How Trade, Coronavirus, and Consumer Demand Will Shape Food Distribution
As countries continue to reopen around the world, the agriculture industry is left feeling the most visible and vital economic consequences, writes Nicole Wisniewski at AgriBusiness Global.
Social distancing forced a sudden shift to food at home versus food out. Outbreaks at packing plants and among farm workers, as well as travel and trade restrictions, risked food shortages. Lower demand for some products outpaced supply constraints, leading to steep commodity price declines. Higher demand for others led to stockpiling, leaving grocery shelves empty.
In other words, “it was a classic double whammy — a massive shock to both supply and demand,” says Jim Budzynski, managing principal, MacroGain Partners.
Food distribution may be forever altered. The next few months will reveal short-term economic impacts and provide clues to what the industry can expect long-term.
Distribution Networks Lack Agility
Before COVID-19, Americans were spending about half of their food budgets and getting one-third of their dietary nutrition in meals away from home, including restaurants, as well as work and school cafeterias, according to USDA reports.
Almost overnight, the pandemic forced that 50-50 split to nearly 100% eating at home, explains Rob Dongoski, agribusiness leader, Ernst & Young LLP.
“For 30 years, eating out was growing at the expense of eating at home,” Budzynski says. For the past 10 years, the USDA shows eating out was consistently ahead. “This changed in an instant, with massive increases in dining at home and 80%-plus declines in restaurant demand.”
In fact, the $300 billion foodservice industry has seen a sales decline of 60% to 90% due to COVID-19, says Mark Allen, chief executive of the International Foodservice Distributors Association.
Restaurant and other non-grocery suppliers couldn’t instantaneously shift from food service to consumer supply.
While the supply chains for retail and foodservice are similar, there are big differences, such as labeling and sizing.
“If you have millions of pounds of French fries in 30-pound food service bags, you can’t just pivot to grocery stores,” Budzynski adds. Jumbo-sized packages shipped to restaurants aren’t even appropriate for warehouse stores like Costco.
Demand at food banks also spiked. But restaurants that couldn’t sell their supplies weren’t set up to distribute to food banks either, so stockpiles of items like lettuce went to waste, Dongoski says.
“What’s happening shows a lack of agility in the entire distribution network,” Dongoski explains.
The main distribution channel, which has been long on institutional food and short on consumer-branded food, is slowly starting to change, Budzynski adds. “It’s slowly starting to get corrected.”
Continue reading at AgriBusiness Global.
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