Global agriculture has reached a tipping point and life will not be the same again for food processors.
That’s the verdict of English Farming and Food Partnerships’ (EFFP’s) latest food chain analysis in its series of View papers.
In the past 25 years, the food industry enjoyed unprecedented growth due partly to continuous declines in commodity prices, and consumers enjoyed a decline in food prices in real terms. However, that trend was reversed about two years ago, with global food demand beginning to outstrip supply and a rise in prices of key commodities such as oil and grain.
In addition, the effects of climate change, water shortages and energy price rises will further affect the food chain. “Put bluntly,” said the EFFP, “global agriculture has reached a ‘tipping point’ and life will never be the same for food processors and manufacturers.”
EFFP chief executive Siôn Roberts said: “Just because people are talking about the ‘green shoots of recovery’ doesn’t mean things will return to normal. The real price of food has tended to decline in the past 25 years, but it won’t for the next 25.”
As a result of the changing face of the food chain, EFFP proposed a ‘leagile’ [lean and agile combined] model for processing, indicating a shift away from pure ‘lean’ thinking towards short-term flexibility. As a result of swift and more frequent fluctuations in commodity prices, firms would need to look at greater collaboration with their suppliers, depending on the nature of their businesses, said the organisation.
It was insufficient just to talk about building closer relationships with suppliers, said EFFP, seeking to define things more precisely. “For many food businesses the traditional approach of seeking ‘lean’ supply chains whereby the control of costs, particularly inventories, are the prime focus will need to give way to, or more correctly take on some of the characteristics of agile supply chains. The key characteristic of an agile supply chain is responsiveness and flexibility.”
Items that were traditionally in plentiful supply, such as milk for commodity-based cheddar production, were most likely to require continued ‘lean’ models. However, processors dealing with highly specialised, high-value items such as rare breed meat products would be most likely to need a more ‘agile’ relationship between farmer and buyer, said the EFFP. Such a relationship would embrace sharing information on production methods and joint agreements on future production levels and varieties.
Products in between ‘lean’ and ‘agile’ models would include such things as peas for freezing and potatoes for crisping.
EFFP also forecast that food price inflation would continue to fall towards zero before gently rising again throughout 2010. It added that, despite the sharp fall in food price inflation in the past two years, the actual level of food prices was still 20% higher than it was in 2007.