The Effect of Supply Chain Crisis on the Food Industry

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One of the commonalities of all pandemics is their serious negative effects on the global economy. Considering the food supply chain, one of the most important sectors of the economy, it has been seen that COVID-19 has an impact on the entire process, from the field to the consumer. In the light of recent challenges in the food supply chain, there is now considerable concern about food production, processing, distribution and demand.

According to Errol Schweizer, “Food retail supply chains are undergoing shocks and logjams that are raising prices and disrupting fill rates.” Companies that produce, convert and deliver food to consumers and businesses face a web of interrelated risks and uncertainties across all steps in the value chain — from farmers to end-customer channels. Food-service suppliers, for example, faced abrupt order cancellations across their entire customer bases.

Farmers

According to Forbes Magazine, “For many farm operations that require significant amounts of labor the most pressing pandemic-related challenge faced so far was the availability of workers. Some farmers faced other distinct challenges, such as a steep drop in grain prices following a shock to oil demand.” Those value chains are operated in rural areas with low population density and limited opportunities to find skilled labor.

Food-service distributors

Distributors run an optimized and stable supply chain, with upstream orders coming in that anticipate downstream orders going out. Margins depend on there being a steady flow in both directions and having only a subset of products in inventory awaiting orders. Immediately after coronavirus-related shutdowns, outbound orders suddenly stopped because of government-mandated closures of restaurants, even though inbound orders of food kept coming in from farmers, food-service producers and processors.

Food-service producers

Food-service producers, such as produce and meat processors, face similar volume declines as their distributors do. Although in-store sales have increased to date, that increase has not covered the scale of decrease in food service, so plant utilizations remain significantly reduced. Additionally, many producers’ brands may not be recognized by retail consumers, making it difficult to gauge demand immediately.

Consumer and packaged-good companies

Retail-facing consumer- and packaged-goods companies are facing multiple challenges because of the COVID-19 crisis. As with many companies in manufacturing, they bear risks related to employees working in close quarters at plants functioning at peak capacity. They also face a significant increase in demand for certain product types (especially shelf-stable products) and packaging types (such as smaller sizes for home consumption) for which they have limited capabilities and capacity to supply.

Grocery retailers

Grocery stores are benefiting from significant demand increases from demand previously met by food-service companies. However, they face additional challenges and extraordinary activities to protect and serve their consumers. Those include constant and visible cleaning of stores, frequent loading of shelves to keep up with demand, hazard-pay bonuses and incentives to maintain employee numbers, and hiring of additional labor, with limited time for training.

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