The existing business ailments, symptoms and their diagnosis

1 Empty shelves: Shoppers will have noticed an emptying out of stock at supermarkets and pharmacies. However, it would be wrong to blame the stripping of shelves to greed or selfish consumers. Primarily, it is attributable to the systemic problem that our usual retail supply efficiencies require inventory stock levels to be kept to minimum levels. The concept of just-in-time production, delivery and display are in-built into our supply chains and retail modes of operation. Likewise, many suppliers have limited reserves and normally run materials to a minimum to account for an ‘average’ safety stock at best. A domino effect is therefore created.

2 Weaknesses in re-ordering systems: Despite daily news reports of empty retail shelf space, some suppliers seem to be left waiting for retailers to order extra product to replenish the shelves. Why? My diagnosis is that food production systems, and in particular purchase re-ordering systems, are geared to the continuity of typical patterns and levels of consumption without having been adjusted for an atypical scenario.

If a retailer has programmed software to order small amounts of restocking based on previous buying patterns, then the conventional software may need to be modified or overridden to facilitate large orders and to adjust to a scenario that sees shoppers buying up larger volume now and in the near future, although at less frequent shopping intervals.

If this is not done quickly, production and supply chain problems will be exacerbated.

If or when supply chains may develop unhealthy symptoms, retailers may need to impose buying quotas on purchasers. In a worst-case scenario, government intervention in the marketplace may be necessary to prevent market abuse being caused by shortages. Examples may include mandatory quotas on individual purchases; in the old days this was called rationing.

The existence of new technologies such as cloud-based phone apps, retailer and government databases on customers could be adapted relatively quickly for this function.

3 The packaging problem: Despite significant food manufacture in Australia, a large amount of packaging materials and inputs come from overseas. Australia’s food manufacturing base has experienced somewhat of a renaissance in the past decade. New supplier brands have emerged in unconventional marketing of bakery products, snack foods and soft drinks, but nonetheless these food businesses have also depended heavily on the buying commitment of supermarket private labels (or home brands).

Retailers are continuously pushing for supplier innovation coupled with cost reduction, and whilst in some cases tenure of a supply contract may be an aspect of supplier negotiation with any retailer, it tends to be a rare occurrence for a few selected supply partners. Typically these longer term contracts are used to lock in commodities such as home brand milks or specially-sourced top line co-investment fruit or vegetable brands.

Accordingly, investment in supply inputs or developing new sources of supply from within Australia is made difficult because of the usual uncertainties of short-term contract tenure.

Another factor against establishing a deeper local manufacturing base for supply chain inputs is the revenue reliance by Australian governments on Australian mineral exports and primary production bulk exports. Australian government free trade advocacy goes hand-in-hand with a floating currency, and its volatility that echoes commodity price movements. This volatility has discouraged the development of greater entrepreneurial investment in a vertical manufacturing supply chain.

Australian government policies to date have not focused on investment incentives for import substitution. Such incentives may be desirable to compensate for the huge risks of long-term swings in the Australian dollar exchange rate adverse to ensuring ongoing supply capabilities for manufacturing inputs in Australia. In the meantime Australians rely heavily on the global packaging giants whose operations include cross-border trading between their different facilities.

Two major global packagers (Amcor and Visy) have strong Australian operations and are certainly well-placed to service major global food brands operating in Australia. There are also a number of well-scaled medium sized packaging groups that also rely heavily on imported raw materials.

New food distribution priorities might require governments to intervene for the duration of the crisis period to reallocate packaging resources on an equitable basis.

In circumstances of a pandemic crisis, there may well be opportunities for smaller food suppliers including fresh produce growers and small manufacturers to develop or adapt to new forms of bulk packaging and to utilise these in supply distribution systems that reach potential customers more directly. In my childhood, fruit and vegetables used to be bought by households by the box or the crate. Even if the wooden box of my youth is now replaced by a plastic box or a large thick plastic bag, such things can be done.

4 Selling online: There are different ways of selling food online.Some foods are sold on private platforms such as producer websites.Other options may include online market platforms such as Amazon, eBay, Catch and Kogan. Alternatively some food businesses may use food delivery services such as UberEats, Deliveroo and MenuLog. Alternatively some food businesses may partner with food retailers or other online networks.The Cloud and the use of apps create the potential for more food producers to consider the extraordinary circumstances of a pandemic as a catalyst to the rapid development of new distribution networks, partnerships, joint ventures and logistical arrangements. The existence of new urban conglomerations such as resident-occupied city apartment blocks may be a new opportunity for new forms of delivery without compromising human quarantine measures to stop or slow down the spread of infection.

5 Pre-marketing regulatory compliance: Any supplier expanding or developing a new type of food business must consider regulatory requirements for product integrity and food safety. Supply chain management would need to cover safety requirements such as labelling, lot identification or batch numbers, use-by dates, barcoding and serial tracking, as well as temperature controls.

6 Lost exports: One effect may be the resultant glut of Australian products originally intended for export, but the problem is matching that excess supply to a domestic demand that may either not exist or may be difficult to access. Suppliers will need to be innovative and improvise in order to find new ways to sell their product and to reach new consumers quickly. They may also need to preserve their product in ways that they have not previously done. This may involve extra processing, new packaging and finding new forms of preservation such as modified atmospheric or refrigerated conditions. Another consequence of the drop in demand for Australian product outside Australia might be a counter-intuitive market shift. For example, despite Australia lacking any significant on-shore petroleum refining capacity of its own, the drop in international demand for energy fuels could enable domestic fuel reserves to be rapidly increased to allow for transportation of food and other critical supplies in all locations throughout Australia. This may need government funding intervention to accelerate and prioritise the usage of domestic fuel resources.

7  Shipping shortages: The economics of freight management and logistics requires two-way flow of traffic in the form of a primary load and the backload. If quarantine leads to a shipping hold-up at one port, there will be a consequent hold-up of product for the return journey or vice versa. Government intervention may be a necessity. There is a historical precedent for this. At the end of World War One, the Australian Prime Minister Billy Hughes commandeered shipping necessary to maintain Australian exports of wheat.

8 Decentralising logistics: The economics of supermarket supply chains have typically focused on centralisation. However, the shift to online selling platforms and the Cloud, has afforded the opportunity for food suppliers to decentralise their distribution depots. Major online platform brands are focused on business agility to control the last mile of the distribution channel to the consumer. The current crisis may likely accelerate this focus on decentralisation of distribution networks. Producers and suppliers should recognise this also as an opportunity for them to reach new markets without having to go through a giant central distribution centre.

9 Price gouging: I would expect the government to have the ACCC direct attention to so-called market abuses where product shortages lead to rapid increases in market prices for high demand products. I think that enforcement pronouncements are not likely to be effective for controlling private sales in online markets. If the problems were endemic and serious enough, the government could institute heavier market controls and emergency powers that would constitutionally require approval by all Australian States.  This could include rationing or control over trading practices and trading hours.

10 Enhancing resilience: In the 1930s Depression and during World War Two, food shortages in the shops could be ameliorated by friends and family in the neighbourhood sharing garden produce and by irregular personal initiatives such as by the visiting rabbitoh, fishing on the Bay pier, or the lady with the chook-pen down the street. Although Australians by nature are resilient, these old-fashioned Australian habits may be less common than they used to be. For example, many city-dwellers have assumed for many years that ready-to-eat food will always be readily available by purchase nearby or within a short car-distance. In my previous studies of eating habits, some of the available data at the time of the FoodLegal report in 2007 showed that about 40% of the population relied on acquiring at least one meal a day from a food outlet. Since then there has been a proliferation of television cooking programs that may have enhanced the capabilities and interest of young urban Australians in home cooking. However, if there are shortages of particular food categories in particular areas, it could be helpful for food suppliers to provide online guidance for the cooking or processing of their produce. This could be done as part of a marketing strategy.

This is general information rather than legal advice and is current as of 4 Mar 2020. We therefore recommend you seek legal advice for your particular circumstances if you want to rely on advice or information to be a basis for any commercial decision-making by you or your business.

By Joe Lederman (Executive Chairperson, FoodLegal)

© Lawmedia Pty Ltd, March 2020

In April 2007, my firm FoodLegal was commissioned by Australia’s Department of Agriculture to provide a literature review of historical models for equitable food distribution for the scenario of a pandemic.

My observations and thoughts in this article fall outside the terms of reference of our FoodLegal 2007 report but are only intended to stimulate ideas that may assist food businesses in these difficult times.

Previous articles written by the author on related topics can be found here:

  • EDITORIAL: Ebola or other serious disease outbreaks: Where are Australia’s pandemic quarantine and logistics plans? (October 2014) 

            https://www.foodlegal.com.au/inhouse/document/968

  • PACIS 2009 report: Designing Supply Chain Systems to Cope with Catastrophes (2009)

            https://www.foodlegal.com.au/inhouse/document/964

  • Vulnerability to Food Shortages in Bird Flu Scenario:The Need for Food Assurance Policy and Ready-to-eat Reserves (October 2008)

            https://www.foodlegal.com.au/inhouse/document/499

  • Has your food business addressed the possibility of a flu pandemic? (July 2007)

            https://www.foodlegal.com.au/inhouse/document/414