Supply-chain fragility

‘Without a comprehensive deal, food shortages after Brexit will be far more severe than anything seen during the pandemic’

The coronavirus crisis has served a warning to the UK about the way in which the nation feeds itself. In March, when supermarkets battled to fill empty shelves, cover temporary food shortages and reassure panicked shoppers, the fragility of our food supply was laid bare. Unfortunately, it is soon going to be tested again. 

In less than five months the UK’s transition period with the EU will end and there is still much to be finalised. Without a comprehensive deal, supermarkets warn that food shortages will be far more severe than anything seen during the pandemic. The prime minister may now be on a health drive but, since the EU is a key supplier of fresh fruit and vegetables, particularly during the winter months, these essential foods could be some of the worst hit

And while Brexit is undoubtedly the most pressing threat to the UK’s food supplies, it is not the only one: we also need to consider a looming recession, geopolitical uncertainty, climate change and agricultural disease. Scarcities during Covid were only short-lived but they exposed the fragility of supply chains built for efficiency, not resilience.

Supermarkets purchase food on a “just-in-time” basis, replenishing stock daily based on the individual needs of each store. Tesco pioneered the system in the 1980s by demanding more frequent deliveries of smaller quantities to its newly established regional distribution centres. Until then, the majority of stock was held in back rooms, but by minimising inventory and therefore costly overheads, Tesco was able to save cash for both itself and its customers. Shoppers have in turn reaped the rewards of lower prices, greater choice and maximum freshness.

The system enables supermarkets to order goods such as British strawberries on a morning and expect them to arrive that night. European produce such as lemons and peaches can take a day longer, but the underlying principle is the same: get them to store as quickly as possible. Maximise shelf life; maximise sales.

When things run smoothly, it is a brilliant system. But when crisis struck, it crumbled. March saw the biggest month of grocery sales ever recorded, with levels even higher than those seen during Christmas. Supermarkets typically have several months to prepare for the December rush, but Covid was too much too fast, and food flew off shelves more rapidly than it could be replenished. It was not the mass hoarders who threw the system into disarray, as was initially assumed, but everyone adding just a few extra items into their baskets. For example, only 3 per cent of dry pasta shoppers actually “stockpiled”. The rest were simply covering the meals they typically bought while at school, work, and in restaurants.

The shortages emerged due to just-in-time’s reliance on previous shopper behaviour to predict future shopper behaviour, which in turn drives supermarkets’ decisions on what replenishment each store needs. Decades of refinement means the system typically works seamlessly. It fell down only when behaviour patterns suddenly changed, at which point algorithms failed and shelves rapidly emptied.

But the issues facing the food industry during the peak of the crisis were by no means insurmountable. Food bosses always knew there was enough produce in the system, it was simply a question of distribution. Behind the scenes, the system was in overdrive: boosting manufacturing, recruiting new workers and increasing delivery services for the vulnerable.

Previous Brexit planning proved invaluable. Not only had businesses built up significant stock and cash reserves ahead of the various no-deal deadlines, but they had developed an enhanced understanding of their supply chains, knowing where bottlenecks were likely to emerge, what alternative suppliers were available if existing ones became unavailable, and what contingency plans were needed for potential outcomes.

In the end, it got them through. Despite the relentless, unprecedented demand surge from shoppers, the UK remained fed. It was not always exactly the food we wanted, but it was by and large what was needed.

Yet there remain nagging questions following the crisis. What if there had been one more disruption? What if governments had closed their borders? What if there had been an outbreak at Dover port forcing it closed? Would our food supplies still have held up?

The UK relies on imported food. Almost a third comes from Europe, according to Defra—more than £34bn worth of food and drink last year. It’s equivalent to £1,100 worth of produce every second of every day, including 40 per cent of our fruit and vegetables.

It is for this reason that the food industry is so concerned about a disorderly end to the transition period. European borders stayed open throughout the pandemic and this is undoubtedly one of the main reasons the UK remained fed. Yet the introduction of additional border checks and documentation requirements from next year is now seemingly inevitable.

Just-in-time supply chains are not designed with disruption in mind. When bringing food in from Europe, importers typically rely on cross-Channel tunnel and ferry services where lorries can move seamlessly in and out of the UK with zero checks and paperwork. As it stands, you need the same paperwork to get a lorry from London to Birmingham as you do to Berlin.

The consequences of disruption will be felt almost immediately. In leaked Operation Yellowhammer documents produced last year, the government predicted a no-deal Brexit would “reduce availability and choice of products and will increase price, which could impact vulnerable groups”.

In practice, no-deal this time would likely look similar, and businesses are starting to prepare for the eventuality. Stockpiling is the most obvious response. By holding more stock, businesses reduce the impact of cross-border disruption although this is, and only ever can be, a short-term solution.

Unlike previous Brexit deadlines, disruption this time will not be a blip. Frictionless trade with Europe will be over for good, and many are therefore looking at longer term, structural changes to their supply chains.

Some have started redirecting food chains away from the typical Dover-Calais route, turning instead to the numerous new container routes springing up between Spain and the UK. Although typically more cumbersome than crossing the channel, container ports have established border processes already in place and are therefore less susceptible to disruption come January. For those such as fruit and vegetable importers whose produce has a relatively short shelf life, avoiding disruption trumps all else.

Supply chains are starting to evolve but the age of just-in-time is far from over. Change will only come after significant investment of time and money, two things generally in short supply across the food industry. Many smaller businesses in particular are entirely focused on surviving Covid and its economic ramifications. For them, at least, such investment is a luxury they can ill afford. 

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