The Food Supply Chain is Broken. Bringing Some Production Home Might be the Only Solution

Dan Gluck — July 5, 2022


Amer­i­cans got a crash course in the real­i­ties of the mod­ern food sup­ply chain in the spring of 2020, when Covid-relat­ed dis­rup­tions left gro­cery store shelves emp­ty and shop­pers scram­bling to find the prod­ucts they need­ed to feed their fam­i­lies. While that was an extreme case, the glob­al sup­ply chain has only become more frac­tured in the years since, thanks to ris­ing costs, shift­ing ingre­di­ent avail­abil­i­ty and changes in glob­al con­sumer demand.

The pri­ma­ry cul­prit? Ship­ping.

Over­seas freight costs have under­gone dras­tic price increas­es in recent years due to fuel cost volatil­i­ty and increas­ing demand for off-shore resources. What was once a way for North Amer­i­can com­pa­nies to even out sea­son­al sup­ply dif­fer­ences and save mon­ey has now become a new source of unpre­dictabil­i­ty across the food and bev­er­age indus­tries. Now pro­duc­ers are strug­gling to get the ingre­di­ents they need and, even when they can, are pay­ing more for them.

Case in point: From Jan­u­ary 2021 to March 2022, con­tain­er ship­ping costs from East Asia to the U.S. West Coast, a com­mon indus­try mea­sure of over­all mar­ket pric­ing trends, increased 180%. And no one knows when, or if, these costs will ever nor­mal­ize.

No doubt, ener­gy prices have a lot to do with this uncer­tain­ty. The fuel mar­ket was already volatile before Rus­sia invad­ed Ukraine, with tight­en­ing sup­plies and ris­ing demand cre­at­ing uncer­tain­ty around the world. The fact that oil costs have more than dou­bled since the start of 2021 sim­ply high­lights this volatil­i­ty.

But food pro­duc­ers need sta­ble ingre­di­ent mar­kets in order to pro­duce cost effi­cient end prod­ucts. They need to not only be able to source the raw mate­ri­als they need at a price that makes sense, but also have con­fi­dence that they will be able to main­tain that sup­ply over time so that they can make long-term deci­sions. Right now that is all but impos­si­ble.

Con­sid­er what has been hap­pen­ing in the major ingre­di­ent mar­kets so far in 2022.

Sun­flower oil prices have increased 15% since Jan­u­ary 2021 and many sup­pli­ers are no longer accept­ing new accounts due to dif­fi­cul­ty in sourc­ing the raw mate­ri­als. (Not helped by the fact that rough­ly 80% of the glob­al sun­flower oil sup­ply comes from East­ern Europe, includ­ing Ukraine and Rus­sia.)

The price of unprocessed rice, a barom­e­ter of the over­all grain mar­ket, is up 29% in the last 18 months.

And pea pro­tein, com­mon­ly used in plant-based pro­tein prod­ucts, now costs 30% more than it did at the start of last year.

That’s the prob­lem as it stands today. 

Uncer­tain raw ingre­di­ent sup­ply chains lead to unpre­dictabil­i­ty in pro­duc­tion vol­umes, cost fore­cast­ing and more, and rely­ing on off-shore sup­pli­ers sim­ply ensures more of the same. Over­seas freight costs will rise, sup­plies will remain unpre­dictable, and ris­ing fuel costs will even­tu­al­ly bump up over­land truck­ing prices from ports to pro­duc­tion facil­i­ties. It increas­ing­ly impor­tant for the CPG indus­try to find and secure safe and reli­able ingre­di­ent sources both in the U.S. and abroad. 

It’s pos­si­ble.

Right now the U.S. pro­duces 381M met­ric tonnes of corn, 44.6M met­ric tonnes of wheat and 121M met­ric tonnes of soy­beans every year, not to men­tion the mas­sive sup­plies of rice, sorghum and sug­ar that America’s farm­ers deliv­er annu­al­ly. Cana­da, Mex­i­co and oth­er near­by coun­tries, though small­er, can con­tribute as well. It may not be enough to sup­ply every­thing the CPG indus­try needs to keep up with demand, but these domes­tic and region­al sources could go a long way toward help­ing alle­vi­ate the industry’s reliance on an off-shore sup­ply chain that’s expen­sive, unre­li­able and get­ting more chal­leng­ing by the day.

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