Supply Shocks, Stockpiling and Food Security

Supermarket stockpiling
©Sondem - stock.adobe.com

Breaking news from Australia: my mum just witnessed two old ladies get into a supermarket punch-up over the last packet of pasta. Meanwhile in Manhattan, grocery stores are removing the price tags from popular items in a grotesque example of profit-seeking. It seems that crazy behaviour is spreading as virally as covid-19 itself.

By Veronica Fil

It’s difficult to stay calm and focus when the shelves are stripped of groceries, and you’re using old shirts instead of toilet paper. After all: most of us have never experienced a global event this monumental and frightening, so it’s natural for us to get a bit weird. But before you order that 32kg sack of garbanzo beans, I want you to take a moment to stop, breathe, and remember that economists always have a bunch of unnecessary graphs and terms to explain what’s going on at times like this.

Fortunately, I’m not going to bore you with those. Instead, I want to explain the basic market mechanisms that are going on behind the scenes, and how our own behaviour influences food supply.

Some fancy economic terms

What we’re experiencing on the food front right now is an economic shock: an unpredictable event that creates large scale disturbances in the economy.

Waiting for food delivery
Veronica Fil, Waiting for food delivery

Sometimes a shock arises from the demand side (such as a spike in unemployment rates, which limits people’s ability to spend), and sometimes it comes from the supply side (like a natural disaster which stalls food production). But because covid-19 is so devious, it’s whacked us with both: enormous disruptions to the food supply chain in conjunction with major financial losses to individuals and businesses. Just…devastation all ‘round really.

Cool story. But why are there no canned beans left at the store?

Firstly, who on earth buys canned beans as their doomsday backup? That’s a discussion for another day. In the meantime, to answer this question properly we need to work backwards throughout the supply chain—and understand all the touchpoints involved in getting our food on the shelf in the first place.

Take my own company as an example (we make plant based cheese from cauliflower). When we launch in a couple of months, we’ll rely on local farmers to supply us with their ‘reject’ veggies (the ones that aren’t pretty enough for retail). We’ll need to get that produce to our factory, where it will go through a magical cheese making process before being packed (using the packaging that we’ll rely on another supplier to provide us with) and sent out for distribution. Then, our distribution networks will need to race those puppies to the stores, where they’ll sit out the back until someone is available to restock the shelf.

Grounded
©Grounded

Any breakage in that supply chain would cause a ripple effect of delays. So imagine the bottlenecks we might expect in a situation like covid-19, where every element of that network becomes obstructed. An office closes, factory workers are sent home for social distancing, vans are taken off the road as people get sick…the chain reaction would be enormous.

In short: it’s not the fault of retailers, so don’t yell at them. Many are working around the clock to restock their shelves at the moment, and supermarket staff are copping a lot of crap from angry shoppers from the frontline as they scramble to maintain supply. In the meantime, it’s these convoluted supply chains that need to be tightened up.

A problem of resource allocation

Despite the inefficiencies, we will not run out of food. There’s actually plenty of it to go around. The problem is, we have a misallocation of resources right now—meaning that vital inputs like labour and capital are not matching up at the right moment, and that’s causing product shortages and delays to the food supply chain.

From a global perspective this is nothing new. Most of the time we conveniently forget how widespread famine is a normality in some countries, while others throw 40% of their groceries into the bin each year. Over here in the land of convenience, people tend to freak out when they can’t buy whatever they want on demand, any time of day.

I believe a lot of these supply blockages will be fixed relatively quickly, as farmers, processors, suppliers, manufacturers, distributors and retailers take a moment to realign. Just don’t expect it to happen instantly, as there’s a bit of paperwork to sort through first.

beverage water juice supermarket drink
© Africa Studio – adobe.stock

The psychology of stockpiling

While traditional economic theory provides a nice framework for understanding the market and predicting what might happen next, there’s one rather important variable that it can’t control: the fact that people are so bloody irrational.

People go mental in times of crisis. So even though there is, theoretically, enough food to go around, it’s our own hysteria that causes society to come undone. Isolated at home and fuelled by social media speculation, we start behaving out of character; buying stuff we normally wouldn’t in somewhat unreasonable quantities. In fact, I have vegan friends who have gone back to buying meat and dairy products because they’re worried they’ll run out of food.

Just remember that we’ve perpetuated this stockpiling phenomenon ourselves. It has very little to do with actual food shortages. It’s like when you’re walking down the street and see someone staring up at the sky: you’re curious, so you look up too. Then other people are going to see you looking up at the sky, and they’ll stop too, not wanting to miss out on whatever it is you’re seeing. And so on.

White roll toilet paper on the light blue background
©[email protected]

That’s part of what’s happening when we see people stockpiling items like toilet paper, which has no functional purpose in treating covid-19. It probably started with some poor soul dealing with an entirely unrelated tummy upset, who nipped down to the shops to buy a 48-pack of loo tissue. Some people would have seen him, and thinking that he knew something we didn’t, decided to do the same…and the craze exploded (incidentally, this is also how the stock market tends to work).

Also consider the fact that what we might perceive as stockpiling, is actually just a result of everyone working from and eating meals at home.

Impacts on the plant based supply chain

I won’t lie. The only things I’m seeing left in supermarkets right now are crappy plant based cheese and meat substitutes, which I refuse to eat no matter how hungry I am. As unemployment levels rise, many consumers will think twice about purchasing these products—so brands will need to get creative if they want to survive. That could spur further innovation and more competitive product offerings in the vegan market.

For plant based startups, I see a wealth of opportunity for those who remain agile and move with the market. But I’m concerned about the ones who don’t; those who stick to their original game plan, and take too long to realise that the goal posts have moved. I’m also worried about the newly launched brands that will inevitably exit the market because they don’t have enough working capital to either adapt their business model or wait out the crisis entirely.

I also believe we’ll see more focus on locally-sourced ingredients and domestic suppliers. While the industry was already moving in this direction prior to covid-19, the current situation has revealed just how important supply independence is to national food security.

Over in the manufacturing sector, restrictions on international trade could also push businesses to look at other outputs. The rapidly growing alt. meat and dairy industries are two strong contenders for those who have the ability to repurpose and pivot their production facilities.

Grounded
Grounded Foods

But what can we do?!

Look, everyone is feeling a bit helpless right now, but there are still things we can control. We can stop skewing the market by purchasing silly quantities of spaghetti, for instance. We can buy fresh fruit and vegetables (which are still widely available). Plus, we can support the small plant based businesses who are part of the solution. Many of them have moved to direct online sales and pre-orders as a way to work through this period, and in some cases it might be a more reliable option than supermarket delivery altogether.

Some of us, however, just need to quit whining and simply accept the fact that our favourite brand of vegan sausages might not be available within a 2 hour delivery period. For a while, at least.