Letters

The COVID-19 pandemic is threatening the survival and recovery of agribusinesses.

Generally, the supply-side of the agriculture and agro-processing value chain has been [safeguarded] from disruptions. However, the demand-side continues to feel the adverse effects of COVID-19, resulting in reduced per capita income from business closures and the slowdown of operations.

Consequently, COVID-19 is threatening the competitive performance of agribusinesses and their survival beyond the period. Such conditions require strategic responses.

RESPONDING TO CRISES

History shows how businesses have dealt with market shocks, with some of their strategic responses having enabled them to survive crisis periods.

In navigating Asia’s 1997 economic [downturn], some businesses deliberately reconfigured cost-efficient strategies to mitigate the adverse effects thereof.

Lessons learnt from the global financial crisis [from 2007 to 2009] suggest that the reconfiguration of company strategies imposed transitory yet significant adjustment costs on them.

There are various strategic responses by companies to crises, such as perseverance, retrenchment, diversification, innovation, and folding. Perseverance relates to the ability of the agribusiness to endure and sustain business activities during times of crisis. This approach may assume various forms, including debt financing, utilisation of agribusiness reserves, and partnering. Ordinarily, small and medium agribusinesses often do not possess sufficient resources, both financial and nonfinancial, to persevere and out-last crisis periods. Large agribusinesses may be suited to such an approach.

Meanwhile, retrenchment is a costcutting measure that may potentially reduce the scale and scope of the agribusinesses’ operations.

Diversification refers to a strategic and systematic move away from the core business activities. It could provide entrepreneurial opportunities, which may reside within domestic and/or regional markets intended to take advantage of the Africa Continental Free Trade Area.

Folding relates to the discontinuation of a business’s activities, and may manifest in its closure.

ANOTHER TACK

An interesting response to a crisis is innovation, which refers to a process of strategic renewal and the adoption of new strategies by agribusinesses. Innovation is the novel way of doing things or doing new things that are implemented in everyday practices. Innovating during times of crisis may also involve a redesign of the existing agribusiness structure.

Innovation makes it possible to improve both the efficiency and quality of products. Latent potential may be unlocked as part of the development of food or the modification of existing food value chains.

The lack of a reliable early warning system for crises means many agribusinesses are reactive rather than proactive in response to a crisis. Small and medium agribusinesses often fail to prepare for crises due to the acute shortage of financial and non-financial resources.

DYNAMIC CAPABILITIES

However, agribusinesses that pursue innovative strategies are likely to survive and recover from crises. Therefore, building agribusinesses’ capability to innovate during crisis periods is imperative.

Dynamic capabilities enable agribusinesses to create new products, processes and services in response to changing market conditions. There are a few approaches to dynamic processes, including integration of resources, leveraging, and learning.

Integration of resources is the ability of agribusinesses to efficiently and effectively set up proper combinations of resources, assets and activities, both internally and externally, which will, in turn, generate interdependency, coherence and complementarities among processes geared to achieve cost and quality advantages.

Leveraging is the replication of successful processes and practices from one part of the agribusiness into another.

Learning as a dynamic capability relates to the business’s willingness to challenge the status quo via sustained experimentation and continuous scanning of the environment for marketing opportunities.

Small and medium agribusinesses are often too preoccupied with shortterm survival to appreciate long-term innovation and growth. Learning, adoption and implementation of dynamic capabilities does not guarantee survival of agribusinesses during turbulent times, let alone crisis periods.

The strategic responses by agribusinesses to mitigate the effects of the COVID-19 pandemic are likely to be varied. Agribusinesses adopting ambidextrous approaches combine cost-efficiency drivers with significant innovation pillars, and are likely to create, leverage or exploit existing competencies and capabilities in new products, processes and services.

Agribusinesses are advised to follow an ambidextrous and complementary approach of short-term cost-cutting and long-term resource commitments in response to the effects of COVID-19.

Dr Mahlogedi LV Thindisa, agricultural economist. Thindisa wrote to Farmer’s

Weekly in his personal capacity.

‘BUSINESS INNOVATION IS A GOOD RESPONSE TO CRISES’

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