What Do Rising Temperatures Mean for Food and Beverage Procurement?

We welcome this guest post from Peter Wortsman, Chief Commercial Officer at Cervest, who specialise in supply chain risk.

 

“It is not the strongest of the species that survives … It is the one that is the most adaptable to change.” 

--  Charles Darwin

Our climate is changing …

This summer has seen some of the hottest temperatures on record, underlining yet again the severe consequences of climate change. European vegetable producers have suffered from prolonged drought, with the sector reporting crop losses of up to 50%. In the UK, prices of cauliflower, onions and carrots are up more than 50% on last year in the four weeks to July 2018, according to Mintec. While Stratégie Grains has reported that wheat prices have hit a four-year high.

But it’s not just the heat wreaking havoc with our food supply. In spring 2017, vegetable shortages across Europe were caused by an exceptionally cold and wet winter. As food crops are particularly sensitive to variations in growing conditions, our increasingly erratic weather is hitting soft commodities hard. As part of a larger trend, NASA observed the first half of the past four years are the four hottest January to June periods since records began, implying extreme weather is the new norm.

This year’s heatwave and drought has led to comparisons with 1976, when the UK appointed a Minister for Drought. Back then, procurement teams had no choice but to respond reactively to poor crop yields, leading to supply shortages, quality compromises, and increased costs.

Fast forward to today where procurement specialists are armed with a wealth of weather data, satellite images, and commodity price information. So they should be better prepared to face increasing volatility, right? Sadly, many remain in reactive mode, struggling to pull relevant information together into something genuinely useful to the decision-making process: raw data is often incomplete; clouds can block satellite images for example, or weather stations aren’t close enough to the fields. Available forecasts aren’t tailored to specific supply chains. It’s no surprise internal departments frequently feel overwhelmed by the growing complexity, gaps and volume of data available.

As a result, procurement teams have typically been unable to confidently anticipate and adapt during the growing season. As extreme weather becomes the norm, food companies may wish to put in place longer-term adaptation strategies, but require a view of how their supply chain will be affected in order to do so.

What’s possible now?

Thanks to advancements in technology, some companies can offer early and accurate personalised yield predictions by assimilating relevant climate, agronomic, and data science (and the company I work for, Cervest, is one of those). With an early prediction of yield, food companies and their farmers can work together to mitigate risk in season as well as plan their longer-term adaptation strategies. If a shortage is anticipated, food companies can secure alternative sources of supply earlier and at a lower cost. In the case of a surplus, promotions can be planned in advance, reducing food waste and maximising farmer income, or using a drought resistant seed in areas prone to drought.

Without a dynamic yield prediction, beer companies learned of a major hops shortage in August 2015 only two weeks before taking delivery. As a result, they ended up paying significantly more money for a reduced volume of hops. However, if they had access to a yield prediction tool, their procurement teams would have been alerted three months earlier, enabling them to secure alternative supply at a lower cost.

More resilient supply chains are also built on increased trust. After suffering the consequences of transactional relationships, food companies are beginning to invest more in their growers to ensure the quality of their products and future of their business. The Nescafé Plan, for example, supports farmer training, improved livelihoods and sustainability, and Unilever’s Sustainable Agriculture Programme supports Unilever’s business by building trust and addressing risk in its supply chain. By building trust and addressing risk together, producers and buyers can generate more opportunities to innovate and adapt.

Today’s procurement teams now have a powerful opportunity to unlock the value in data to predict what will happen to their supply of soft commodities. This early warning system enables them to better plan both short- and long-term strategies – from securing alternative supply early, adjusting harvesting and storage plans, or investing in a more resilient supply base.

Could your supply adaptation strategy be better informed? It's a question that all procurement specialists should be asking. Because those able to adapt quickly and confidently to volatile times will be best placed to secure their supply chains, and ensure the survival of the businesses they buy for.

 

Voices (2)

  1. COLIN PURRINGTON:

    Darwin never said that. Quote is from Leon Megginson of Louisiana.

  2. Michelle Levene:

    This is a very important contribution. We need to take our collective heads out of the sand around the impact of climate change, and start to pro-actively address these issues head-on.

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