RABOBANK'S JUSTIN SHERRARD says that food companies looking to open up their supply chains to public scrutiny will have to consider the costs.
“In the past, transparency has not been a big issue in supply chains. Food companies, retailers and foodservice companies have been happy, provided chains deliver what they need (typically on quality and price), while consumers have placed their trust in these downstream companies to deliver safe food that represents good value for money. Of course, this changes every time there is a scandal, and the recent horse meat scandal is no exception. At these times companies take a much closer look at their chains and work to strengthen them, in response to a decline in consumer trust.
The question of whether transparency becomes an ongoing issue of importance in food and agriculture supply chains depends on two factors: whether companies see the horse meat scandal as a wake-up call regarding their need to better manage their supply chains; and the final agreements reached by regulators around labelling requirements.
Food supply chains are under unprecedented pressure right now, as a result of rising agricultural commodity prices and increased volatility, shifts in market power and margins along the chain, as well as the long-term challenge of feeding a world of nine billion people. There is also as the new era of complexity in food and agriculture, which we refer to as the great crossover (the material influence on a number of outside agendas on the food sector, such as sustainability, health, energy and finance).
Forward thinking food companies now see supply and supply chains as strategically important parts of the business, and are changing their approach from one of open-market sourcing to closer cooperation along supply chains, with a focus on adding value rather than chasing price.
Companies like McDonald’s have already taken steps to elevate the importance of and to strengthen their supply chains. They are also now sufficiently confident in how these chains operate that they will open them to direct public scrutiny. If successful this will send a strong message to consumers about transparency and trust, which will be welcome messages to people who have little awareness of how food is grown and produced.
What is more interesting, to us, about opening up the supply chain to public scrutiny is that McDonald’s can do so without charging its customers any more for its products (see Footprint June). While some companies caught up in the horse meat scandal have been talking about local sourcing, more checks on food safety and product integrity, and transparency in their chains, they have also highlighted that customers need not pay more. While this sentiment is welcome, delivering change in supply and supply chains without implications for price will be a challenge. In our view, the food companies that are most likely to succeed here are those that shift their approach to closer cooperation and adding value through the supply chain, rather than those chasing price in an open-market sourcing model.”
Justin Sherrard is global strategist renewable resources at “sustainability-orientated” financial services provider Rabobank.