The COVID-19 outbreak shows that a pandemic can create serious havoc on supply chains. The modern global food supply chains of today are a phenomenon of just-in-time efficiency that cuts costs at every corner. However, with the efficiency comes a fragility that makes handling interruptions like this pandemic more difficult.
The complications created by the coronavirus pandemic have never been experienced before and are beyond any regionalized natural disaster ever faced by the industry. The COVID-19 outbreak has placed unprecedented stress on the global food supply chains, with impacts in farm labor, transport, logistics, processing along with significant shifts in demand. Most of these interruptions are a result of measures adopted by countries to contain the spread of the virus.
How has the current situation affected the food supply chains?
The disruptions due to the pandemic have been experienced at various stages of the food supply chain. Let’s take a look.
Effects on farm production
Farm production has been affected by blockages for inputs, mainly labor. Many farm sectors are more dependent on seasonal labor than others. For instance, fruits and vegetables are more labor-intensive, while oilseeds and cereals require less labor. Limited mobility of people has reduced the availability of seasonal labor for planting and harvesting in the vegetable and fruits sector in many countries.
Besides farm labor, other important inputs include seeds, fertilizers, pesticides, and energy. The seed sector is highly globalized, and the seeds travel through several countries for production, multiplication, processing, and packaging. Seeds are often transported by air, a mode of transport that has been severely disrupted. With several countries now easing down the lockdown restrictions, the concerns regarding supply of these inputs have waned.
Impact on processing due to shutdowns and labor shortages
The food processing industries have been affected by the rules of social distancing, labor shortages due to illness, and due to the lockdown measures. In confined places such as packaging units for meat, fruits, and vegetable processing facilities, the requirement of maintaining social distancing has reduced the efficiency of operations since the employers need to ensure the safety of the labor force.
Some modes of transport have been affected severely
Bottlenecks in logistics and transport have disrupted the movement of products along the food supply chains. Broadly speaking, there are three main modes of transport that are used in the supply chains- ships and barges for bulk, trucks, rail or boat for transporting containers, and air freight. Different transport is used for different products. For instance, oilseeds and cereals are typically shipped in bulk quantities; meat and dairy products are transported in refrigerated containers and trucks. Although the bulk shipments have not been affected much, air freight has taken the maximum brunt.
According to the OECD (Organization for Economic Cooperation and Development), the global air cargo capacity between the second and third weeks of May was 26% lower than during the same period in 2019 with the largest decline on routes between Latin America and Europe. The vegetables and food sector has also seen a major impact due to quarantine measures and delays in border inspections.
Consumer demand has seen unprecedented and rapid shifts
The pandemic has led to drastic shifts in consumer demand from ‘outside food’ (restaurants or food service) towards ‘food at home’. This has caused significant changes in how food supply chains operate. As the coronavirus outbreak gathered pace, the sale of food from restaurants, hotels, cafes, and catering collapsed. However, at the same time, the retail demand for food increased. There was a dramatic increase in demand for packaged and frozen food items.
According to a report by OECD, in the second week of March, weekly sales of frozen food were 63% higher than last year in France, for example. The shift from food away from home to food at home had a considerable impact. For instance, restaurants tend to use more cheese on pizza toppings than what is made at home and also involve expensive meat cuts (like steak vs. minced meat at home). Even though similar products are consumed, the products usually sold to foodservice operations and restaurants cannot always be sold to retailers without incurring extra costs. For instance, a restaurant will be buying a big block of cheese, whereas much smaller packs are needed for retail sales. Moreover, retailers have different quality expectations and requirements.
The Bottom Line
With the COVID-19 pandemic threatening to wreak more economic havoc globally, governments and the private sector must work together to address the risk of disruptions to the food supply chains. Beyond that, global policy coordination may be required to prevent food protectionism from becoming the new-normal post the pandemic.