimately I want out of my health and it's changing things a lot. It's focused. It really shifts to being like a hypersegmented consumer population of exactly who do you want to serve and how do you want to serve them? And then I think that starts to flow through the system all the way back to producers.
Speaker 2:I mean, you know, as an example, I mean, if we want to move to local, we want to have fresh and we don't want preservatives and we want to really reduce kind of the chemicals on plants. Then you end up not getting fresh apples in Minneapolis, in January. It's just, it doesn't happen. Right. And so he is thinking about, you know, what are those things? And if you do want certain things, are you willing to pay more? So it's not just profit pool shifts across the actors, the value chain. It's also looking at the generational shifts and how they want to spend money. You know, I think the trend line would say our gen Z probably care less about spending, you know, on a McMansion in the suburbs, but they're okay spending$8 on a latte because they value food more than more than housing, you know? So those kinds of shifting spending shifts that I think are also fundamental to the food equation.
Phil:Do you think that finally, as a result of everything that you've described, um, we're going to start paying a fair price for our foods because we have the cheapest food supply in the world as you point out correctly. Um, we went for efficiency. Um, we store apples for a year or a year and a half, uh, before they get to the grocery store. And one of the things that I've always talked about that I would love to see is that our supermarkets just sell produce, um, when it's in season, because if it's in season, it's less expensive, it tastes better and it's more nutritious. Um, do you think that all of what we've talked about could finally force that to happen?
Rob:Yeah. When we say fair price, I think consumers determined, fair price, right? And so, uh, some are gonna be super satisfied with the way it is. And some are saying I'm willing to pay more for, uh, you know, something that's in season and fresh. And I think we need to afford them all those options, regardless that will create fundamental, systemic, structural change across the food industry. Cause it's going to trickle back that for those that want something fresh and local and seasonal, that's going to have to be produced in a local local format. That's no longer means you can put a label on it. It's fresh because it's been frozen for a year, you know, and I think that kind of environment starts to kind of fuel the fire of let consumers vote with their wallet. And if they're willing to pay more for stuff they value, then let's give them what they want. I think that's ultimately kind of how the system will unfold.
Phil:Look into your crystal ball. And I'm sure you're asked to do that probably a hundred times a day from everybody in your organization and all your clients. But if there was one thing that you really think is critical for agribusiness today to start doing, what would that be?
Rob:Yeah. I think there's got an underlying, all of this, you know, consumers going back to producers, challenging the nodes that are in between and how we, how we inter-operate, you know, fundamental that is fundamental to that as the data we have and the data we share and the data you share is really based upon trust. You know? And, and so as we look at that trust equation across the value chain, I think it really becomes the unlocking element of how can we start to become better and smarter and be more informed of what we do. You know what I mean? We look at, we want fresh food, you know, when you go, how do you know it's fresh? You know, cause and how do you know it's organic, you know, are those things, you know, high integrity that make you want to purchase more. And I think consumers are going to want that information.
Phil:They're gonna want to say I'm willing to pay 25% more, but is it really what I'm getting? You know, in my sure. You know, I think generally there's a distrust for large institutions right now. And the way you get through that is by, you know, transparency and more exposure to what's what's there. You know, I, I think when I look at, you know, I love your concept of let's just curl what's in season. And when we look at our food system reimagined platform, I mean, we really envision a, you know, a grocery store format that splits into two, you know, and on one side it's a live store on the other side, it's a dark store, you know, and some could say the center of store is what goes into the dark store, you know, and that becomes a, you know, send it to me two hours or less, but in to make any of that work is going to have to drive some efficiency through supply chain and through data and all that. So I think at the end of the day, I think this unlocking this data equation becomes a massive element to this Well, Rob, thank you for everything that you do every day, uh, for your organization, for agribusiness and your clients. And thank you for joining us today on farm food facts.
Speaker 2:Thank you, Phil pleasure,
Rob:Us Farmers and Ranchers in action would like to recognize the sponsors of the 2020 honor. The harvest form or movement sponsors, United soybean board and national pork board. Our presenting sponsors, Wells Fargo and Cargil. Our gold sponsors, Bayer, Dairy West, Nebraska soybean board, M cDonald's, Nutrien and the Foundation for Food and Agriculture Research. Our bronze sponsors, Purina and Ernst& Young, our youth sponsor Ruan and our donor sponsor Tyson. For more on all things, food and agriculture. Please visit u s@usfarmersandranchers.org. Also be sure to look out for us on Facebook@usfarmersandranchers and on Twitter@USFRA. Until next time.