COVID-19 and the Indian Food Industry – The Fallout & Path Ahead

COVID-19 and the Indian Food Industry – The Fallout & Path Ahead

The outbreak of corona virus has had significant impact not only on public health worldwide, but also on all stages of the supply chain and value chain of various industries. The food & beverage is one such industry that is currently experiencing impacts due to this global pandemic. China, the COVID-19 pandemic’s first epicenter is home to the largest number of corona virus cases i.e. 82,830, and deaths, 4633, in 2020 to date. The very fact that China is amongst the largest markets for food & beverage business for many countries places the global food industry in a vulnerable situation.

The differential impact of this rapid spreading COVID-19 on Global food & beverage industry & each stage of its value chain can be well calibrated on the lines of the affected workforce at industrial level, staple food supply (agricultural produce, food ingredients, intermediate food products), trade & logistics, demand-supply volatility and variable consumer demand at foodservice outlets—among other factors. Production, distribution, and inventory levels across the food & beverage industry spectrum are expected to be impacted largely with this corona crisis.

 

Labour & Workforce:

In the wake of COVID-19, workforce can potentially influence the business plans and restrain the industrial production of food & beverage products. Beyond having exceptional forecasting tools, agile distribution capacity, and a reliable transportation infrastructure; the foremost critical element in timely order fulfillment is keeping reliable and skilled labor for efficient production and shipping. The workforce employed in agricultural farms, food & beverage production & processing plants, and distribution network are anticipated to run the risk of transmission which might occur during various activities of co-ordination.

For the trade occurring between geographies and different stages of the supply chain, there is also a potential risk of spreading the virus through mediums of product outputs, causing food safety concerns, this in turn has spiked the labour shortage.

The corporate workforces, owing to its constant exposure to different stakeholders in the industry, interaction with potentially affected public also bear a potential risk of virus contraction. Travel bans imposed by several countries are yet another contributing factor, hindering the availability of critical personnel required in key decision-making.

 

Industrial Raw material/ Agricultural food supply:

Agricultural produce, which forms the key staple for subsequent stages in the food value chain, can become a potential source of bottleneck for the food & beverage industry. The agri-based commodities may endure a possible impediment of production and supply on account of labour shortage and poor logistics due to traffic control and restrictions on public movement. Agriculture is seeing the impact of COVID-19 at multiple stages. India is no exception to this and a slew of measures are being taken by the Central and State governments to stem the spread of this deadly virus. The nationwide lock-down, if persists without any adequate mitigation efforts will inevitably impede the mobility of different food commodities.

India is on the verge of harvesting an abundant rabi crop in the coming months. In the situation, the closure of several mandis and hiccups in the mobility of goods will have a significant impact on farmers’ realisation, especially small and marginal farmers who can’t hold the produce for a longer time. As declared by the Ministry of Agriculture, supply of the food and Agri produce will also be subdued in the coming seasons due to low sowing of the upcoming seasonal crops.

*To combat the COVID-19 predicament, Governments’ support and intervention in stabilising prices will play a key role in deciding the farmers’ realisations this year as prices of most of the crops are ruling below MSP.

 

Trade and Logistics:

Trade restrictions imposed by several countries to curb the outbreak of COVID-19 has substantially affected global logistics and transportation, which has implicated effect on the food & beverage industry. The constraints imposed on the transportation and port capacities have led to an erratic increase in shipping and freight costs. These restrictions thwart the food supply and may choke the production leading a substantial deficit in food & beverage products at the retail level.

Any prolonged restrictions on the trade & logistic services will be a major challenge to be braced by the food manufacturers. It will not only tame their production capacity, but also significantly descend their revenues and profit margins.

* The trade impact of the corona virus epidemic for India is estimated to be about $348 million. The country now figures among top 15 economies most affected by the manufacturing slowdown in China, says a UN report. 

 

Demand-Supply paradigm -Food manufacturers & food service retailers:

As the global COVID-19 pandemic accelerates, the food manufacturers are more likely to be stricken by the paucity of labour and raw material, while food retail and food service outlets are expected to experience more acute challenges right from the get-go. The hoarding of food continues across the country impacting all retail outlets and reaching into all product categories. The plausible threat for the food service retail outlets is to house erratic footfall of consumers and, contrastingly, to also gauge the likelihood of stockpiling food products in a bid to ensure seamless access to the buyers in the products they intend to purchase.

The idea for this can be further assessed from the indication that a number of the processed food manufacturers are foreseeing a rise in their product sales, thanks to the growing trend of home dining.

 

Consumer volatility:

The reluctance of consumers on the verge of growing outbreaking of COVID-19 has led to major uncertainties in consumer demand.  The virus has spurred consumer interest in a variety of plant-based food & beverage products, those deemed to offer immunity boosting potential to combat the infection. Animal-based products on the contrary face a significant downfall in demand post the corona scare.

 

Future Challenges:

 

  • Challenges in terms of logistics congestion and optimal food production (high-value commodities -fruits and vegetables) tend to intensify.
  • The extreme confidence expressed by retailers and food manufacturers that the food supply is in good order and may accommodate the unprecedented surge in demand is very staggering when considering the new consumer landscape we’ve been navigating.
  • Cash flow strains will be another predicament for the food manufacturers post lockdown period.
  • Maintaining a healthy supply chain labour force is becoming critical. Shortages of labour may disrupt production and processing of food going forward.
  • With the mounting prices and limited purchasing power, small-scale farmers and fishers are exposed to the peril of accessing markets for selling their produce and buying essential inputs.
  • Food demand amongst major population in India is more linked to income, and hence loss of income-earning opportunities could impact on its demand and consumption.
  • The major breakdown within the hospitality industry is in turn withering the revenues of key services providers engaged in the food processing sector.
  • Secondary processing sector like snacks, chocolates, sauces are experiencing worse hit as consumers have pruned their consumption to conserve cash.
  • The demand for processed foods is scaled down in the wake of consumer healthy eating trends comprising natural plant based foods.

 

Potential Opportunities:

 

  • Indian food processing sector is enviably poised to capitalize on the global demand for processed, ready to eat, frozen and convenience foods which may be diverted to India from Australia, UK and Europe following the slump caused in the global food production.
  • FDI inflows will get a boost as international food brands will either shift from China or replicate their manufacturing bases in India.

 

Way Forward:

 

  • Covid-19 & its economic implications have yet again catapulted agriculture into the mainstream discourse. The reverse migration of labours to India’s agricultural hinterland provides a chance to the administration to engage them into gainful employment.
  • Agriculture and agribusiness is critical for the survival for the Indian food economy and to withstand the aftermaths of this pandemic. Efforts should be directed to fast track the agricultural ecosystem of the country.
  • To brace the arising challenges and meet the increasing demands, food manufacturing companies are required to channelize their operations. Shifting focus away from traditional negotiations, teams should work towards ensuring an adequate supply of in demand products.
  • Negotiating purchase power through holding back proprietary data isn’t going to serve the food processing industry. Sharing information across competitive lines, leveraging technology across all touch points of the supply-chain and piloting innovative sharing hubs, will build a stronger food ecosystem for all.
  • Food retailers may tap the local sourcing avenues to overcome the risk of cross-regional transportation bans. Food manufacturers with facilities in other countries have to crank up and shift channels to collaborate with local suppliers so to keep their product moving.
  • To ensure a sustained recovery from the economic fallout trade finance must occupy a prominent place on the national & global agenda. Trade companies should step in to provide easy credit & additional working capital needed by MSME/ food manufacturers, importers, exporters, warehouses and others in the global supply chain.
  • Need to revive multilateralism and foster open and sustainable global trade across the countries. Removing the tariffs, administrative impediments and behind-the-border measures may help to facilitate the movement of consumer goods, technology and industrial goods on a global distribution channel.

Strong global concerns about the pandemic coronavirus have largely but negatively influenced the global functioning of the food & beverage industry and the mindset of consumers, given the health risks.

Although prices of F&B products and agricultural produce have remained stable so far, a prolonged outbreak of COVID-19 will plausibly lead to economic instability and food inflation in India.

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