Will Covid be a catalyst for shorter supply chains?

The pandemic has spawned a resurgence of interest in local food. But the economic drivers for centralised sourcing and distribution remain strong. Nick Hughes reports.

In the middle of lockdown, isolating at home in Kent due to a sniffling toddler and with supermarket delivery slots reserved for the vulnerable and those with a degree in computer science, I logged on to my laptop at 9pm and placed an order with my local butcher for some grocery essentials. Less than 12 hours later the delivery arrived on my doorstep: milk from the dairy farm just up the road, bacon smoked in the neighbouring village, freshly picked Kentish strawberries and raspberries.

It took the butcher’s shop a matter of weeks to build the capability to take orders online at the start of lockdown, the benefits of which will last for years to come. And it’s far from alone. As the UK’s lockdown took effect, wholesalers, distributors and even farmers denied a market for their goods rapidly adopted new ways of trading, including home delivery and click-and-collect. In a blog for the Local Trust, Sustain’s Maddie Guerlain wrote: “Local councils, community centres, schools, catering companies, volunteers, food partnerships or alliances, farms, hospitality staff and others have rallied together in record time to pivot to or develop new operations, health and safety protocols, supply chains and referral systems in order to ensure that no one is left without a safety net while in lockdown, whether due to medical or financial vulnerability.”

After years in which a model of global sourcing and centralised processing and distribution of food has come to dominate, the response to the pandemic has raised hope in some quarters that the crisis will be a catalyst for shorter, more local supply chains to move out of their niche and into the mainstream.

The thesis is straightforward, but the barriers to achieving it are immense. Are hopes that Covid-19 provides the impetus for businesses to embrace shorter, more regional supply chains well founded? Or will hard economic realities simply serve to reinforce the status quo?

Fragile supply chains

In a recent report Shortening Supply Chains: Roads to Regional Resilience, the Soil Association stated: “The impact of the Covid-19 pandemic has been to highlight the fragility of long supply chains and, suddenly and alarmingly, demonstrated fundamental weaknesses in the assumptions underpinning them.”

It continued: “The likely consequences of the pandemic could and should include a recognition of the need for greater connection to sustainable and regional food producers, even if that means slightly higher prices in exchange for greater food security.”

While long supply chains have their place, the charity says short supply chains have a number of benefits. They can boost the local economy by giving small food businesses more access to local markets. The development of local food processing and distribution infrastructure can increase efficiencies and lower greenhouse gas emissions from transport. Having short, regional supply chains, alongside longer supply chains can also bolster food security so the nation is better able to withstand shocks and shortages to the system.

The point about diversity in supply chains echoes comments made by Henry Dimbleby, who is leading the development of the government’s new food strategy for England. Interviewed recently by the FT, Dimbleby cautioned that an over-reliance on local food production would present its own risks, such as shortages resulting from the failure of a domestic harvest. “We don’t know what form the next crisis is going to take, so having diversity in the system is a good thing: diversity of species, of supply, of supply chains, of types of farming,” he said.

It’s important to note too that the Soil Association’s assertion that long supply chains were exposed by the crisis is disputed. Supermarket bosses and politicians have pointed to the speed at which out of stocks returned to normal levels as evidence that the current system held up when put under the utmost stress.

Cracks in the system

What is harder to contest is that the crisis has further exposed cracks in the food system that were already visible. The Food Foundation estimates close to 5m adults are experiencing food insecurity, compared with 2m pre-lockdown.

Small and medium-sized suppliers and wholesalers have been pushed to the brink of bankruptcy (and in some cases beyond) as retailers have consolidated their supply bases, leaving those businesses reliant on servicing the foodservice market with no outlet for their produce.

Beyond the pandemic, the declaration of a climate emergency by Parliament has sharpened the focus on the environmental impact of the food system. The Soil Association argues small-scale, regional and sustainable production can help reverse the impact of the food sector on climate change and biodiversity.

The UK’s lockdown has certainly sparked a surge in interest in local food. Research by the Farm Retail Association found that 92% of farm retailers reported a significant rise in new customers since lockdown rules began in March. Sales of veg boxes have soared by more than 100%. Symbols and independent shops, meanwhile, have been thriving, accounting for 2.5% of grocery sales in May according to Kantar, up from 1.7% a year ago.

Small businesses hope that habits formed during the crisis will sustain once the UK exits lockdown. Yet there are huge structural barriers that will need to be removed if a localisation of food supply chains at scale is to occur. Just as in retail, where global just-in-time supply chains serve to lock out local suppliers, in foodservice the need for high volumes and large product range requirements among major operators with centralised procurement teams creates a significant barrier to entry for SMEs.

The Soil Association identifies a key role for the public sector in growing the regional and sustainable food sector. However, it notes that current good procurement practice tends to be incentivised by voluntary schemes such as the government’s balanced scorecard and its own Food For Life Served Here Award rather than mandatory requirements.

Local innovations

Nevertheless, the Soil Association says there are huge opportunities for producers, caterers and the public to benefit from increasing access to more sustainably produced, local food. Innovative business models are emerging with the potential to transform food supply chains. New food hubs, which sit between people who produce food and people who use it thereby enabling small-scale local food systems to develop, are growing fast.

Dynamic purchasing systems (DPS), meanwhile, are currently being piloted with government support. These enable a mix of small and large suppliers to fulfil public contracts provided they meet quality criteria set by the contracting authority, allowing access to smaller suppliers while ensuring volumes for larger orders are still met.

Progressive councils such as South Cambridgeshire and Bath and North East Somerset are leading the way. The Soil Association, however, acknowledges that businesses driving this local food transformation are currently small in scale, while the infrastructure to support short supply chains is underdeveloped. UK abattoir numbers, for example, are in long-term decline driven by supply chain consolidation, meaning livestock often has to leave the locality to be slaughtered and processed.

Foodservice contraction

Market dynamics may, in the short term at least, reinforce existing, centralised structures. The foodservice sector is at the beginning of a period of major contraction. Some businesses have already failed with others certain to follow suit. “The supply chain that existed in February is not there,” says Prestige Purchasing chairman David Read. “We’ve had multiple failures at the wholesale, manufacturer and producer level. We know there are farmers that haven’t planted crops, many of whom were contracted into foodservice. There’s a whole range of issues that are going to come down the line.”

Read predicts a “white hot” period of consolidation in foodservice and its supply chain where the stronger players “hoover up” smaller businesses that have been forced into using compulsory voluntary agreements (CVAs).

As premises reopen, caterers whose businesses have been in involuntary hibernation for the past three months face the dual challenge of weak volumes and downward pressure on selling prices. In this context, the ability to reduce the cost per transaction will be a key business driver. Prestige Purchasing is coordinating a new initiative whereby large-scale hospitality operators from the dining, catering and pub sectors will consider pooling their volume for high-volume commodity ingredients such as cooking oil, butter and chicken in order help manage costs during the recessionary times ahead.

Read predicts that in the short term there could be a polarisation in the foodservice market whereby larger-scale operators worried about the strength of regional supply networks bolster their relationships with national suppliers, while smaller caterers looking to differentiate their offer on origin and sustainability pivot the other way and source product as locally as possible.

In the mid term, however, Read believes there is an opportunity for all caterers to develop more flexible supply chains. “I’d encourage people who are thinking long term to consider regional and local options because those supply chains need support now,” he says. “If everybody polarises in the way I describe then a lot of regional wholesalers will go out of business. We deserve in the long term a healthy set of choices in our supply chain.”

Shocks to the system can precipitate change. Following the horsemeat scandal of 2013 supermarket chains moved as one to source British meat. Whether Covid-19 will provide the impetus for a shortening of supply chains remains to be seen.

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