Transforming Global Food Supply Chains during the Global Pandemic

Solving the problem of forming rational food chains plays the special role in market regulation. The essence of the process is that each product can be sold in different ways. Different goods are promoted from the manufacturer to the end consumer in different ways which are called “food supply chains” (FSC). Links, which are driven by current market conditions, are established between market participants. These links become the basis for the future agribusiness system.

The economy of the agri-food market is always shifting and changing. Since the 1990s, there has been a process of institutionalization of new forms of agricultural products trade. A large number of state and private market agents have appeared, more sales channels have become available, and new food supply chains have been formed. In addition to the existing problems which are sanctions and counter-sanctions, one more challenge has emerged - the COVID-19 pandemic. The pandemic seriously challenges the global economy and the agricultural sector. The agricultural sector suffered less than other sectors of the economy, but it also faced problems due to a shortage of personnel caused by departure of some migrant workers home and the introduction of a self-isolation regime. Quarantine measures lead to a sudden surge in demand for food due to panic among the population, and sudden changes in eating patterns. In such circumstances, it is crucial to avoid breaking the established food supply chains for most important food products, and to avoid volatility and price speculation in food markets.

The Russian Federation managed to save the smooth and uninterrupted functioning of agriculture and ensured food security for vegetable oil, sugar, meat, milk, fish and grain. The pandemic did not affect the 2020 seasonal works in fields. To ensure a stable supply of agricultural products to the population, the government has stepped up efforts to bring state support funds to farmers. According to forecasts of the Russian Ministry of Agriculture, by the end of this year, self-sufficiency will be achieved in most indicators set by the Food Security Doctrine.

Government of the Russian Federation introduced a temporary quota for the export of the most important grain for domestic market: wheat, corn, barley and rye. Because of joint work within the framework of the EAEU, the necessary measures were taken to provide food to the member States of the Union. During the pandemic, export of essential goods to third countries is restricted, and import duties on critical imports are cancelled.

The globalization of food supply chains has complicated food systems and created information asymmetries. As a result, there is a growing need for greater transparency of food origin, production methods, working conditions, and environmental impacts.

Integration of market participants into the most efficient schemes for the movement of agricultural products facilitates the development of sales markets. In terms of grain products, we can distinguish the food supply chain typical for integrated organizations. The chain structure includes international producers and processors of grain crops, traders, exporters, agricultural holdings, banks, investment funds, trading exchanges, government representatives, industry associations, export terminals, as well as logistics, brokerage, food, insurance, survey, legal and other companies. The gap between the previously existing global grain food supply chains will increase the role of Russia in the world market, since our country is located closer to the markets of the East and Central Asia.

In the meat market, Russian producers have to compete with a large number of producers from leading countries such as Brazil, India, Australia, USA, and New Zealand. Relations between meat producers and processing enterprises are poorly developed, as they believe that creating their own outlets or supply and marketing cooperatives is more efficient.

Trends in the global agricultural market indicate that smooth-working market participants choose more rational food supply chains, avoiding multiple intermediaries. The efficiency of the global sales channel is determined by the price, dates of payment, geographic performance indicator, the number of food supply chain participants, purchase quantity, etc.

Import substitution has led to an increase in state purchases of agricultural products by more than 50%, where the wholesale buyer is the state that accepts products at guaranteed prices. It is attractive for product manufacturers, because they can quickly sell products that are still of a high quality.

According to the report of the 32nd session of the Food and Agricultural Organization, COVID-19 pandemic has affected food supply chains and food demand in Europe. Still it is possible to prevent a large-scale crisis, and food systems are adapting to the situation. However, these favorable conditions may be at risk if the crisis continues for too long.

The contrast between the surplus of food products on farms and the shortage of products in retail markets during the quarantine highlights the problems of high transaction costs and information asymmetry. In the early days of the pandemic, food supply chains participants were particularly concerned about difficulties in cross-border trade. Due to tightening food safety control by importing countries, a number of export-oriented farms, such as lamb producers (Western Balkans) and greenhouse fruit and vegetable producers (Armenia), suffered financial losses for some time. The creation of "green routes" facilitated the movement of goods. In China, the vegetable crop rotted in the fields and greenhouses due to a lack of workers. All migrant workers attracted by farmers got stuck in their native regions because of quarantine.

The COVID-19 pandemic has negatively affected the functioning of food supply chains, household’s income, purchasing habits, and consumer food preferences. Decline in household income levels have led to lower demand for food products. The range of products purchased has changed, for example, there is an increase in demand for frozen and canned products, sugar, butter and flour. The closure of whole food markets, food stalls and restaurants has increased the demand for food in supermarkets. Food spoilage occurred due to seasonal labor shortages, overproduction, order cancellations, and the closure of businesses, hotels, restaurants, and cafes.

The role of the agri-industrial complex digitalization in reducing risks in the context of the pandemic has increased. Authorities and private operators have accelerated the transition to digital platforms that connect a producer and a consumer who are both in a difficult situation due to quarantine restrictions. In the US state of Kansas, social networks helped cattle owners and consumers find each other when the meat counters of local stores were empty. There are digital solutions that increase the efficiency of real-time data collection and process management based on big data, and predictive analytics is developing at all stages of growing, transporting and selling food products. 

To maintain efficient food supply chains, it is necessary to optimize a system for monitoring prices for agricultural products, which will allow introducing rational options for the movement of goods to the final consumer. It is also highly important to modernize product distribution schemes by creating alternatives for food industry entities, strengthen integration in the food market and increase interaction of market participants; implement measures to ensure a sufficient number of safe, affordable and full-fledged food products in the context of the COVID-19 pandemic.

We believe that the structure of both short and extended food supply chains in the market depends on market participants, the type of product, the specific market and its capacity. The coronavirus pandemic has hit most countries at a time when the food system was in need of a drastic course correction to improve the quality of the population nutrition. COVID-19 started a new era in the field of food supply chains and the food industry. Due to the accelerated transition to digital technologies, quarantine restrictions can suddenly become a kind of trigger for development, marking the beginning of favorable changes.