Globalization Harming the Supply Chain as WaR loOms in europe: What it means for businesses
Now into our third year of COVID-19, the entire world has settled into a state of new normal. The systems of globalization we’ve relied on have shifted and our reasons for sourcing locally have been less about nationalism and more about necessity.
There has been much concern in the business community, and among consumers about the thick and tangible inflation we’re currently facing, and Business experts speculate it’s just the beginning of a bubble waiting to burst. Before COVID, our global supply chain issues looked like illegal labor sources, child labor, unfair wages, governmental shortages, and human trafficking. None of these issues have come to a halt, but their priority has shifted as we face the possibility of major food shortages on a global scale as gas prices and inflation continue to soar.
The estimated 6-10% of American incomes going to food could rise dramatically to 15% - even 18% of household income. This will happen as a result of a dramatic downward spike in potato and wheat output. Though not all countries rely on Russia and Ukraine for wheat production - both countries and Belarus account for a whopping 39% off the world’s wheat production. Most of this output is directed to East and North Africa as well as the Middle East. This is quickly becoming a humanitarian aide crisis that food-based businesses will be seeing the brunt of.
As prices for wheat rise to manage the impact on the supply chain, businesses that source wheat will need to adjust their supply chains to incorporate real workable local partnerships to replace waning international supply. It will be increasingly important to decrease reliance on a globalized food chain and develop healthy local partnerships at this time. Even in doing so, an increase in raw materials will inevitably mean a spike in food prices up to 15%.
Thinking through the impact on customers and overall income, it’s also a good time to start research into substitutions, potentially finding substitutable grains to use in place of wheat like almond or coconut flours. Doing this may also open your business up to new potential customers with food allergies - especially those with gluten intolerance. Meat substitutes should also be considered as the amount of wheat produced for consumption by livestock is also decreasing.
Who does this primarily affect? Any business that uses wheat, potatoes or their byproducts as a primary part of their chain of production (restaurants, bakeries, grocery stores, butcher shops, bodegas), and any entities doing business directly within East, and North Africa, the Middle East, and some parts of Asia and The Caribbean. If your business is involved in food production and you sell anything wheat-related, you will inevitably have to raise prices of potato and wheat-affiliated items. You should be prepared for consumer backlash and should prorate by offering coupons, deals, sales, and promotions in other foods with less demand to bolster sales and cushion the blow.
It isn’t just business owners and those trading abroad who will see the effects of the famous that is a combination of the effects of years of a pandemic, the war in Russia, and now sanctions against high-ranking Russian officers and their businesses. If you’re reliant on trade to or from Russia, Belarus, Sahel, North, or East Africa, Haiti, or Egypt, we recommend you establish contingencies for the wave of unprecedented change to commerce, and the global supply chain.
The frustration over rising petroleum and wheat prices is projected to create ripples of societal unrest much like the food shortages brought on by COVID-19. This unrest has the potential to spread and endanger small businesses. It is in your business's best interest to:
Invest in reliable local relationships for supply
Build resilience in supply chains by strengthening supplier relationships and shortening supply chains where available
Finding workable replacements and solutions to the grain shortage
Preparing for backlash over piece hikes by creating promotions to offset the price hikes
Invest in appropriate liability insurance to anticipate any political unrest
If your business is being affected by the coming food crisis, give us a call for a FREE Consultation to see how we can help.