COVID-19 is spreading like wildfire across geographies. Its impact is widespread and many low- and middle- income countries are witnessing a gradual rise in the number of positive cases and are imposing rigorous lockdowns and travel bans in an effort to flatten the curve. While the coronavirus impact has been felt by all aspects of the economy, the global food supply chain is no exception. Experts suggest that the food supply chain is one of the hardest-hit segments and is expected to lead to acute shortages of certain product categories owing to the ongoing supply chain disruptions. This was recently witnessed in another segment when sanitizers and face masks were witnessing an all-time high across geographies leading to shortages and stock-outs.
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The United States is also one of the major regions that have been bought to a standstill due to the impact of the crisis. Our analytics experts have been analyzing the impact of the crisis in the US, by closely following the transformations in business structures and operating models of key players across industries. Based on our interaction with market leaders and decision-makers in the US food industry, we’ve come up with 5 hypotheses that illustrate the impact of COVID-19 on the global food supply chain in the US.
1. Economic Impact
The response to COVID-19 including social distancing, travel restrictions, work from home policy enforcement, and logistics and transport restrictions, all are poised to transform the health crisis into a global crisis that will likely impact business outcome levels, income, employment risks, and disrupt the global supply chain leading to a catastrophic effect on the economy.
2. Direct Impact on the Source of Food Production
The agricultural sector is also expected to witness huge losses due to the pandemic outbreak. The global food supply chain disruptions will further aggravate the current challenges faced by the farming sector leading to food shortages and losses due to the disruptions in consumer demand.
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3. Rise in Prices of Food Products
The COVID-19 induced food supply chain disruption is likely to increase the cost of raw materials used in food processing units leading to a spike in finished food products. Moreover, government restrictions on food supply chain logistics will also indirectly contribute to the rise in the prices of food products. Higher food prices are, in turn, likely to signal impending food shortages. These effects will, in turn, multiple into a vicious cycle causing social unrest across economies.
4. Food Retailers Will Remain Unaffected
Based on our analysis, the food retailing sector will not face the direct impact of the crisis. This implies grocery stores and food retailers in the US will continue their operations and will remain unaffected to a great extent. Since grocery retail chains and foodservice firms have greater control over the safety and hygiene of the food supply chain, they are far less vulnerable to mandatory business closures, and also face a lower risk of clients and employees contracting the disease.
5. Downstream Food Supply Chain Will Face an Irreversible Impact
The downstream segment of the US food supply network will witness the greatest impact. It includes all small and medium-sized enterprises that are labor-intensive with high densities of workforces deployed in smaller work environments. This is also because SMEs have no control over the hygiene practices of their product suppliers and other third-party firms that they collaborate with.
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How is COVID-19 Disrupting the US Food Supply Chain?
The US food supply chain is interconnected and highly complex. This also implies that when a crisis impacts the supply network either at the source or the destination, it will have a repercussive effect on the entire food supply chain and interrupt both the upstream and downstream production processes. Notably, this hierarchical nature has resulted in increased exposure to disruptions in the case of the COVID-19 outbreak. While businesses struggle to tackle the crisis and ensure business continuity a long-term supply chain vision is turning out to be crucial in building resilient supply chains that are well-equipped to tackle more such black swan events in the future.