Because of the nature of its business, the food industry has had to keep on going no matter what in this tough period. What have been the main challenges for the sector in the past weeks/months?
- Companies faced several challenges in Q1: Supply Chain, Manufacturing, Credit, and Reputation.
- There has been supply chain disruptions where materials could not be delivered either because of cross-border restrictions, logistic issues, or because employees could not get to work.
- The companies that took measures early on have generally done better at preventing disruptions. Some companies were very active planning and building inventories already in January.
- Manufacturing plans had to be amended according to short-term changes in demand.
- Defaults on contracts were occasionally an issue in Q1.
- Managing the media has been a key point for larger companies. Generally, these have done well at taking the opportunity to lead throughout the chaos and taking the opportunity to promote brand and product while safeguarding the health of its employees.
You’re a commodity risk specialist. In your opinion, in times like these, what sort of pricing movements could we expect in the near future?
- I expect commodity prices to continue being driven by fundamentals. This has been a limited macro-driven event for agricultural commodity prices so far.
- Energy and metals are more susceptible to macro-outlook. And this remains highly uncertain.
- Basis risk for many commodities has increased either because supply chain disruptions or because of risk of defaults.
Do you believe this global crisis will have a long term effect on consumers’ habits?
I like to believe that it will to some extend. Although, any long lasting changes in consumer preferences will be linked to the length and severity of the crisis next months.
Why do you feel it is important to ‘gather’ now?
- It is crucial the industry responds to the actual crisis at the same time it takes the opportunity to shape the future.
- Consumers and companies are realizing they did a number of suboptimal decisions in the past. Just to name a few:
- Long supply chains are the ones most at risk of disruptions. Outsourcing and manufacturing thousands of miles away for marginally better returns poses higher risk to disruptions.
- Traditional manufacturing models where cost and quantity are the key performance indicators need to change towards higher flexibility and value added. This was already obvious before Covid19 and changes should accelerate there.
- Inventory reduction and just-in-time deliveries were clearly not designed processes for an extreme event as this. Companies will need to revise contingency plans.
- The current models for managing cash-flow need attention at small and large companies. I expect to see Government, Business, and regulatory changes in this area.