Learning the lessons of disruption
Given the challenges of the last few years, food, beverage and agriculture supply chains have held up well.
While prices have risen sharply, the industry has largely managed to keep the world fed through the pandemic and during the Ukraine conflict, despite the disruption to supplies of staple foodstuffs.
But, beneath this surface, the sector has felt the deep impact of shocks such as production shutdowns, commodity shortages, energy prices hikes and inflation.
To keep supplies moving seamlessly from farm to fork, it must also negotiate looming challenges such as climate change and competition for land and natural resources.
How are businesses adapting?
To find out how the sector is navigating this changing landscape, we surveyed 100 risk and supply chain leaders, from agribusiness and food processing companies to major food and drink brands.
How do they see the supply chain landscape? How are they building resilience? What are the main challenges and risks they face? And what will the supply chains of the future look like?
About our survey
When: November – December 2022
Who: 100 senior decision makers, including risk managers, supply chain and logistics managers and CEOs.
Where: Countries across Europe, North America, Asia-Pacific and Latin America.
Size: All companies surveyed had annual revenue over $250 million.
Risks growing in a rapidly changing world
Food, beverage and agriculture supply chains are exposed to a wide range of unpredictable forces, from weather to war.
They also face long-term challenges in adapting to the impacts of climate change.
Other top concerns in our survey included factors such as cyber security, raw materials and logistics shortages, sustainability and reputational risk.
Climate and environment
More than half (54%) placed climate change and environment among the top global trends affecting supply chain risks.
This reflects increasing risks to food supplies from extreme weather events such as floods and droughts, as well as concerns over depletion of arable land and water supplies.
When asked to name the environmental factors that posed the greatest supply chain risk to their business, more than two-thirds (70%) said natural resources.
This was among the factors thought to have the greatest impact on supply chain risks, rated by 83% as either a high or medium impact.
As well as the effect of the Ukraine conflict on supplies of grain and oils, the sector also faces wider risks, such as increasing trade disputes and the rise of food nationalism as some countries restrict exports of key foodstuffs.
Many countries are also onshoring production to achieve self sufficiency and control over critical food supplies.
Shortages of logistics and warehousing (41%) topped the list of supply chain factors that will have the greatest impact on businesses over the next two years.
Efficient transport is a major issue for the industry both to cut carbon emissions and reduce persistently high levels of spoilage and waste.
Currently between 25–30% of global food produced is lost between the farm retail stores.1
The ever-present threat of disruption in the supply chain is a continuing anxiety for food and beverage businesses.
Shortage of raw materials (39%) was named as the second biggest supply chain factor expected to impact businesses over the next two years, followed by energy or other service interruptions (37%).
Component shortages (34%) was considered to be the underlying factor that played the greatest role in supply chain risks.
Cyber risks were believed to have the most profound impact on supply chains, rated by 84% as either a high or medium impact.
The growth of digitalization of food and drink production and processes, and use of technologies such as artificial intelligence and internet of things (IoT), increases the risks of cyber-attacks on suppliers.
This is concerning in an industry which has traditionally had low awareness of cyber risks and therefore, lower levels of cyber security.
The food and beverage sector is under mounting regulatory and public pressure to source responsibly and sustainably.
In our survey 84% said that ESG is a specific selection criteria when selecting new supply chain vendors, while 82% said sustainability was a key goal for their supply chain.
More than 4 in 10 (42%) named ESG among the top global trends with the greatest influence on supply chain risk.
The vast majority (88%) rated reputation as having a medium or high impact on supply chain risks.
This may reflect increasing awareness of issues such as labor exploitation, animal abuse and deforestation.
Such practices which can be hidden in the lower tiers of the supply chain, where scrutiny and visibility may be weaker.
Likewise, potential contamination introduced in the supply chain can increase the risk of a reputational crisis.
Though we may be past the acute disruptive impacts of Covid-19, the risk of a new strain of the virus, or a new unforeseen pandemic, seems to be still front of mind, topping the list of global trends with the greatest influence on supply chain risks at 59%.
4 key findings
73% said losses related to the supply chain had been higher or much higher than expected over the last two years.
88% of businesses said they have made at least some improvements in their approach to supply chain management in response to the pandemic.
79% cited a lack of insurance solutions among the greatest challenges to addressing their supply chain risks over the next three to five years.
70% named natural resources as the environmental factor that posed the greatest supply chain risk to their business.
Securing the future food chain
The food, beverage and agriculture sector has always been highly exposed to supply chain disruption and has become expert at managing risks to keep the world’s shelves and tables supplied – even through crisis events such as the pandemic and the Ukraine conflict.
However, the industry will face increasingly difficult challenges in the future, from ongoing logistics and raw material shortages to the long-term impacts of climate change on agriculture and increasing competition for land and natural resources.
Our survey shows that businesses are working with their key suppliers to overcome problems and considering a range of strategies to increase resilience.
While they have an advantage in that supply chains are less complex than other sectors, they’re hampered by an inability to get hold of enough accurate data on the supply chain to manage their risks.
Working more closely with suppliers as partners can help companies understand their supply chains better and address these risks.
“Diagnostic mapping and monitoring tools and analytics can help to visualize, quantify and assess risks across the chain and in specific locations.” Simon Lusher | Director, Client Relationship WTW
Diagnostic mapping and monitoring tools and analytics can help to visualize, quantify and assess risks across the chain and in specific locations.