Disrupt the Disruption: Six Structural Shifts for Food & Ag From the Pandemic
by Anne Greven and Tejal Mody
The global food chain has been disrupted by COVID-19 at every point – growers, processors, distributors, and of course, the consumer. If there is one overarching lesson from the pandemic this year, it’s that our industry must act decisively to ensure a resilient and efficient food supply.
With increasing optimism around a COVID-19 vaccine, it’s not too soon to set our sights on what the food and ag landscape will look like in North America once we are beyond the worst of this crisis. Now is the time to think beyond short-term adaptation and ready ourselves for significant, structural shifts that could change what our supply chain looks like for years to come.
From consumer behavior to industry investments, Rabobank has identified six critical shifts that we believe will fuel the food system in 2021:
Wallet watching and a desire for preparedness will shift grocery purchasing behavior.
It’s realistic that a full economic recovery will take years, not months. With unemployment and household income facing continued headwinds, and with memories of bare grocery shelves and panic buying, shoppers will place a priority on being regularly and more predictably well-stocked at home.
The shift to grocery e-commerce as a share of all buying (including for pets) is going to trend north and the mass market will continue to look to lower-cost options in many “center-of the aisle” categories, some of which had been shrinking in recent years. The growing adoption by the mass segment of brands in premium categories (organic, etc.) that we saw pre-COVID could retrench, and private-label brands will likely displace some of that premium supermarket shelf space.
The premium consumer will pay more for health and safety.
The premium segment, however, is not disappearing. These consumers understand that their level of health and fitness can help them better manage the virus – and they will continue to pay a premium for foods that improve health and wellness outcomes. As a result, we believe fresh and organic produce will continue to have a sizeable carve-out in shopping carts.
At the same time, the persistent fear around transmission of the virus or other contaminants will force a re-imagining of grocery fresh produce sections. We expect consumers to value safety above all – deprioritizing biodegradable and fully compostable containers in favor of packaging that minimizes human touch and offers expanded food-safe labeling and assurances. Consumers have gravitated towards frozen fruits and vegetables during the pandemic and we expect that to continue, even in the premium categories.
Dining out will come back. . . but slowly and differently.
On the whole, dining out will remain depressed, or at least in flux. How dramatic is this shift? In the year before COVID-19 reached the U.S., more than 50% of the food Americans consumed was outside the home; we do not expect to be anywhere near that level in 2021. Any kind of venue that involves shared utensils and communal spaces, such as buffet lines and salad bars, will continue to be impacted. In lieu of in-restaurant dining, we expect online ordering from casual family meals to gourmet dinners for large groups with premium drinks to be enjoyed at home with just a click.
Food service in flux.
Consider, if you will, french fries. At the outset of the pandemic, frozen french fries were almost as difficult to find as toilet paper, and not because there was a shortage of supply. In fact, large quantities of potatoes were at risk of going to waste because they couldn’t be rerouted from food service to retail. With so many restaurants closed completely or dialed back, there was no “Plan B” in terms of shifting supply channels to accommodate consumer demand at grocery stores.
The inability of our supply chains to easily and quickly pivot from food service to retail channels served as a reckoning for the industry and illustrates the need for a supply chain that is more nimble. Whether restaurant or grocery, all consumer businesses will need an e-commerce platform – and supply side players must adapt to service online channels more easily.
New technology investments will fuel production.
Building greater efficiency, flexibility and reducing redundancy are the bywords for every segment of the industry. This shift will require substantial changes in production, processing and logistics, including higher costs to ensure worker safety in labor-intensive settings. The pandemic is making a stronger case for new investments in technology and automation alongside the human workforce.
From the production and packaging side, that could mean plant re-designs or retro-fits. Advances are being made in robotics and AI to deal with non-uniform shapes and sophisticated manipulation that allow for less human intervention, and we expect to see increased investment in these technologies.
Supply Chains: Think vertical.
Global supply chains have been disrupted by port closures, truck furloughs and food waste. What was once considered a virtue is now a vulnerability. The shift to investment in more localized and vertical supply channels must be on everyone’s agenda for the coming year. The surge in food delivery to avoid in-store shopping, shook up not just our eating routines, but our supply chains.
The move to shorten routes for supply chains is a trend that is here to stay, particularly in terms of creating a more direct pipeline from producer to consumer. We expect reliance on import sources (especially China) to decrease in favor of simpler, more direct connections – a strategic interdependence between manufacturers and suppliers that boosts localized supply chain structures, with fewer intermediaries.
We’ve all learned collectively this year to expect the unexpected. Yet, we anticipate these six shifts will have a lasting impact on how we build for the future. The COVID-19 calamity shook our industry, but with the benefit of hindsight and foresight, we can continue to disrupt the disruption to deliver on the promise of Food & Ag to feed the world safely and sustainably.