Sorting through my daily pile of junk-mail, I came across a letter from a lawn care provider that provided a detailed economic analysis of the global pressures impacting its business. This provider’s story parallels the same challenges affecting the food and agriculture industry from gate to plate. From shipping constraints to labor shortages and geo-political tensions, every aspect of producing food is being impacted right now. The industry is facing unprecedented material and supply shortages moving into 2022. Manufacturing disruptions, raw material shortages and damaging weather events, as well as global transportation costs, have led to product shortages and increased costs forcing many producers to rethink their strategies for the coming year.
One need only look at an escalating bottleneck that is wreaking havoc on the entire food supply chain: shipping. Shipping container ports around the world remain logjammed due to the fine-tuned orchestration of container movement being disrupted by truck and driver shortages, and physical space limitations at the docks impeding the ability of ships and containers to load and unload. Ocean freight prices have increased five to six times above pre-Covid levels due to the rising cost of fuel, and trucking freight costs are being impacted by increases in driver recruitment and retention pay and the delay in delivery of trucking vehicles. With no end in sight, the global shipping traffic jam is set to negatively impact most aspects of food production well beyond the start of the new year.
Understanding the Agrochemicals Conundrum
In addition to the issues facing the shipping industry, rising energy prices are putting the squeeze on agrochemicals. Energy demand in China and Europe has led to skyrocketing natural gas prices globally. Surging coal prices coupled with fossil fuel consumption limits have led to an electricity shortage in a majority of provinces in China. The resultant rationing of electricity and sporadic manufacturing stoppages have aggravated the global supply of agrochemicals. Restrictions on fertilizer exports from China began in October due to the energy-intensive production process. At the same time, drastic reductions in the production of key fertilizer components such as yellow phosphorus are occurring, and steep increases of 100-200% in the price of many agrochemicals such as urea, potash, mono- and di-ammonium phosphate (DAP/MAP) have become commonplace.
Producers and applicators are currently purchasing as much fertilizer, weed control, and pest control chemicals as can be stored inhouse. Buying now is the strategy to keep price increases as low as possible and ensure adequate supply to maintain operations. As demand for chemical agricultural inputs increases in this panic-buying mode and inputs become increasingly in shorter supply, applicators are pre-purchasing to stockpile. This is similar to the toilet paper shortage of 2020, which in and of itself becomes a circular and self-fulfilling prophecy of short supply, increased demand, and spiraling cost stretched out unnecessarily into the future. Clearly the disruption of the agriculture input supply chain is significantly more impactful than a toilet paper shortage, but the scenario is playing out in the same way, and both can certainly drive less than exemplary business practices.
The Threat of Food Fraud
I am hopeful for positive long-term outcomes as businesses adapt to the changing demands of the economy, the environment and the consumer, but these changes won’t happen without strain and pain as some organizations will try to exploit the situation through economically motivated adulteration, a.k.a Food Fraud. Food producers, processors, importers, and brand owners must be on alert for the potential to cut corners by adding cheap substitutes, prohibited adulterants, and banned chemicals which introduce risk to the supply chain and put consumers in harm’s way. For example, increased chemical costs may be a driver to using fake or cheaper substitutes that contain banned ingredients. Similarly, some may choose to switch to legal but more hazardous chemicals that require less-frequent application.
Organic producers and processors need to be on the look-out for prohibited and outright banned substances making their way into the organic supply stream. Organic certification bodies (CBs), for their part, should be evaluating these risks and incorporating them into their 2022 sampling plans, including target sampling on crops and ingredients most at risk of adulteration and contamination. Ideally, the USDA National Organic Program (NOP) will expect to see that CBs and organic producers and processors have conducted and documented this risk assessment and updated their monitoring plans to detect these problems.
Food safety and procurements managers will want to prioritize a prompt review of their annual HACCP and FDA risk assessment to evaluate whether these assessments and monitoring plans are still adequate in light of the current pressures on cost and address the potential for new and unforeseen hazards. Are the same suppliers still in business? Have they switched ingredients? Are the COAs adequate? Should new tests be included in the ingredient review and approval? These are all valid questions that need to be addressed in the current economic climate.
Finding Better Food Solutions in a Down Economy
What I hope to see is that many producers will recognize the economic and societal value of switching to more sustainable practices which use fewer chemicals overall and employ regenerative and organic practices. This will help to reduce their input costs and capture the price premium for these in-demand certified sustainably grown food products. Staying in touch with suppliers and partnering with them to understand their challenges will also help to avoid any surprises and give your company advance notice to anticipate and plan for any impacts on your business and the products you sell. Take the opportunity to innovate new products that respond to the changes in global market conditions, availability, and consumer interest in responsibly produced food that is safe and sustainable.
AuthorCarey Allen | Vice President and Managing Director of Food and Agriculture
SCS Global Services To find out more , contact Carey Allen.