The food, beverage and agribusiness (FBA) sector has demonstrated resilience and creativity in the face of unprecedented challenges caused by the COVID-19 pandemic. However, FBA sector businesses are facing a transitional phase, which will require businesses to apply the learning and experience they have gained through the pandemic to rethink or reposition their operational priorities and reorient towards longer-term strategies. COVID-19 may have been the catalyst for change, but some of the practices learned as a result of this event will endure.
In this next phase of the COVID-19 pandemic, it will be important for FBA sector businesses to:
- Identify and address weaknesses that have been revealed in light of the COVID-19 pandemic
- Consider how governmental support can help navigate this transitional phase
- Assess the opportunities to improve as a result of this experience and to define new best practices
1. FBA SECTOR VULNERABILITIES
COVID-19 has highlighted some of the weaknesses in the food supply chain.
- Labour-Intensive Supply Chains: COVID-19 outbreaks at food processing plants and the agricultural labour shortages tied to border closures have exposed a common vulnerability: reliance on labour-intensive processes. Worker safety is the primary challenge faced by processing plants, and those plants with more labour-intensive systems that require staff to work in close proximity to one another are at high risk. Food processing facilities have been able to quickly implement steps that allow their already stringent health and safety processes to respond to the risk of this novel virus, but additional improvements may be required to ensure such plants can operate at maximum efficiency going forward.
- Concentrated Dependency: Reliance on a small number of processing facilities has meant that the closure of even one facility due to COVID-19 can have far-reaching implications for the entire supply chain. Closures and reduced efficiency resulting from increased safety measures at operating plants have led to a significant decrease in processing capacities and, accordingly, an oversupply of livestock and agricultural inputs. Bottlenecks in the supply chain considerably increase costs for farmers who are forced to store and sometimes dispose of crops or shelter and feed livestock for longer than anticipated. These factors are expected to translate into increased costs for consumers.
- Reliance on Trade: Import and export of agricultural products is central to our current food system. The negative impact that border restrictions and closures of foreign processing facilities have on food security is clear. In addition to the risk of not receiving the imports on which we rely, the reduced processing capacity of the Canadian FBA sector is resulting in higher priced imports because trucks transporting American products to Canada that typically pick up product to bring back to the U.S. are returning empty.
- Adaptability of Food Supply Chain: While reports indicate that the food supply in our country is strong, bottlenecks impeding the ability to predictably receive inputs have resulted in backlogs at the production level and shortages at the retail level. The “just enough, just in time” approach used throughout our food chain has allowed costs to remain low, but lacks resilience in response to extreme stressors on the supply chain and makes it difficult to adapt to rapid demand shifts.
- Delivery and Transportation: As a result of COVID-19, Canadians have increased their use of meal and grocery delivery services drastically. E-commerce in the food sector has traditionally been difficult in Canada due to the challenges associated with our expansive geography. Given that the shift towards home delivery is expected to persist, there is an opportunity to improve upon systems like cold storage and cold-chain logistics. Vertical farming has been offered as an alternative to reduce transportation and middlemen in the supply chain, however, the costs associated with artificial lighting and environmental controls may be just as significant and the practicality of implementing this system in such a large country is uncertain.
2. LEVERAGING GOVERNMENT SUPPORT
On May 5, 2020, Prime Minister Justin Trudeau announced C$252-million in assistance for farmers and other agri-food sector actors. The broad aims of this program include financial support for those affected by COVID-19, redistributing food and protecting workers in processing plants. The financial support will be divided among three buckets: (i) assistance for cattle and hog producers that are raising more animals than can currently be processed; (ii) assistance for food processors to provide personal protective equipment (PPE) for workers, adopt additional health measures and expand domestic processing capacity; and (iii) implementation of a food surplus purchasing program where the government will buy surplus products to redistribute in areas with unstable food security.
Additional financial support from the federal government was announced on May 14, 2020. The C$100-million Agriculture and Food Business Solutions Fund (Fund) was launched on behalf of Farm Credit Canada (FCC). The federal government previously enhanced FCC’s lending capacity by C$5-billion to increase support to producers and agri-food businesses throughout the COVID-19 pandemic. Access to the Fund is available to a wide range of businesses, including those in the primary production, agri-tech, manufacturing, packaging and distribution spaces that can demonstrate that they have experienced an unexpected business disruption, such as the loss of a key supplier, facility, critical staff or leadership. Applicants will be assessed on their merits and are eligible to receive up to C$10-million through convertible debt investments and other flexible financing solutions.
COVID-19 has required businesses to rapidly adjust in order to reduce human interaction, which has vastly increased the importance of leveraging technology to limit contact. On April 24, 2020, the Government of Canada and Government of Ontario announced a C$2.5-million investment focused on developing online business in the agri-food sector. Eligible agri-businesses can apply through two streams: (i) a grant to bring businesses online and establish a marketing presence; or (ii) the provision of cost-share funding of up to 90 per cent of eligible costs to a maximum of C$75,000 to help recipients develop online business opportunities on a larger scale.
3. ASSESSING OPPORTUNITIES FOR IMPROVEMENT AND NEW BEST PRACTICES
Whether FBA sector businesses are benefitting from increased demand or depending on government support to offset decreased revenues, the next phase of the pandemic is a critical time to assess the health of businesses and consider what opportunities lie ahead.
- Technology Investments: While all sectors of the economy were focused on automation prior to COVID-19, the pandemic is likely to accelerate this trend. This pandemic will demonstrate to many businesses that steps should be taken to anticipate and mitigate the impact of future disruptions. FBA sector businesses have the opportunity to implement technological strategies to support agricultural practices and decrease human components in processing plants. Robotics and automation may also help to address challenges in logistics management, transportation, and grocery retail and delivery. While such investments to improve process efficiency have upfront costs, the ability to adjust to issues like rapid demand shifts and labour shortages in an unpredictable future may prove to be invaluable.
- Improving Direct-to-Consumer Commerce: During the current pandemic, consumers are willing to forfeit the ability to independently pick out their produce in order to avoid a trip outside. In the long-term, however, as returning to grocery stores becomes a more viable option, success in direct-to-consumer commerce is likely to depend on innovations that rival the level of convenience and consumer choice that exists in a retail setting. FBA sector businesses thinking about enhancing their direct-to-consumer offerings should be proactive about pre-empting challenges of executing delivery, such as making investments in sensor monitoring technologies or refrigerated lockers to ensure that food products stay fresh on their journey to the consumer.
- Food Safety Protocols and Standards: At the retail and food service level, apprehensions regarding food safety and the hygiene of employees and patrons will be pronounced. While Canada had high standards relating to food safety prior to COVID-19, FBA sector businesses should be cognizant of the public’s new expectations with regards to food handling. Fast food restaurants are already taking steps to revise their food service model accordingly, such as by installing plastic screens between tables, and ensuring customers and staff remain 1.5 metres apart. On the food production front, pursuing packaging that will address concerns over contamination while promoting sustainability may be an opportunity to satisfy consumer preferences.
- Evolution of “Health and Wellness” Sector: Consumers continue to be concerned with their health throughout this crisis, but the types of healthy foods they are choosing are shifting based on the increased focus on cooking and eating at home. Some healthy, fresh foods that thrive in the food service space, such as asparagus and seafood products, are facing decreasing demands as consumers are now dependent on their own skill set to prepare food. Several FBA sector businesses are investing in new spaces, such as plant-based products, which may be expedited as consumers look for affordable protein sources in light of meat supply challenges.
- Improving Resiliency in Local Food Systems: The global food system has evolved such that a relatively small number of processors specialize in what they can produce at low cost and products that can be produced more efficiently outside of the country are imported. Most of the time, this system is highly efficient and results in low prices and increased variety for consumers. COVID-19 has demonstrated the fragility of this system, and that our country might benefit from increased diversification and self-sufficiency. A shift towards rejuvenating local and regional food production cannot be accomplished by one company and would likely require a co-ordinated effort among government and industry.
- Collaboration and Strategic Partnerships: There may be opportunities for strategic partnerships and investments as changes in consumer preferences and expectations encourage FBA sector businesses to diversify offerings, improve e-commerce, optimize distribution channels and enhance customer experience. Collaborating with complimentary partners can allow FBA businesses to focus on efficiency and cost-saving measures in order to strengthen operations. These collaborations will require careful consideration of market and regulatory issues, such as competition law compliance and ultimate responsibility for meeting food safety regulations.
In the beginning of this pandemic, it was critical for FBA businesses to respond and adjust to the very immediate challenges by mitigating risks, from health and safety to operational and profit and loss issues. In essence, survival. But now it is time to prepare for the next phase. It is important to take what has been learned and experienced and use that knowledge to bring operations and strategies in line with what has or will become the new best practices for the food industry.
For further information, please contact any member of our Food, Beverage & Agribusiness group.
Please visit our COVID-19 Resource Centre to learn more about how COVID-19 may impact your business.
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