There are some really interesting things happening in the food supply sector at the moment which will command the attention of all of those who depend on securing supply in some rapidly evolving markets.
These factors include:
- The shortages of fresh vegetables and salads, due to the exceptional wet winter weather in Southern Spain – a small region producing up to 80% of Europe’s fresh produce in the winter, an amazing level of dependency. Will these weather patterns continue to be exceptional?
- Bird Flu and the potential impact of restrictions and changing rearing protocols on the producer and the retailer’s ability to continue to apply premium prices.
- The Tesco/Booker deal, which will be a major step towards consolidation in the supply chain and retail markets if it makes it through the CMA process. The high price paid seems to indicate that Tesco are banking on driving additional value out of the existing business through the acquisition and we have to consider if this will be through tightening margins for the independent retailers supplied by Booker or through more price pressure exerted downwards through the chain, ultimately to the primary producer.
- Brexit and the potential application of tariffs have obvious implications for added complexity and cost in international trade.
- Continued consolidation among specialist producers as a result of slim margins and increasing demands on quality, giving rise to a higher cost structure.
So, what do all these various issues have in common? The answer is risk, or more accurately the placement of risk within the chain.
As you place price pressure at the top of the chain, in this case the retailers, that pressure flows though the chain until it is exerted at the other end in primary production. The more joined up that supply chain becomes or, more accurately, the more the ownership of the chain is consolidated, the faster, and more efficiently, that pressure flows to the bottom. Risk is carried downstream floating on that river of price pressure. It is the double whammy of price pressure and increasing demands on production standards that gives rise to the build-up of risk and the consequential consolidation in the various sectors of primary production.
That is why the implications of the recent weather problems in southern Spain, or with Bird Flu, have a disproportionate impact on a small number of producers and this should be a concern to everyone throughout the chain if they are to be able to continue with any sort of ‘sustainable’ supply.
At the recent Oxford Farming Conference, Konrad Brits, CEO of Falcon Coffees, described his experiences of the impact of this in the coffee chain and the effects on coffee farmers. In this case, quite apart from the social objectives of the business, there is still an overriding need to ensure a continuation of supply and this means paying a price that allows a producer to make a living and, make a decision to keep supplying the business the following season. He explained how this moved the pricing structure away from leaning on commodity futures and towards a real long-term strategic relationship and an economically ‘sustainable’ pricing structure.
All of this is happening within a collection of markets that are becoming increasingly focussed on delivering quality, traceability and in really addressing the environmental and social consequences of their business activities. All of these things place additional cost burdens on primary producers.
I was particularly struck by a comment from the British Retail Consortium in response to recent food price increases that “retailers’ focus will be on protecting consumers from the effects of increasing input costs”. There is no mention about what this might mean for suppliers, primary producers or continued security of supply.
There are many processors and retailers that do understand the need to ensure continuity of supply but we find there are far too many who do not and it is high time this materialised into the creation of proper, long term, strategic relationships throughout the chain, that deal equitably with the placement of risk and reward.
We need a recognition that food security for the customer comes at a cost and it is in nobody’s interest that this is always borne by the primary producer.