John Giles
As we begin to look back on 2022, we are currently facing a combination of global, regional and local challenges which directly and indirectly impact UK and international farming and food supply chains: the strength of the US dollar; conflicts in Ukraine; climate change; energy issues; the ongoing impact of Brexit; COVID; and then our own UK economic/food policy; local food culture and industry capabilities.
Uncertain times
This all makes for an unusually high degree of uncertainty in the agri-food supply chain. In some cases, we could be feeling the effects of these for up to 5-10 years from now. These are not short term issues we are facing or dealing with. As a result, the “new normal” we are experiencing is probably here to stay for some time
Input costs for the last 12 months and more have continued to rise in all areas, from labour, energy, packaging, transport, seeds, fertiliser, crop protection products, machinery and equipment. In some, but not all cases, these cost have been passed on to retailers, but it never seems to be enough to keep pace with the staggering increases being seen. Input prices though, especially for fertilisers, might well stay high for the next 2-3 years, unless a resolution to the situation in the Ukraine is found soon.
If these cost increases are not passed on to customers, then some farmers and food companies will cut production in the future if they have not already, maybe reduced the number of SKUs being provided, switch to other crops where returns are felt to be better (i.e. oilseeds and wheat) and/or in extreme circumstances, will stop production altogether.
Not just costs
The supply of labour is still also a critical issue in farming and food. In the UK, the current seasonal workers scheme was not fully agreed until December of last year, and while there was some sense of “better late than never” it has now been agreed for 3 years. Problems in processing visa applications though, means though there is still an unwelcome bottle neck and for the additional 10,000 places agreed, it is vital that there are no further delays. There are also ongoing discussions between the farming and food sectors and the government on the employment of local labour, but there are still issues with both the typical location of work and the motivation for it, not least, with such low levels of current unemployment.
Mixed messages from government
UK government policy though also appears to be giving off mixed messages: on one hand, encouraging local production, but in another way, opening up the UK market to increased competition, from the EU, US, Canada, India and Oceania suppliers. In the next 12-18 months though, the subject of food security will come very much to the fore.
Importance of price
There is still a need for farmers to understand more about their own costs of production. In some cases, they need to get better training on how to deal with supermarket customers and be able to explain to them why cost increases are justified. Price for retailers is still key, but so is the actual availability of produce and the concept of provenance is probably more important to some types of consumers than others. Many growers have been geared up to supplying the leading retailers, but should also think about other opportunities, in areas such as food service, the wholesale sector and in some cases, direct selling to consumers.
Supply chain margins are still too thin and so the ability to withstand further shocks as we have experienced in the last few years (Brexit, COVID, the situation in the Ukraine etc.) in a way that sees business confidence still open to question. It is clear that farmers need better/fairer prices going forward. There has to be a better distribution of reward/remuneration through the chain. Consumers will, ultimately, have to be prepared to pay more for food, but with the relatively poor appreciation of how food is produced and what it costs to do this by many, this is a major mindset challenge. It also impacts on food processors and retailers too.
The need for change
The changes needed to produce this situation in the supply chain are often quite idealistic, are not easy to bring about and maybe even involve unpopular/difficult decisions. They may even require an element of generational change, but in the mid to long term, both market regulation and consumer behaviour needs to alter if we are to genuinely create a sustainable food chain and not one that lurches from crises to crises.
The UK and international supply chain is still often very ‘transactional’ and/or commercial in its nature, but is increasingly being required to consider issues around sustainability which test the ability and willingness to invest just not for profit, but also for resilience.
We have already probably reached something of a tipping point on this with the supply chain shocks we have seen in the last few years. Change in the supply chain cannot be achieved by taking a “silo” based approach. It needs the full supply chain to work together on this, in order to build a more resilient future. It may well be led just as much by strong industry players as by government policy and objectives.
