Supply chain changes to provide opportunities for those who are flexible

Focus on grains and oilseeds in a post-COVID-19 world

Global report considers key impacts of the COVID-19 pandemic on Australian trade.

Global report considers key impacts of the COVID-19 pandemic on Australian trade.


COMMENT: Supply chain changes will necessitate flexibility and adaptability for grains sector.



COVID-19 has changed our world like nothing else in recent history.

For grains and oilseeds, some impacts have been short-term, such as commodity price falls, and others have been medium-term.

Among these are the economic effects that will likely see a slowing in meat consumption growth in the developing world - leading to reduced growth in feed demand - and travel restrictions - which have limited the availability of labour.

There are many other impacts, as Rabobank has outlined in a recent global report called "The Grain and Oilseed Sector in a Post-COVID-19 World".

These have longer-term structural implications, and may require strategic changes in the sector.

One is the potential for increased government intervention.

The coronavirus pandemic has exposed the vulnerability of globalisation and free trade.

Governments may choose to strengthen their country's self-sufficiency and support domestic production - especially for food grains - in the medium-term via protectionist trade.

They may also provide more financial support to farmers and companies involved in essential businesses, beyond the multitude of economic stimulus packages already implemented.

Both factors will disadvantage the grains and oilseeds sectors in regions where governments can not, or will not, intervene in markets.

With increased farm subsidies - such as those already in place in the United States - and production growth from nations in the Black Sea, Australia will have to adapt to compete in a more competitive global market.

The issue of food security is also seeing a move towards higher stock inventories.

The coronavirus pandemic disrupted supply chains - from the local grocery store to global trade.

To ensure adequate supplies in future, the food supply chain - public and private - will hold bigger inventories of stocks. This is an evolution from a "just in time" to a "just in case" model.

These higher stocks, while potentially exaggerating demand - which may be supportive to prices in the stock-building phase - will, over time, reduce price volatility.

They will also reduce the opportunities for Australia to benefit from periods of production concern.

The COVID-19 pandemic has accelerated a de-globalisation of supply chains, which is making global grain trade more inefficient.

Multi-lateral trade will continue to fall out of favour in a post-COVID-19 period due to geopolitical, food security and food safety considerations.

Countries will turn inward to promote domestic food production, markets and self-sufficiency and toward "prime trade partners".

This will result in more bilateral, or regional, trade agreements to meet those goals.

While reducing the competitive advantage of some major exporting countries, it may benefit nations such as Australia - given our proximity to rapidly-growing populations in South East Asia.

Also, the downward trend in fuel demand that was already in place before COVID-19 - but accelerated by the pandemic - is expected to continue.

COVID-19 will have a lasting impact on many aspects of daily living, such as increased working from home - which will mean reduced fuel consumption.

This translates into less biofuel demand and will result in an increasing amount of grains - especially corn - and oilseeds - predominantly soy and canola - available for other uses, including feed.

The resulting higher supplies of feed grains and lower prices may encourage acreage shifts to other, more profitable, crops or farming methods - such as organic, non-GMO and/or pulses.

At the end of the day, in a post-COVID-19 world, there will be changes throughout the supply chain and this will provide opportunities.

To succeed, industry participants will have to be flexible, adaptable and open to incorporating these changes into their business strategies.


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