As shoppers adjust their holiday gift-buying strategies due to supply chain issues, they might want to think about retooling their holiday meals, too.
Just as consumers are feeling the supply chain headaches, so too are farmers, food processors and shelf stockers. Nearly everything from fertilizer for fields, feed ingredients for livestock to harvesting fresh produce has been impacted by shortages that have slowed the supply chain to a crawl.
Erkut Sönmez, associate professor of supply chain management and analytics at the University of Nebraska–Lincoln, said these issues are not going to go away anytime soon, due to a number of factors. Supply chains are complex and even just one issue going wrong can impact the rest of the process.
“What we are experiencing currently is a perfect storm, as we are having both supply shocks and demand shocks simultaneously in several different industries,” Sönmez said. “The disruptions to the agricultural supply chains are more apparent and important compared to other supply chains. On one side, we have a shortage of food supply while people are looking for food, and on the other, we have food actually rotting or going bad in containers in some parts of the world.”
Sönmez has been following the ag supply chain closely. He said capacity limitations exist from the beginning of the supply chain to the end.
“For example, in terms of farmers, they have been seeing significant labor shortages, especially in fresh produce,” he said. “Millions of pounds of fresh produce are not being harvested. This was a significant problem even before the pandemic, and with the current labor shortages (it has gotten worse).”
Producers are also experiencing shortages of raw materials, such as amino acids for livestock feed and glyphosate for herbicide, making their inputs more expensive. In addition, farmers have increasing concerns of not being able to repair their equipment in the middle of the harvest season due to a substantial spare parts shortage that has been intensified by ongoing labor strikes.
At the end of the supply chain, grocers are experiencing product stockouts frequently.
Sönmez said the biggest problems are in transportation. Consumers are likely to see more price increases in food, due to rising freight prices and other issues. Moving raw materials, as well as fresh produce, has become significantly more expensive. Rail and truck deliveries have slowed also because of the labor shortage that is hitting nearly every economic sector.
Another major problem, amplified by the pandemic, has been the inflexibility of plants that process some of the food consumers buy. Sönmez explained that most plants are designed to handle specific types of food and can’t switch when demand changes.
“The processes of these packaging companies are designed around cost efficiency, not in terms of being flexible,” he said. “Current changes in certain demand for types of products are causing difficulties in terms of their capacity for processing.
“For example, there are two types of meat. One is the retail meat, which is produced for grocery stores, with different cuts, smaller cuts. The second type is called HRI, and those are bigger cuts created for hotels, restaurants and institutions. When demand shifted away from HRI meat to retail due to COVID, those HRI plants couldn’t easily switch to produce retail cuts.”
Sönmez also has concerns with natural disasters. Hurricane Ida, which hit the Gulf region in August, threw a major wrench into crop exports, of which 60% go through Gulf ports. It also significantly slowed imports of raw materials. Even smaller disasters can have a major impact for producers.
“The derecho in Iowa in 2020 has had long-term impacts,” Sönmez said. “We not only lost millions of acres of corn and soybeans, but we also lost storage facilities for the farms, which is going to impact their storage capabilities in the following years.
“Natural disasters will change what we produce, will have an impact on our production capacity in the long term and will change the locations of our suppliers.”
It’s likely these types of supply chain issues will continue for the foreseeable future, until more resilient supply chains are built out. Still, Sönmez said he is optimistic because research is ongoing into how to identify and improve bottlenecks, and how to maximize yields.