Supply Chain Survey Results 2022

A tentative situation:

Reflecting on challenges facing the global food supply chain

A tentative situation: Reflecting on challenges facing the global food supply chain Ingredients Network Supply Chain Survey Results 2022

All food and drink companies, from growing startups to established multinationals, are experiencing supply chain disruptions. At a time when ‘business as usual’ is more difficult than ever, a recent survey conducted by Ingredients Network shines a light on how the food industry is dealing with such disruptions, from lastminute reformulation to reduced investment.

The survey reveals that the biggest headaches are coming from three global events: a total of 92% of survey respondents said the war in Ukraine, the Covid-19 pandemic, and shipping and logistics delays have had the greatest impact on their business recently. But what are businesses doing to weather this storm? What strategies have they implemented and how optimistic do they feel about the future? In this report, we summarise the findings from the survey.

Setting the scene: Several years of disruption

Today, the global food supply chain faces much uncertainty. It is increasingly interconnected, reliant on high levels of consistent trade between countries with much supply and those with little. Yet stocks are low and critical transit routes are disrupted.

In early 2020, Covid-19 sparked an economic crisis severely impacting the global food supply chain. The picture post-pandemic is still challenging with robust global demand, extreme weather, export restrictions, soaring energy prices, supply chain bottlenecks and most recently the Russian invasion of Ukraine. The latter is “fueling a global food crisis”1 and, together, these factors highlight the “fragility of the essential flow of food from farms and producers to final consumers”.2

Russia and Ukraine produce almost one third of global wheat supplies. In 2021, together they ranked amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil.3 War in this region, one of the world’s six breadbaskets, has disrupted agricultural exports causing global food shortages and drastically worsening already inflated global food prices.

Risks to the global food supply chain are also posed by climate change. Heat waves in India, floods in Pakistan and droughts in Western Europe are examples of how extreme weather is influencing crop prices that could limit supply to global markets.

Fuel prices continue to rise due to war, “the EU is dependent on Russia for 40% of its gas and 27% of oil imports”4 and its spillover effects are raising operational and transport costs for the whole value chain.

3Ingredients Network Supply Chain Survey Results 2022 |

Survey results: How are businesses being impacted by supply chain disruptions?

In order to understand the impact of these supply chain disruptions on the food and beverage industry, Ingredients Network conducted a survey of our database of readers.

Our database is made up of multinationals, small and medium enterprises (SMEs), ingredient suppliers, nutraceutical manufacturers, food development partners and supply chain management firms. Survey respondents had a wide range of job functions, including directors, CEOs, nutritionists, purchasing managers, researchers as well as people working in marketing, procurement and research and development (R&D).

Over 40% of respondents said the ongoing war and reduced supplies of grain, oilseed and other commodities were causing the most significant disruption to business in recent years.

Shipping and logistics delays (29%) and the Covid-19 pandemic in 2021 (18%) also ranked highly. Inflation and rising food prices (17%) were also considered a strong source of disruption.

Our survey revealed that the most pressing supply chain disruptions today are linked to the war in Ukraine and the majority of respondents (40%) have been impacted as a result. Brexit was anticipated to have a profound impact on the UK-EU trade relationship, yet over half of respondents (53%) did not feel it was as disruptive to business as the aforementioned war.

has impacted your business

most

Rising costs caused by conflict

Ukraine

cause of concern for food businesses. Our food and beverage

increased ingredients prices (18%) and increased shipping costs (17%)

in deliveries

as a result

also

chain disruptions have been most impactful.

companies

in

are undoubtedly a

industry respondents said that

arising

of supply

Delays

have

had a significant effect on 15% of

surveyed. 4 What

the

in recent years? | Read more on: Ingredients Network 0 10 20 30 40 50 60 70 80 90 100% War in Ukraine and reduced supplies of grain, oilseed & other commodities Shipping & logistics delays & bottlenecks Covid-19 pandemic in 2021 Inflation and rising food prices Ongoing Covid-19 lockdowns in China in 2022 Commodity export bans 40.3% 29% 19% 7,25% 4,35% 1,5%

How have you been impacted by supply chain disruptions? Discover the latest food ingredients trends and insights Join our free Newsletter SIGN UP NOW C M Y CM MY CY CMY K preview mag ad2.pdf 1 08/11/2021 15:30 0 10 20 30 40 50 60 70 80 90 100% Increased ingredient prices Increased shipping costs Delays in deliveries Increased energy prices Difficulties in procuring commodities / ingredients Difficulties in finding alternative suppliers Labour shortages Increased red tape Poor quality/functionality of alternative supplies Other, please specify No impact 18% 17% 15% 14% 13% 10% 6% 3% 2% 2%

In short supply: Oil, cereals, and additives

At a UN presentation titled, ‘Securing Global Food Security in Times of Crisis’ Qu Dongyu, Food and Agriculture Organization (FAO) Director-General told agriculture ministers gathered in Stuttgart, Germany on 13th May 2022 “[…] the uncertainty surrounding the conflict prompted a significant further price increase in global markets, particularly those of wheat, maize, and oilseeds.”5

respondents have experienced

shortage of commodities, but also refined ingredients, such as food

Oil and oilseeds

the top three ingredients that our

6

Our

both increased costs and a

additives.

(16%), additives (14%) and grains and cereals (14%) were

survey respondents are struggling to source. With ongoing supply disruptions, most of our food industry respondents have had to think creatively around managing ingredients shortages. Almost half (46%) agreed that they have been forced to reformulate products due to supply disruptions, while four in ten (40%) said they did not need to and a further 14% said they were not sure. For which ingredients have you experienced shortages (if any)? 0 10 20 30 40 50 60 70 80 90 100% Oil & oilseeds Additives (emulsifiers, flavours, colours, texturisers etc) Grain & cereals Packaging or storage equipment Dairy & dairy-based ingredients Eggs Sugar No shortage experienced Sweeteners Fresh fruit & vegetables Meat, fish & seafood Other Frozen fruit & vegetables 14% 14% 16% 11% 11% 5% 5% 5% 5% 4% 3% 3% 2% | Read more on: Ingredients Network

Additional costs for the consumer

Global food prices were already rising prior to the war in Ukraine, increasing the cost of living for many and threatening food security in some of the world’s most vulnerable countries.

When asked how they will account for rising costs associated with supply chain disruptions, the majority of our survey respondents said that the costs should be passed onto the consumer, reflecting the price increase of many food and drink products around the world.

Most respondents (53%) said they were passing the cost to the consumer, a quarter (25%) said they would absorb it, and another (4%) were unsure. Almost one-fifth (18%) of our readers suggested both the consumer and businesses share the costs.

Survival strategies: What are businesses doing to weather the storm?

Recent supply chain disruptions have created a challenging environment for all of our survey respondents. For some, these disruptions have resulted in reduced investment across business.

Reduced investment in new product development (23%), in research and development (19%) and in marketing and advertising (17%)

a strategy to cope with supply chain disruptions.

inability to explore

cited by food businesses

food businesses

a

implemented a variety

increasing

been

of shipments (14%),

7

were

as

The

new geographical regions (9%) was also reported by

as

result of recent disruptions. To mitigate the impact of supply chain constraints, food industry respondents have

of strategies to futureproof their food businesses and make them more resilient. Additionally, our readers have

diversifying suppliers (18%), increasing tracking

and

bulk purchasing (13%). Ingredients Network Supply Chain Survey Results 2022 | How has your business accounted for/will account for the financial burden associated with the supply chain disruptions? 0 10 20 30 40 50 60 70 80 90 100% Passing the cost onto the consumer Absorbing the cost Other Not sure 25% 18% 4% 53%

Reformulating (11%), increasing use of domestic suppliers (10%) and stockpiling (9%) were also additional methods. Despite far-reaching efforts to protect food businesses, our respondents are unsure whether supply chain challenges have made their businesses stronger and more resilient.

This is also reflected in the uncertain business outlook many have for the future, with over a third (36%) of our respondents disagreeing that supply chain disruptions to their business will improve in the next 12 months. Another third (32%) say it will improve and (32%) are unsure, neither agreeing or disagreeing.

Looking forward to the future

At the time of writing this report, the UN’s Food and Agricultural Organization (FAO) food price index, which measures the international prices of the most globally traded food commodities, “fell for the fifth consecutive month”.6 This, coupled with a UN-backed deal in July to re-open Ukrainian ports, has resulted in more supplies reaching international markets.

However, Erin Collier of the UN's Food and Agricultural Organization said the situation remains “very tentative”7 and despite the opening of ports, volumes will need to increase to help bring prices down. Looking ahead, farming challenges and export logistics may intensify next year and beyond. Logistical issues have caused between 18 to 22 million fewer metric tons of grain being exported from Ukraine and Russia.8 Mykola Solsky, Ukraine's agriculture minister, predicts forthcoming harvests will be affected by the war, but exports will continue to increase.

In other parts of the world, trade restrictions put in place may help in the short-term. The International Food Policy Research Institute (IFPRI) food restriction tracker, initially set up to analyse food restrictions during the Covid-19 pandemic, shows almost 20 countries have “resorted to restrictive trade policies to address current food supply disruptions”.9 However, swift action, collaboration and careful long-term planning between governments and major players could mitigate risks in the future and manage inevitable supplydemand shocks that the food system will face.

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Key takeaways

• The war in Ukraine (40%) has significantly impacted food and drink businesses in recent years, even over key political events such as Brexit, which (53%) said was not as disruptive.

• Many of our global respondents (46%) have been forced to reformulate products due to supply chain disruptions.

• Most (53%) respondents said they would pass rising costs onto consumers. However, some businesses (25%) said they would absorb costs and others suggested sharing it.

• Businesses are finding ways to increase resilience to supply chain constraints. Diversifying suppliers, increasing tracking of shipments, bulk purchasing and stockpiling are some of the major strategies to do so.

• Over one-third (36%) are not optimistic about the next 12 months and feel uncertain about the business outlook and supply chain constraints.

The information provided here was compiled with due care and up to date to the best of our knowledge on publication.

Sources

https://graphics.reuters.com/UKRAINE-CRISIS/FOOD/zjvqkgomjvx/

https://www.emerald.com/insight/content/doi/10.1108/BFJ-03-2021-0333/full/html

https://www.fao.org/fileadmin/user_upload/faoweb/2022/Info-Note-Ukraine-Russian-Federation.pdf

https://graphics.reuters.com/UKRAINE-CRISIS/FOOD/zjvqkgomjvx/

https://www.fao.org/3/cc0140en/cc0140en.pdf

https://www.bbc.co.uk/news/business-62769675

Ibid.

https://www.mckinsey.com/industries/agriculture/our-insights/a-reflection-on-global-food-security-challenges-amid-the-war-inukraine-and-the-early-impact-of-climate-change

https://www.ifpri.org/blog/bad-worse-how-export-restrictions-exacerbate-global-food-security

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