Supply Chain Disruptions in the Food, Beverage and Agribusiness Industry

The food, beverage and agribusiness (FBA) industry was among the most impacted during the COVID-19 pandemic. Despite restrictions easing, and the industry returning to a degree of normalcy, businesses operating in the space are now faced with new challenges, including significant supply chain disruptions caused by shortages of labour and key materials, as well as heightened geo-political tensions. Ultimately, these pressures affect bottom lines of businesses and consumer shopping patterns. This bulletin outlines in greater detail some of the issues that businesses in the FBA industry are navigating.

LABOUR SHORTAGES

Canada’s workforce is currently experiencing a historical low for its unemployment to job vacancy ratio: 1.4 unemployed people per job vacancy. A survey conducted by Statistics Canada on business conditions reveals that across the five primary sectors driving total job vacancies, the ratio of new hires to vacancies has been trending downward in the past five years. Another survey indicates that recruiting skilled employees was expected to be an obstacle over the next two months for approximately 47.4% of manufacturing businesses generally, and 46.3% of businesses in the accommodation and food services sector.

More specifically in Ontario, labour supply continues to be the primary issue facing the food and beverage processing sector, which is the province’s largest manufacturing industry based on employment and accounts for 27.5% of the FBA industry’s revenue in Canada. As an example, Food and Beverage Ontario, an organization dedicated to advancing the interests of Ontario’s food and beverage processors, reports that approximately 54% of its members have discontinued products or services due to continuing labour shortages, and the industry is projected to face a decrease of 20% of the current workforce by 2024. Currently, it takes a food and beverage processor an average of seven months to identify and hire a skilled tradesperson.

SHORTAGE OF RAW MATERIALS AND INCREASED INPUT COSTS

In addition to labour, businesses in the FBA industry are currently navigating supply chain deficiencies caused initially by COVID-19 and subsequently exacerbated by geo-political tensions.

As key exporters of some of the world’s most important commodities, the ongoing situation with Russia and Ukraine has significantly disrupted the global supply chain. In addition to increasing prices of natural gas and crude oil, the conflict has had a unique impact on the FBA industry in Eastern Canada. Farmers in the region heavily rely on the import of crop fertilizers such as nitrogen, phosphorus and potash from Russia, for which they now must pay an extra 35% in tariffs. Additionally, escalating tensions between China and Taiwan have halted the supply of semiconductor chips, which in some cases are vital to the manufacturing processes used in the FBA industry. Moreover, given the ongoing COVID-19 lockdowns in China, additional shortages have extended to the supply of other key materials used in the FBA industry.

CHANGING CONSUMER PREFERENCES

The factors discussed above have ultimately resulted in rising prices for goods, particularly in the FBA industry. Although inflation has decreased from its 39-year high of 8.1% in June, consumers have since responded by altering their buying behaviour. Items such as meat, poultry, eggs and dairy have become less popular due to rising costs.

The Bank of Canada has attempted to combat the rise in inflation with higher interest rates, the most recent hike bringing the rate to 3.25%. Interestingly, while consumers are spending more at grocery stores than pre-pandemic levels, the number of items they are purchasing is decreasing.

Consequently, businesses in the FBA industry not only need to develop business solutions to their supply chain hardships, but they must also respond to changing customer demands with further research and development of novel products.

To learn more about how your business can navigate these challenges, please contact:

Michael Stevenson     +1-416-863-2458

or any other member of our Food, Beverage & Agribusiness group.