What does Halloween candy have to do with the war in Ukraine? Hershey announced last week that because of supply chain constraints, they will not be able to meet demand for Halloween candy this year. This seems like an inconvenience rather than a crisis (unless you’re a parent trying to find Reese’s Cups in late October!), but this is just the latest symptom of a global food crisis that continues to grow. Below, we unpack how the war in Ukraine is impacting the global food crisis.
Supply Chain Constraints and The War in Ukraine
In addition to headline-making shortages of Halloween candy and baby formula, U.S. grocery stores are currently seeing shortages in food items as diverse as popcorn, flour, pet food, mustard, peaches, and Sriracha sauce. And this far from a U.S. problem – globally, the UN Food Price Index in June was 152, down from an all-time high earlier in 2022, but still up 23% since 2020. This price increase is a result of supply constraints that stem from a variety of causes, including the war in Ukraine.
Combined, Ukraine and Russia supply 12% of globally traded calories; 28% of wheat, 29% of barley, 15% of corn, and 75% of sunflower oil. While the direct impact on U.S. supplies from the Ukraine war is low (primary importers of Russian and Ukrainian grains are in the Middle East and Africa), markets for these commodities are global. That means that shortages in Ukrainian and Russian exports leads to higher prices internationally. Additionally, Russia is the world’s largest provider of fertilizer; losing that supply means that global food yields will be decreased in coming growing seasons.
Global Food Crisis
But the war in Ukraine is only the latest disruption to global food supplies. This conflict challenges supply chains already rocked by the COVID-19 pandemic and struggling to adapt to the ongoing challenge of climate change. Heavy rains and flooding in China have reduced rice and other grain yields; the Horn of Africa is reeling from the worst drought in 40 years; fires in the Western US are impacting grain fields, fruit orchards, and livestock; and a continuing drought in France is limiting water for crops, ranches, and fishing.
These are just some examples of the impact of climate change on global food supplies. The trend is frightening – global yields could decline by 30% by the middle of this century.
Preparing and Responding to Supply Chain Disruptions
How can food companies deal with disruptions? The first step for supply chain leaders is to recognize that disruptions cannot always be predicted. One-off disruptions can be caused by geopolitical, weather, or economic events. Supply chain leaders should be prepared to analyze and respond to disruptions regardless of their source.
To do this, supply chain leaders should develop and document a thorough understanding of their supply chain, including manufacturing and distribution networks, constraints, and secondary and tertiary suppliers. Regardless of the source of the disruption, knowledge of the supply chain allows supply chain leaders to assess the impact and analyze response options. Additionally, investing in tools that support this analysis enable more in-depth analysis and faster results. Organizational structures and forums that enable aligned decisions to be made and communicated are critical to operationalizing the results of the analysis.
For longer-term trends, supply chain leaders should guide analysis of implications and exploration of alternatives. Reducing waste within operations is a great first start – handling and storage, processing and packaging, and distribution and retail losses are estimated to be 14% for grains and 16% for fruits and vegetables. Reducing this waste not only reduces costs, but it also improves sustainability. Additional analysis of at-risk ingredients can be used to support portfolio decisions based on cost and availability. The key is to engage in forward-looking analysis so that possibilities can be considered and plans can be made ahead of time.
Planning for the Future
A shortage of Halloween candy may not be a crisis, but constraints in the global food supply are real. Food companies need to plan for a future in which food costs and supplies are increasingly volatile. Our expert team of supply chain consultants can help you put the right organizational, analytical, and technical capabilities in place to face an increasingly complex supply chain.