Mary Efthymiatou “A long-standing affair International supply chains - Inflation and product costs”

A long-standing affair

International supply chains - Inflation and product costs

Article by:

Mary Efthymiatou - Journalist in the field of Logistics

Mass consumption dietary products, such as meat and meat products for the Western society at least, have been for some months now one of the “victims” of the international crisis, which has been caused largely by the war in Ukraine and, in addition, by the many “upheavals” in the international supply chains.

To understand why meat -as an industry in its entirety and not individually as a product- is directly affected by the constant disruptions in supply chains, one must take into account specific “key points”, such as: • Globalized production • Linked supply chains • Inflation and raw material prices

Besides the concepts that will be analyzed below, we must emphasize that the conditions affecting the global market at the moment are peculiar, as the main “unmanageable” factor is the war and its impact on the economy. If we had to describe how international supply chains have been affected e.g., from the Covid-19 pandemic crisis, things would be a bit different, as we would be talking about a lot of differences in comparison to the past, although, what in the logistics language is defined as “planning” and “scheduling” would be easier to predict, while now it is not.

Globalized production Why does the fact that national markets do not produce what they could produce, but what is

Could FOOD HUBS be the solution?

The ever-increasing globalization of the economy is at the same time making modern life more dependent on supply chains and freight transport systems for the distribution of products and raw materials. The famous FOOD HUBS (or AGROHUBS for Europeans) have been implemented for years in the USA (but also in some Central European countries, mainly in the Netherlands and Germany). FOOD HUBS is the American version of agri-food freight centers, designed to effectively manage goods across the agri-food distribution network, which benefits producers, traders and consumers, as the main feature of the structures is to provide a link between producers and consumers (Bibliography: Kasselouris, 2016).

FOOD HUBS is a set of agricultural lands, in which processes of collection, transport, distribution and promotion of agricultural and perishable food products take place. From the producers’ point of view, FOOD HUB is an effective mechanism for providing a large volume and reliable supplies of local and regional products. Such a center is managed by a specialized management team that coordinates the entire supply chain of FOOD HUB.

The aforementioned infrastructures are key centers for the utilization and management of information, enabling the optimal coordination of the producers’ supply and the consumers’ demand, with the buyers as intermediate links (wholesalers and retailers) of agri-food products. The main feature of the FOOD HUB structure concerns the management of the natural infrastructure in the supply network, as it promotes agri-food goods in the consumer markets, a fact that highlights the need for the development and operation of processing, storage and packaging units of finished products.

Most of the FOOD HUB structures carry out activities for the collection, distribution and marketing of goods, while in some of them activities are carried out by external financial logistics services providers (third part logistics). Substitution of functions by third parties also includes transport infrastructure management and transport businesses. An additional feature of FOOD HUBS is the satisfaction of the consumer demand for local products, with the collaboration of these structures with local producers to facilitate the valid and timely forecast of production volume to be requested by members of agri-food supply chains (Kasselouris, 2016).

Through the operation and development of FOOD HUBS, the business growth potential of small and medium producers of agri-food products is increased, as well as their access to foreign markets. With the small producers’ access to international markets, through FOOD HUBS transport links and logistics infrastructure, new international longdistance international customers are served more efficiently, as producers have the opportunity to promote manufactured and packaged products, increasing their added value. In addition, the infrastructures of FOOD HUBS provide advantages in the supply of agri-food products through the achievement of economies of scale in the cost of transport of small producers and the operation of cargo concentration, but also through the provision of use by small producers of processing, standardization and packaging infrastructures of agri-food products.

agreed upon by international treaties, affect the prices of goods – and specifically edibles - so much at this given time? Clearly because in wartime - let alone in a country that was a “feeder market” - many interconnected markets are directly affected by monoculture decisions. For example, Ukraine is one of the largest exporters of grain, which causes successive crises in the prices of flour, but also in the prices of derived products, such as in animal feed.

Hence, as the other countries that work with them are designated as grain “importers’’ and cannot produce the corresponding raw material themselves beyond a quota, this is one of the

disruptions that the global supply chain has to deal with. At the same time, in “importing” countries, there is an excessive demand for products related to raw materials that would normally come from the war zone to the point of causing shortages on the shelves. Similar phenomena were observed in the first months of the covid crisis, when consumers were overstocking and supply chains could not keep up with the demand.

Therefore, what have several EU countries already done to prevent the worst? They have imposed a quota - that is, valorization - on specific products / flours, cereals, etc., so that no shortages are observed.

The situation affects the market related to the meat production - industry - processing, to the extent to which prices in animal feed are affected and re-evaluated (at least at the level that is currently analyzed). Linked supply chains For a long time, in Europe and the rest of the developed western markets, one of the main problems observed in supply chains was the lack of professional drivers, which limited the flexibility in the transport companies’ routes. Even more so, drivers who knew how to handle sensitive loads - such as meat and meat products- transported under controlled temperature conditions.

At the moment, with the war in full swing, it is both the drivers and the trucks themselves that are in scarcity. Undoubtedly the consequences of the crisis caused by the war have not yet become visible in their full range, but the fact that large multinational chains sought alternative ways and roads to bypass the ‘dangerous’ areas, from the first to second week of the war, skyrocketed transport costs, which, combined with the spike in fuel prices - as another result of the war - has created a really explosive mixture for those involved in road freight. If one adds the fact that many Ukrainian professional drivers were forced to stop working because they went to fight for their homeland, and that at the same time the trade routes changed direction, one realizes that the cost of transportation, fuel, etc. will inevitably pass into the product’s final price. Moreover, thousands of trucks owned by drivers / owners (in fact, they are the majority in Greece) have been forced to set the handbrake, as high fuel prices make their getting around prohibitive. In some countries, such as France and Belgium, commercial fuel has been subsidized as a “tool” to help professional drivers start their engines again and avoid huge shortages on supermarket shelves.

To all this should be added - more as a hunch - that the international supply chains were already experiencing a “dramatic” situation, as since the beginning of the covid crisis the international prices of “boxes”, i.e., transport containers, in maritime transport has shot up by 450 %. And before one wonders what this has to do with the meat industry, which uses road transport for both domestic and international transport at a rate of 95%, let ‘s just point out the complexity of the equation: Increase in the price of containers + Delay in port service due to Covid-19 incidents and inspections = Lack of plastic products,

inability of meat processing units to operate due to lack of trays, plastic cans, etc.

Inflation and raw material prices The more modest forecasts - and these were before the beginning of the war between Russia and Ukraine - clearly spoke of another decade of peculiar crisis in the global supply chains, due to high container fares. They did not come from prowar fora or professional alarmists, but from the simple mathematical induction that combines the level of international prices with inflation.

What does this mathematical relation tell us? The way inflation - which is constantly rising - is integrated into transport costs, which will lead to increases in international supply chain prices beyond + 1.5% that is measured by the increase in transport costs to date. The United Nations Conference on Trade and Development (UNCTAD) already expects inflationary pressures to increase transport costs by an additional 1.5% worldwide and more in developing and poorer countries with lower infrastructure. The high transport costs will inevitably be passed onto the prices of the final products. And let us not forget that a key factor in price increases, either in transportation costs or in raw material prices, is related to energy costs. No one can yet fully analyze this aspect of the war, with the ‘turmoil’ being continuous and constantly deteriorating.

In an environment as such, it is inevitable for the meat industry to remain unaffected, even if it avoids high transport costs, because e.g., it operates with the same fleet of vehicles and not with outsourcing services. Valorization should be the last “tool” to be used by the state (if used), but even that will mean nothing to processing industries that are already burdened with increased energy production costs, with shortages on packaging products or overpriced packaging products, while what has already reached the production lines of processing units will be more expensive, due to increases in animal feeds and inevitably in the price of the product. M The situation affects the market related to the meat production - industry - processing, to the extent to which prices in animal feed are affected and reevaluated