Securing supply: Local sourcing, direct sales and alternative production sites accentuated during crisis

27 Apr 2020 --- Fragmented supply chains as a result of COVID-19 are driving businesses with a global footprint to consider alternative routes for maintaining the status quo in trade. Among these measures are a shift of focus toward local sourcing, pivoting to direct sales and the erection of alternative manufacturing facilities. FoodIngredientsFirst speaks to F&B players in this latest report examining how businesses are changing gears to overcome hurdles in today’s compromised trading climate.

“In general, raw materials from China and India are most difficult to acquire,” notes Christina Witter, Director Corporate Communications at Symrise. “In China, we are facing some logistics contraints. In India, it is more difficult because of the local lockdown situation. Our supply chain is partly affected by limited transportation capacity.”

Witter notes that Symrise has been focusing on shifting its strategy toward more local sourcing, development and production, as delays in shipping put immense pressure on trade. “Transportation from/to Asia (mainly China and India) is affected by longer lead times for sea as well as air freight. Also road transportation within Europe takes longer than usual due to increased border controls, limited number of trucks, etc.”

Some businesses have taken the initiative to open their sales directly to consumers, such as cash and carry outlets. “However, this may be only a temporary measure,” Pekka Pesonen, Secretary General of European farming association Copa-Cogeca, tells FoodIngredientsFirst. “Also, some local, shorter food chains suffered from closure of farmers markets which have been at least partially lifted. Sudden changes in production chains may not be possible for the lack of packaging or labeling material.”

“But there is certainly an interest for alternative sourcing. Complete loss of the product is not a favored option for any operator in the agri-food value chain. We will do whatever we economically can to avoid that,” he further notes.

Tapping alternative supply chains

Some businesses have taken the initiative to open their sales directly to consumers, such as cash and carry outlets.Indeed, adaptability during the crises hinges on a company’s ability to pivot quickly. “Wherever possible, we aim to ensure a level of geographic diversity in our sourcing strategies, and there are a number of advantages in that,” says JoAnn Rupp, Global Market Insights Manager at Corbion. “One very important advantage is the flexibility that’s very important in situations such as the current pandemic, because it allows us to shift the region from which we source based on the degree of impact or recovery in a given region.”

“To avoid any disruption in our ability to supply and in our customers’ operations, we have stayed in close touch with our raw-material suppliers in order to anticipate potential problems or interruptions. We have also worked to identify alternative sources we can turn to in the event that our current suppliers are unable to meet our needs, in addition to reviewing both our stock levels and in-country stock levels,” she adds.

Meanwhile, the requisite of supply guarantee compels some suppliers to invest capital in the expansion of production capabilities across continents. “We have two operational manufacturing plants on two continents – in southern Japan and Texas. If global circumstances mean we need to make more in one plant to cover issues in another, we will do that as we have done so in the past,” remarks Filip Van Hulle, Senior Manager at Kaneka Pharma Europe, a global manufacturer of food supplements.

“For transportation between our manufacturing plants and our European warehouse, we rely on external partners. We can manage this at the moment, however, both delivery times and costs are increasing. We do not think now is the best time to pass on these extra costs to our customers, and hope that things will level out in a relatively short period,” he concedes.

Going electronic
FoodIngredientsFirst caught up with the UK Food & Drink Federation’s (FDF) Head of International Trade, Dominic Goudie, who comments, “Trade in food and drink continues to flow, albeit more slowly where there are increased checks at borders in mainland Europe or where there is reduced capacity for sea and air freight. Where issues have arisen, they have tended to be isolated problems rather than impacting food and drink businesses more broadly.”

While some countries have placed restrictions on trade in food and drink, more have introduced measures to facilitate continued movements of essential ingredients, raw materials and finished products. “For example, to ensure imports can continue to flow, the UK and a growing list of countries now allow electronic copies of sanitary and phytosanitary (SPS) certificates where original documents are not available,” details Goudie.

Industry leans on digital solutions to ensure business is kept running amid social distancing measures. Blockchain, for instance, is now being leveraged by Cargill in the cross-continental trade of wheat to help address two primary industry challenges related to COVID-19 – the speed of trade and curbing the actual spread of disease. Meanwhile, the rise of the virtual trade show has enabled companies to cope with mandatory social event cancellations.

Trade conflicts add to existing concernsWhile some countries have placed restrictions on trade in food and drink, more have introduced measures to facilitate continued movements of essential ingredients, raw materials and finished products. 
Personen at Copa-Cogeca remarks, “It is too early to draw final conclusions [about when supply chain challenges will abate], but so far, we can underline the importance of the single market and its link to securing steady food supply to EU consumers. Naturally, international supplies link with this EU internal fabric very well. We’ve had fairly good levels of stocks in most agricultural commodities, but this situation may potentially deteriorate.”

Already, industry stakeholders as well as the Food and Agriculture Organization (FAO) have spoken out about the risk of protectionism policies in trade causing adverse stoppages across global supply corridors.

“The recent international trade disputes make it more difficult to get a good picture on the COVID-19 impact. For instance in the wine sector, our internal EU closures of restaurants and catering have led to diminishing returns from the high-end of the product range, while the US sanctions and their consumption changes may drive the market in the same direction,” explains Personen.

He further contends that a combination of factors including the ongoing trade disputes do not make it any easier to keep markets stable. “COVID-19  surely represents a devastating addition to the ongoing difficulties in international trade. EU agriculture is already hampered by a number of trade disputes (e.g. WTO Airbus case, duties on olives, Russian embargo), risks that animal and plant diseases pose (e.g. African swine fever, Xylella fastidiosa, the bark beetle) and uncertainties regarding the Brexit process, just to name a few.”

By Benjamin Ferrer