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Food industry feeling the impact of COVID-19

The outbreak of coronavirus has had significant impact not only on public health worldwide, but also on all stages of the supply chain and value chain of various industries. In fact, according to Fortune.com, about 94% of Fortune 1,000 manufacturers are being hit with disruptions as a result of the coronavirus. The food & beverage is one such industry that is currently experiencing impacts due to the outbreak, which was declared a pandemic by the World Health Organization (WHO) on 11 March 2020.

Scenario of coronavirus outbreak as of 16 March 2020

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The above figure represents the number of cases and the number of deaths, by country, as on 16 March 2020. Source: WHO, CDC, ECDC, NHC, DXY

The epidemic is largely contained in China and accounts for the highest number of cases, 80,921, and deaths, 3,161, in 2020 to date. The greater significance of this with the food industry is associated with the fact that China is among the largest markets for food & beverage imports and exports for many countries. According to World Integrate Trade Solutions (WITS), in 2018, China imported food products worth approximately $27 billion, and in the same year, it exported food products of approximately $34 billion.

Globally, the food & beverage industry is expected to experience the differential impact of this rapid spreading COVID-19 on each stage of its value chain through the mediums of the affected workforce at industrial level, raw material supply (agricultural produce, food ingredients, intermediate food products), trade & logistics, demand-supply volatility and uncertain consumer demand at foodservice outlets—among other factors. Production, distribution, and inventory levels across the food & beverage industry spectrum are expected to be impacted.

Workforce

The affected workforce in agricultural farms, food & beverage production & processing plants, and distribution network are analysed to run the risk of promoting the outbreak of COVID-19, the transmission of which can occur during various activities of co-ordination. There is also a potential risk of spreading the virus through mediums of product outputs, causing food safety concerns, when trade occurs between geographies and different stages of the supply chain, which has resulted in a labour shortage. The corporate level workforce is also at a high risk of being affected, owing to its constant exposure to different stakeholders in the industry, interaction with potentially affected public, and contact with coronavirus-affected persons. Travel bans imposed by several countries are also a contributing factor, affecting the availability of critical personnel required in key decision-making. The workforce can potentially affect business plans and industrial production of food & beverage products.

Raw material supply: Agriculture and livestock industries

Agricultural produce, which forms the key raw material for subsequent stages in the food value chain, can become a potential source of bottleneck for the food & beverage industry. This is true especially for countries such as Australia, which imports large scale essential agrochemicals and crop protection products from China. China is home to a significant number of large-scale manufacturers, accounting for approximately 30–35% of global agrochemical production. The country is amongst the largest producers of both ready-made pesticides and active ingredients that are used to form the base of different crop protection products formulated in the importing countries. Factors such as poor logistics due to traffic control and restrictions on public movement in the affected state of China can lead to supply disruptions. This may not affect the requirements of the agricultural industry in the short term, however, prolonged trade restrictions can lead to a significant impact on the agriculture industry of importing countries, motivating businesses to explore alternative sourcing partners (both in terms of geography and manufacturer). Could the agriculture industry be looking at losses in the billions?

Trade and logistics

Trade restrictions imposed by several countries to curb the outbreak of COVID-19 has substantially affected global logistics and transportation, which has implicated effect on the food & beverage industry. Restrictions have had a direct impact on the food supply chain with the tightening of transportation and port capacities whilst also leading to an increase in shipping and freight costs. Furthermore, this has resulted in the shortage of food supply, which is likely leading to choked production and affected availability of food & beverage products at retail level. A prolonged restriction on trade and logistic challenges will likely have a significant impact on the revenue of food businesses.

Demand-supply volatility: Food manufacturers, processors, food retail and service outlets

While the food & beverage manufacturers & processors are more likely to be affected by the shortage of labour and raw material required in the production process, food retail and foodservice outlets are expected to experience more intense challenges right from the get-go. For food retail outlets, the challenge would be to deal with the possibility of the irregular footfall of consumers and, contrastingly, to also assess the possibility of stockpiling food & beverage products to ensure continuity in consumer access to products they intend to purchase. The idea for this can be further assessed from the indication that some of the processed food manufacturers are foreseeing an increase in their product sales due to the growing trend of home dining. This scenario is influenced by the fact that more and more consumers are increasingly isolating themselves from public occurrences or are quarantined for testing positive. As a result, foodservice outlets are facing challenges with declining consumer footfall, together with a shortage of labour and food supplies. Food safety concerns and the potential risk of virus transmission through public contact has drastically affected consumer visits to foodservice outlets.

Consumer’s uncertainties

The reluctance of consumers on the verge of growing outbreaking of COVID-19 has led to major uncertainties in consumer demand. Various posts and false rumors on social media have inflicted scare among consumers and have influenced their perception toward a variety of food & beverage products—especially animal-based products. Furthermore, government initiatives preventing mass gathering as a preventive measure to curtail the spreading of coronavirus has also fuelled the home dining trend amongst consumers. Restaurants across the world have experienced dramatic reduction in customer footfall, thereby directly affecting the revenues of foodservice outlets.

Conclusion

Strong global concerns about the pandemic coronavirus have largely but negatively influenced the global functioning of the food & beverage industry and the mindset of consumers, given the health risks. Further to the above-mentioned factors and on the economic front, although prices of F&B products and agricultural produce have remained stable, a prolonged outbreak of COVID-19 will lead to economic instability and food inflation. While the short-term impacts are more evident, it is yet to be understood what impacts and what magnitude of impact the outbreak of COVID-19 will have on the supply chain in the long term.

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