2021 Year in Review — Supply chain troubles

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In 2020, the initial restrictions on foodservice operations related to the COVID-19 pandemic nearly broke the supply chain, escalating fruit and vegetable demand at retail while nearly halting foodservice demand for produce altogether.

For many, 2021 wasn't all that much better, as shortages of pallets, packaging, containers for export shipments and trucks created problems for the produce industry.

The issue of supply chains attracted attention from lawmakers, the Biden administration and top industry leaders.

Produce industry calls for ‘urgent government action’ to resolve supply chain stress

Nov. 5

Amy Sowder

At least 21 produce industry organizations in Canada and the U.S. issued a joint statement calling for “urgent government action” to address significant ongoing supply chain disruptions.

The disruptions have “impacts to our food systems, economies and, ultimately, individuals and families across the continent and around the globe,” according to the statement.

The COVID-19 pandemic has created unprecedented public health, economic and logistical challenges for communities and supply chains worldwide — the fresh fruit and vegetable industries included.

Organizations that partnered to issue this statement include: Produce Marketing Association, United Fresh Produce Association, Canadian Produce Marketing Association, California Strawberry Commission, Florida Fruit and Vegetable Association, Ontario Greenhouse Vegetable Growers, Texas International Marketing Association, Western Growers and the Quebec Produce Marketing Association, among others.

The group statement outlined several kinds of ongoing supply chain disruptions, each with many complications. The disruptions included crippling port congestion; delays and soaring costs in container shipping; the cascading effects of inconsistent produce delivery; labor shortages across the supply chain; and growing input shortages.

The statement said the American Trucking Association estimates that the U.S. alone has a shortage of about 80,000 truck drivers, and the driver shortage tops the American Transportation Research Institute’s list of Top Industry Issues.

In spring 2021, lumber shortages drove up wood prices by almost 350%, causing a pallet shortage for almost six months, according to the statement. And the cost of paper pulp used to make boxes was up 40% compared with year-ago levels. Likewise, fertilizer cost has risen by more than 20% in the last year, the statement said.

The statement said governments must work with all parts of the supply chain to avoid even more serious threats of food insecurity and food shortages.

The statement said that while these multifaceted problems will not be resolved quickly, further delays in course correction “will likely make things even worse.”

“Without multilateral engagement to find solutions, these issues will create long-lasting impacts to the detriment of all North American economies,” the statement said. “These include bankruptcies, legal disputes, industry consolidation, inflation, inaccessible food supplies and many more. Time is against us, and the necessity of addressing these challenges now cannot be understated.”

NGA delivers plea for help with labor, trucking shortage, retail concentration

By Tom Karst

Nov. 4, 2021

Putting trucking issues and concerns about retail concentration in the crosshairs, the extraordinary transportation and labor pressures on the food supply chain were the focus of an hours-long Nov. 3 House Agriculture Committee hearing.

The hybrid in-person and virtual hearing was directed by House Agriculture Chairman David Scott, D-Ga.

Besides trucking and container shipping shortages, the hearing also touched on vaccine mandates, the problem of retail market concentration and infrastructure issues.

Labor, trucking issues and retail concentration were addressed by Greg Ferrara, president and CEO of the National Grocers Association (NGA).

Ferrara said NGA survey data found that 85% of independents are increasing wages and making overtime hours available to their workforce.

In addition, many independent retailers were instituting one-time signing and referral bonuses for new workers.

Despite all these efforts, independent retailers still face the most difficult staffing environments in memory and the “shortfall has a compounding effect,” Ferrara said. What’s more, he said, the continuous and sustained high levels of consumer demand add pressure to the existing workforce.

Ferrara said the bottom line is that the independent retail workforce is “exhausted.”

NGA is urging policymakers to develop and implement vocational training and hiring programs that offer a pathway into the grocery industry, he said.

While the NGA strongly supports the use of vaccines to stop the spread of COVID-19, the group is also concerned about the potential unintended consequences of the business vaccine mandate, Ferrara said.

Trucks short

The limits on freight capacity are also weighing on independent grocers, Ferrara said.

“America is still short by more than 100,000 truck drivers and the problem is only getting worse,” he said.

Ferrara said the retail industry has been heavily impacted by the ongoing truck driver shortage, which has only worsened during the COVID-19 pandemic. Freight costs have increased dramatically since March 2020, he said, with some NGA members reporting increases in costs up to five times higher than pre-pandemic levels.

In addition to higher freight costs, NGA members are also experiencing much lower inbound service levels of goods than pre-pandemic norms, Ferrara said. Some members are reporting aggregate service levels as low as 60% compared to the high 90s before March 2020.

To increase transportation efficiency and capacity, Ferrara said NGA recommends adoption of policies that would mitigate the ongoing truck driver shortage, such as removing the commercial driver’s license restriction on drivers aged 18 to 20 from transporting across state lines.

Market concentration danger

Finally, Ferrara said, market concentration is worsening product shortages by “depriving the market of much-needed redundancies and driving unfair distributions of products in short supply.”

“Retail concentration enables dominant retailers to use their immense economic power to pressure suppliers into prioritizing their shipments over other retail customers, thus harming independent retailers and their largely rural and urban customer base,” he said.

While shortages and limited availability of critical inputs and supplies affect everyone, the impacts of these shortages are felt disproportionately by independent grocers and smaller players in the market, Ferrara said.

“Inconsistent distribution and apparent shortages of consumer goods has made it more difficult for customers of independent grocery stores to obtain high-demand products because we compete against dominant players with immense economic power that can wield tremendous influence over their suppliers,” Ferrara said.

Today, 65% of grocery shelf space in America is controlled by five grocery retailers, he said. These “power buyers” have taken advantage of supply chain crunches to entrench their economic power at the expense of smaller competitors and producers, he said.

In addition to supply inequities, independent grocers are experiencing unprecedented levels of price discrimination, he said.

“Our largest competitors use their influence to maintain favorable wholesale pricing as independents experience a retreat of promotional trade spending, a critical marketing tool that allows independent grocers to compete on price,” Ferrara said.

A consolidated food marketplace, he said, is a system that “benefits a select few” at the expense of everyone else, including consumers, workers and independent retailers and suppliers.

According to the U.S. Census Bureau, in the past 25 years, grocery storefronts have shrunk by a third. Fifteen of the top 20 grocers in the 1980s either merged or were acquired by the 2000s. During this time, independent grocers lost ground in many rural and urban areas where food deserts now exist, Ferrara said.

Walmart’s unfair influence

Ferrara called out Walmart and dollar stores, in particular, in his written testimony.

“The paradigmatic example for this one-sided bargaining dynamic is Walmart,” he said. “Its ability to unilaterally demand concessions from suppliers is legendary.”

For example, Ferrara said, in 2017, Walmart announced a new requirement that suppliers for its stores and e-commerce business must provide on-time, in-full (OTIF) deliveries 75% of the time.

Since then, Ferrara said, Walmart has repeatedly tightened this requirement, raising the bar for OTIF deliveries from 75% to 85% and then to 87% in 2019. In September 2020, while manufacturers and suppliers throughout supply chains were struggling to safely meet demand during the COVID-19 pandemic, Walmart raised the bar again, demanding 98% OTIF deliveries.

Walmart penalizes suppliers that fail to meet its demands by charging a penalty of 3% of the cost of goods sold, what Ferrara calls a “devastating penalty in an industry already operating with razor-thin margins.”

Proliferation of dollar stores throughout rural and urban America has not only pushed countless independent grocery stores out of business, but is also contributing to food deserts and healthy food access challenges, Ferrara said.

Current antitrust enforcement efforts have failed to address these anticompetitive harms, he said.

 

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