December 11, 2024

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The Impact Of COVID-19 On The Food And Beverage Supply Chain Could Be Long Lasting

COVID-19 has disrupted supply chains but perhaps none more significantly than food and beverage (F&B). A report late last month from Resilience360, a product of DHL, found that the shutdown of manufacturing plants, changing consumer behaviors and price increases have altered F&B supply chains, at least in the near term and perhaps for the long term.

“The pandemic has exposed the vulnerabilities of an industry historically reliant on manual labor,” the report, “COVID-19 exposes vulnerabilities in the global food supply chain,” noted. “In the long term, companies can introduce more automation and robotics technology in their supply chain to address labor shortages to mitigate the impact of future crises.”

The report noted that many F&B producers were not prepared for staffing shortages due to COVID-related shutdowns and exposure to the virus.

“This shift has exposed deficiencies in the resilience of the sector,” it said. “It has highlighted the industry’s overreliance on manual labor and, as such, has supported the argument that the industry needs a higher prioritization on automation.”

Plant closures and changes to operating procedures – including socially distancing workers – contributed to overall labor reductions and limiting production.

“At the same time, the shuttered restaurant industry has led to decreased demand for wholesale products. This, augmented by labor capacity shortages, has led to food losses, inefficiencies and waste,” the report said. “Though food shortages have been largely avoided on a global scale throughout the crisis, systemic weaknesses in F&B supply chains have disclosed vulnerabilities for many companies operating in this sector.”

Plant closures

In April, FreightWaves reported on plant closures because of COVID-19 outbreaks. A Tyson Foods, Inc. (NYSE: TSN) Fresh Meats plant in Waterloo, Iowa, faced an outbreak that sidelined 180 workers and caused a backup of hogs to be processed at the plant. JBS, Smithfield and Conagra also dealt with plant closures. Resilience360 linked 11,000 cases to Tyson, JBS and Smithfield plants. Tyson, it said, has since implemented strict operational measures to minimize worker exposure to the virus.

“These regulatory measures, however, require that a considerable portion of the labor force remain at home,” the report noted. “Despite the immense amount of effort and investment in safeguarding workers at these facilities, outbreaks continue across the U.S. and elsewhere.”

Resilience360 predicted that as a result of COVID-19, meat supplies at U.S. grocery stores were expected to shrink by 35% by the end of 2020, with prices spiking 20% or more as a result.

“Grocery stores have largely prevented a significant food shortage up until this point. However, that is due to meat and other food surpluses already in the supply chain at the start of the pandemic,” it said. “With an anticipated uptick in cases this winter season, coinciding with flu season, it is expected that current production rates will be insufficient to meet the demand. This is especially concerning as U.S. states and other countries begin reopening businesses, including restaurants, that will demand wholesale F&B products.”

The report further noted that the impact of plant closures and reduced demand could lead to 10 million hogs being euthanized, hitting farmers’ bottom lines and putting their businesses – and a key cog in the supply chain – at risk.

Packaged goods

While food and beverage manufacturers have adjusted to new operational procedures that have hit capacity, consumers have altered their food buying habits. With many restaurants closed around the country earlier this year, and those that are opening operating at less-than-full capacity, consumers have turned to prepackaged goods.

“Prior to the pandemic, the F&B industry was tasked with adapting to the increasing number of in-transit consumers and the associated demand for prepared, ready-for-consumption products in spaces outside of the home,” the report said. “The subsequent shift to remote work and home lockdown orders have upended this trend.”

Nonperishable, shelf-stable foods have become the norm and that has led to a resurgence in single-use plastics, especially around increased takeout orders.

“During Singapore’s eight-week lockdown, for example, an additional 1,470 tons of plastic waste was generated from takeout packaging and food delivery alone. Bangkok alone consumed 62% more plastic in April 2020 than it did in the same month of 2019,” it said.

Plastics suppliers, Resilience360 said, have benefited from this trend, but it’s unclear if it is sustainable.

“Plastic trends have all but assured business continuity for packaging suppliers during the pandemic. Thus, industries and companies which rely on packaging solutions to distribute their goods should have little concern for financial impact to this aspect of their supply chain operations,” it said.

Food protectionism

As countries moved to minimize outbreaks of COVID-19, many implemented more protectionist trade policies, including limiting food imports.

“On the one hand, restricted export policies were abruptly passed as a mechanism to ensure domestic food supplies and prop up domestic farming at once. On the other hand, fears of transmission vis-a-vis imported food and beverage items led to isolationist policies which all but cut off certain aspects of the global food supply chain,” the report stated.

According to the report, officials at the World Bank Group believe food protectionist policies will lead to a decrease in global food exports between 6% and 20% and global food price increases between 2% and 6%. Further import and export restrictions could boost food prices as much as 18%, the World Bank Group said.

These impacts have led companies to consider multisource supply chains.

“If a company’s sole supplier suddenly experiences a virus outbreak in their facility, the company will be faced with total loss of product,” the Resilience360 report said. “If, on the other hand, a company disperses its activity amongst several suppliers in different parts of the world, it will be less vulnerable to unpredictable shocks, such as virus outbreaks or health regulations to prevent an outbreak.”

In addition, the report lays out a scenario in which Americans, suspicious of China’s role in the origin of COIVD-19, could demand more traceability of products and seek out those products from local sources.

Supply chain outlook

The Resilience360 report cites significant concerns f
or the F&B supply chain, including an increase in global food protectionist policies that could drive down import and export activity and changes in consumer behavior that puts locally sourced, prepackaged goods in greater demand.

“Generally, the global food supply chain has shown resilience in the face of unanticipated challenges,” the report concluded. “However, farming labor shortages, continued plant closures in the food processing and meatpacking sectors and airfreight capacity declines will continue to present obstacles for the F&B industry.”

Click for more FreightWaves articles by Brian Straight.

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