Mike Meek, procurement director, at food procurement specialists Allmanhall, explains the challenges posed by Covid-19 for supply chains and pricing
When considering the impact of Covid-19 upon supply chains, it doesn't require a level of deep philosophical thinking to conclude that many businesses are facing unprecedented challenges, mainly connected to huge swings in demand for their goods or services, which in turn have profoundly impacted supply chains.
It is advisable to invest time in developing supply chain resilience, having a supply chain plan, a clear communication strategy and the agility to complement it.
The foodservice sector has experienced a huge drop in demand, a challenged top line leading to cost pressure, cashflow challenges, excessive inventories, largely inactive operations, and uncertainty regarding if, how and when the recovery will happen.
Covid-19 has not just affected single suppliers, but all segments of the connected supply chain, from growing, production, warehousing, distribution and the consumer.
In relation to food markets, a surge in retail demand is driving up some prices, particularly for fruit and vegetables. Other factors include household stockpiling of fruit due to shortage concerns and attempts to boost immune systems; restricted borders and travel disrupting supply chains; some weather-related shortages, plus seasonal change – it can be a volatile time of year for quality, even aside from these extreme circumstances.
Fears of labour shortages in heavily affected regions and lack of temporary seasonal farm workers in the UK may also impact prices.
But for the reasons identified not all prices are rising – some are falling.
The dairy industry faces challenges as a result of a collapse in the foodservice sector with falling demand and prices. There is increased demand for cheaper beef cuts, such as minced beef. These increases in retail sales are failing to offset losses from the foodservice sector.
Household stockpiling is easing, which should help provide a clearer picture of overall demand and how much volume has been gained within the retail sector to counter the losses in foodservice.
Countries are focusing on food security and domestic production. This may impact future supply and demand patterns for the UK and extend to other key components such as essential non-food packaging items and PPE.
The virus is impacting countries at different times and at different stages of infection. As a result, commodity markets remain uncertain as varied responses affect supply chains.
The long-term balance between low-cost production and shorter localised supply chains requires close attention.