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Coping with the New Normal - Covid-19 and after

How Covid-19 put the food supply-chain under pressure

By Aon Polska
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As the novel coronavirus (Covid-19) pandemic has transformed the way we live and work, among its most immediate – and critical – impacts has been its effect on food supplies.

Images in the news of empty supermarket shelves and farmers dumping milk show the disruption Covid-19 has had on food supply chains. Consumers preparing to shelter at home began buying staples like pasta and rice in extraordinary volumes, and flour and yeast were suddenly scarce as home baking became popular; retailers are seeing record sales as a result.

Meanwhile, shuttered schools, hotels and restaurants have halted the institutional market for many food packagers and producers, which face massive challenges as they pivot business models to serve a new supermarket clientele. As US grocery store sales jumped from $58.42 billion in February 2020 to $74.16 billion in March, US dairy farmers were dumping 3.7 million gallons of milk each day. In the UK, reliance on imported food supplies came under threat, prompting calls to “shop local” as many exporting countries opted to keep their supplies in-country.

“Food businesses supplying products into retail are busier than ever,” says Ciara Jackson, director of Aon’s Agri-Food & Beverage Practice in Ireland. “Cooking at home has increased dramatically, and consumers today are seeking comfort, security and safety in their foods.”

“Meanwhile, companies supplying the food service industry have seen their business decimated overnight,” Jackson continues. “There’s a disconnect: food is continuing to be produced, but in some cases it has nowhere to go. Smart businesses have quickly pivoted their business models to identify alternative sales and distribution channels.”

As meat-processing plants struggled to stay operational while fighting Covid-19 outbreaks, Tyson, one of the largest US meat processors, ran a full-page advertisement in The New York Times to warn that “the food supply chain is breaking.” And Nestle’s CEO recently warned that food-industry supply-chain issues may get worse as the pandemic continues.

But the absence of some goods in European and US supermarkets isn’t necessarily a function of a food shortage – it’s the result of shopper hoarding and well-established ‘just in time’ food supply chains breaking, according to Ms Jackson. Take, for example, flour. “There’s plenty of flour; it’s just not making its way to the consumer because, traditionally, some of it would have gone to food service in 50-kilogram bags,” Ms Jackson explains. “So some of the retailers are starting to be clever. They’re bagging the flour themselves to meet consumer demand.”

Reworking supply chains is no easy task

The food industry can’t be singled out for its struggle to cater to new consumption patterns – this is a challenge many industries face. Covid-19 is shaping up to be one of the most disruptive, world-changing events in living memory. And in an increasingly complex and volatile business environment, informed decision-making has never been more important.

“You see companies working around the clock on the food retailing side, but food-service lines have had to be stopped. The market for institutions like restaurants and schools is completely gone,” says Tami Griffin, US national leader of Aon’s Agri-Food & Beverage Practice.

“You can’t shift your supply chain from institutional to retail on a dime,” Ms Griffin observes. “It would take millions of dollars of investment to go from packaging cheese in 20-pound bags to eight-ounce bags.”

Regulators have moved to ease that process, including allowing restaurants to sell take-home food products directly to consumers without the standard labelling typically required in retail. And Ms Jackson says that in Ireland, a major institutional food distributor has pivoted to a consumer-facing website to sell items like 16-kilogram bags of flour to home cooks.

Rethinking production facilities along any supply chain can be challenging. For example, meatpacking plants have been designed for people to work closely together to produce food quickly and efficiently, Ms Griffin says – factors that play into the price of meat products. Redesigning facility layouts for appropriate physical distance can be complex and costly, which will likely lead to higher prices for consumers. Some industries, such as auto manufacturing, are already experimenting with increased distance in the workplace and sharing what they learn.

As with other food products aimed for restaurant or institutional customers, meat products processed for restaurants and food service can’t simply be redirected to grocery stores. “There’s a ton of chicken wings in cold storage, because most of us eat them at bars and restaurants – we’re not buying them and cooking them at home,” Ms Griffin points out. “And when do Americans usually eat chicken wings? When they watch sports. And right now, all the sports are gone.”

Transportation challenges further complicate supply chains

Covid-19 has increased demand for both freight travel and truck drivers in the US, where about 70% of all freight travels by truck. Yet according to Ms Griffin, truckers (who were already in high demand) are an at-risk population for Covid-19. Many who are older and/or have co-morbidities are choosing not to drive; others might be sick. That can force companies to recruit and hire additional drivers quickly and, most recently, virtually.

“As firms scale up hiring here in response to demand, virtual interviews and behavioural assessments are helping companies assess whether a new driver is likely to drive safely and efficiently,” says David Tomczak, product consultant for Aon’s Assessment Solutions. “In the midst of a pandemic, the ability to engage in safe behaviours and the restraint to avoid unsafe behaviours have become even more important.”

Crime can pose another challenge to transportation along the supply chain. Ms Griffin notes that theft of food cargo has increased during the pandemic. “Food is always one of the most stolen cargos,” she says. “But the amount of theft is increasing.”

Sensors in trucks, trailers and cargo containers along with Internet of Things applications can help address some of those theft issues along the supply chain, says Ms Griffin. One pandemic perk for trucking: reduced car traffic has meant quicker journeys and thus more deliveries for truckers.

Supply chains impact of changing consumer demand

Sharp fluctuations in supply and demand in any industry can throw off the supply chain. Food retailers depend on consistent supply chains, while consumers in mature economies expect to see the products they want on the shelves when they visit the supermarket. There’s considerable discussion about what food supply chains will look like on the other side of the Covid-19 pandemic. Many consumers may remain reluctant to dine out and will be likely to order more delivery or prepare more food – and perhaps new types of it – at home.

As food producers and retailers rethink the supply chain, they’ve been asking themselves what sort of foods consumers will want to eat and cook, what sort of prepared foods fare best in a delivery setting and how best to get the food to the consumers. In the EU, the Covid-19 pandemic has also sparked discussions about reducing dependency on food supply chains outside the 27 member states.

Crises underscore supply-chain gaps, opportunities

Disruptions to the food supply chain caused by the Covid-19 pandemic have highlighted shortcomings and opportunities for improvement. The Covid-19 pandemic brings its share of lessons, and among the areas to change will be some of the ways we obtain and consume food and how the food industry provides it to us. Decisions leaders make today to address the pandemic’s disruptions will serve as catalysts for improving the food supply chain in the future.

Some companies have become inventive in the face of crisis. And certain roles in the food supply chain have gained recognition for the vital parts they play in the face of high virus risk: grocery store and food-processing workers, truckers and farmworkers – among others. “It will be interesting to see how consumers, regulators and employers respond to and reward the heroes after this crisis,” notes Ms Griffin.

For many business leaders, Covid-19 will be the most disruptive, world-changing event in living memory. Aon has launched a comprehensive Covid-19 Response Framework to help guide business leaders through the challenges wrought by Covid-19 – from their people to their bottom lines. In this report, Aon explores the cyclical nature of Covid-19 and then lays out a comprehensive response framework that helps to build the right mindsets, create flexibility and execute meaningful actions for the short- and long term.

This article originally appeared on Aon’s The One Brief.

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