Three Important Things You Need to Know About Food Supply Chain Disruption (And What It Means for Your Business)

Over the past 25 to 30 years the food manufacturing and distribution industry in Canada has experienced a shift due to the globalization of agriculture, trade liberalization and the effects we are seeing from climate change. While this global export and import system has been mutually beneficial in many ways, recent events have shown the potential drawbacks of relying on long distance sources for food production and supply.

Food supply chains all over the globe have experienced unprecedented disruptions over the past year which are due to the effects of the COVID-19 pandemic. This has brought on different and new pressures which have included a reduced availability of raw materials, shipping delays, rising shipping costs, and severe labour shortages.

The pandemic has highlighted the need to address rising food insecurity; while still being able to support the increasing call for local food sourcing to help bolster the domestic agri-food sector.

One of the key lessons that Hela has learned throughout this experience, is that companies need to use this time to redesign their supply chains while keeping future resilience in mind. We need to find a better balance between external and local sourcing, plus develop a wide range of source options to support increasingly uncertain supply chains.

Here are some important things that you need to know about food supply chain disruption:

1. Availability of Raw Materials

Food supply chain disruption can lead to certain raw materials no longer being widely available. This means sourcing raw materials for businesses will become more of a challenge and it will also become more expensive, as shortages occur while demands rise.

It didn’t always used to be like this. Historically and not too long ago, large quantities of food were harvested and the surplus stored in warehouses. Today, we’ve shifted to a “just in time” model. Canadian crop yields are predominantly wheat, canola oil, corn, soybean, barley, pea and oat; however, we rely heavily on outside sources for ingredients such as spices, dried fruits and vegetables, and food chemicals. The pandemic has clearly highlighted how this model is not ideal. When a crisis like this occurs and we are not able to get the food “just in time” – and consumers engage in “panic buying”. This can result in issues such as momentary shortages of certain ingredients and transportation capacity constraints.

An alternative solution would be to work with and source from a wider variety of suppliers at the local, regional, national, and continental levels. Companies should also start to think about maintaining larger raw ingredient inventory levels. Maintaining a broad product range of inventory can be more difficult to manage and more expensive to carry, but this also helps you mitigate risk and allow uninterrupted production schedules.

As an option, you can also reduce your product offerings, which will result in a leaner and more manageable product line with less risks and lowered costs. This can also free up time and resources to help you develop new and innovative products that have more easily sourced ingredients.

It will become even more important to invest in relationships with your supply chain partners, too. Having loyalty and open lines of communication with your suppliers and customers are the key to ensuring business continuity, now and post COVID-19.

Although not directly related to the COVID-19 pandemic, climate change has also played a large role in the erratic supply of raw materials within the food supply chain. Over the next 30 years, it is predicted that an uncertain and changing climate (increased number of droughts, severe storms, rising sea levels) will cause further food insecurity.

Maize and Wheat account for a good portion of the world’s calories and protein (especially in less developed countries); the rising greenhouse emissions mean a decline in production and harvest (Source: United Nations). Other industries such as Fishing will be heavily affected as well.

The rate at which we are using raw materials and producing harmful greenhouse emissions is sending us towards a crisis that the COVID-19 pandemic has given us a mere taste of. It will likely require an overhaul of how we produce, process, and distribute food; however, if these changes are not made it will result in an unsustainable system.

2. Shipping Delays

Another main culprit of product shortages is the fact that a lot of shipping companies, all over the world, were put on pause or slowdowns due to the pandemic. National and international delivery companies and systems could no longer operate at the level of productivity before the pandemic.

In the food industry, transportation of foodstuffs has become a nightmare in terms of logistics. In places where produce is harvested, border control, air freight restrictions and inspection overload has made the international transport of fresh goods very difficult and more expensive.

These shipping delays impact the sales of producers, distributors and retailers alike. Companies that typically sell a large portion of their products through Food Service channels saw their sales slashed during the pandemic (an example would be soft drink producers).

The pandemic has not only caused a delay, but has resulted in a shipping container crisis causing the container prices to increase. Recently, some costs have soared to around $24,000/container to ship from China to LA. Not only that but the quotes for pricing are constantly changing, making it difficult for everyone to provide constant pricing and delivery schedules.

This has amplified an existing imbalance in trade between countries. China’s trade economy has recovered faster than the rest. There has been an increase in demand for products rather than services, and China does not have enough shipping containers to meet the demand (Source: Forbes).

While the globalization of food trade has opened up opportunities for many, when incidents like this occur, it unveils how fragile it really is.

3. Labor Shortages

Fresh produce farm operators around the globe rely heavily on large amounts of labour to run their operations smoothly. Especially for the production of specialty crops like strawberries and lettuce. One of the most pressing pandemic-related issues here was and remains, the availability of workers and subsequent production capacity shortages due to social distancing requirements and a sickness in the workforce.

In the early stages of the pandemic, governments (to varying degrees) made the call to close all services deemed “non-essential”; meaning that restaurants, bars, cafes, etc. had to shut down until further notice. This caused a huge and sudden shift for those labourers working in the food service sector.

The supply of food ingredients going to the restaurant industry diminished quickly and caused a large amount of food to bottleneck without an outlet. However, there was a spike in retail food supply (grocery stores) as consumers altered their lifestyles to cook more meals at home. This forced a large number of companies that were previously dedicated to supplying the food service industry to quickly pivot and develop methods to provide their products directly to consumers.

Slaughter operations and food processors remained open. These frontline employees were going into work and risking contracting COVID-19 to maintain production of essential food ingredients and products. Companies were forced to initiate employee safety protocols, limit interpersonal contact, and institute screening and personal protective device usage just to stay in production and keep the supply chain afloat.

Not only that, but the US and Canada host a large amount of foreign workers to harvest our crops each year. With many international borders closed and quarantine mandates in place, less workers were able to work in US and Canada (although exceptions were made to allow some of the workers to enter); this resulted in further labour shortages and the potential for reduced crop yields with the reduced ability to harvest. Again, this highlights how heavily our food production system relies on external resources to be able to function.

For more information about food ingredient supply, call Hela Spice at 877-435-2649 or contact us here.