Agricultural logistics covers the planning and execution of the flow of products, supplies and operations. Its role is fundamental to the sustainability of
Agricultural logistics covers the planning and execution of the flow of products, supplies and operations. Its role is fundamental to the sustainability of the business, impacting on cultivation costs and the yield of the grains produced.
In this article, we’ll look at the main aspects of logistics in agribusiness and its impact on the sector. Have a good read!
From a macro perspective, agribusiness logistics can be divided into three main segments: supplies, production support, and distribution. Learn more about each one!
Supply logistics aims to maximize crop productivity at the lowest possible cost. To do this, it is necessary to control the dates and quantities of inputs used (such as seeds, fertilizers, and pesticides). These materials must arrive at the right time and in the right quantity to avoid wastage.
This logistics relates to everything that is needed for agricultural production to go as planned. This includes the proper use of machinery, stock management, storage space and quality control. The aim is to optimize the use of resources and ensure economic efficiency.
This refers to the transportation and delivery of agricultural products to the market, whether local, national or international. This involves planning routes, types of transportation, optimal storage during transportation and the quantity to be distributed.
Efficient strategies are needed for each type of product, according to its specific characteristics. Strawberries, for example, need more space to ensure they reach the market in good condition. Other products also need refrigeration to maintain their quality.
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In addition to efficient strategies, logistics in agribusiness need to be adaptable. Here are the main challenges that require flexibility when it comes to optimizing agricultural operations:
Most agricultural production takes place in rural areas with poorly maintained roads. This can cause delays, increased costs, and technical problems in transportation. In addition, distribution often covers long distances, where traffic jams and weather conditions can affect delivery times.
Agriculture is highly susceptible to the weather, which directly affects product yields and stocks. This requires rapid adaptations in the logistics of storage, transportation, use of inputs, crop adjustments and more.
As products are transported by road, ship or plane, the price of fuel can have an impact on final distribution costs. The energy market also works like the agricultural market and is susceptible to market volatility. This means that a constant analysis of logistics is necessary to keep prices sustainable.
High production costs can turn into logistical problems. When working with higher values, you must find other efficient ways to improve the profitability of the crop. This ends up involving the entire agricultural production chain, from the purchase of inputs to machinery and skilled labor.
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Globally, geopolitical conflicts also affect agribusiness logistics. Their impact is directly related to the distribution of products, delivery times, freight, and final prices. Products such as rice and corn, which are traded globally, can have their values increased when importing and exporting countries conflict.
Below, we look at the possible consequences of tension between nations on international agribusiness logistics:
Geopolitical conflicts can interrupt or divert traditional routes, such as the Suez Canal or the Strait of Hormuz. Many oil cargoes that would pass through the Red Sea, for example, have to change their usual route to avoid the current conflicts in the East. In cases like this, ships have to go down to the bottom of the Cape around South Africa and take the longer routes to the east.
This deviation directly influences freight rates for goods. Longer routes lead to higher transportation costs, which end up being passed on to companies and, ultimately, to the end consumer.
Geopolitical tensions can lead to the closure of borders and ports, blocking deliveries to international markets or making it difficult to transport products via alternative vehicles.
Conflicts can impact the volatility of currencies, altering import/export prices and influencing the cost and production logistics of the agricultural production chain.
According to McKinsey, geopolitically distant economies are responsible for almost 20% of global trade in goods. Geopolitical tensions such as those mentioned have an impact on this entire international market, which uses maritime routes to deliver products.
However, the institution reported that a commercial reconfiguration is underway so that international transactions are carried out in countries that are closer geographically. The aim of this change is to reduce distribution costs, as well as cut delivery times and avoid routing problems such as these. See more in the full article.
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Whether directly or indirectly, logistics costs will certainly have an impact on the final margin of your business. Logistics is one of the elements that make up the basis (the difference between the spot price of a commodity on the physical market and the futures market) and, consequently, the final price of the commodity.
In this scenario, hedge management in agribusiness is important for mitigating the financial risks associated with the volatility of the agricultural market. As we have seen, any change in logistics has a direct influence on production costs and the financial yield of a crop.
Hedging tools are applied in these scenarios to protect producers from price fluctuations. By using hedging, farmers can guarantee fixed prices for the future, strengthening their financial planning.
At Hedgepoint you can count on professionals who understand the market and work with hedging tools that protect your business. Get in touch and find out more!
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