The Impact of Covid-19 on the UK Fresh Food Supply Chain – A Summary

Assorted peppers on a supermarket shelf

 

By Prof. Michael Winter

Research results from other projects on the impact of COVID are beginning to emerge and this month I am highlighting a paper led by some Exeter colleagues based in the Business School here at the University, Rebecca Mitchell and Roger Maull, working in collaboration with researchers from the University of Lincoln. The full paper The impact of COVID-19 on the UK fresh food supply chain can be viewed and downloaded at: https://arxiv.org/abs/2006.00279

The researchers reviewed secondary data on retail demand (using Kantar data) and conducted interviews with 23 organisations associated with the UK fruit and vegetable food supply market, as well as running four video workshops with 80 organisations representing 50% of the UK fresh produce community.   The three main questions are:

  1. What was the change in retail demand for fruit and vegetables resulting from COVID-19?
  2. What was the impact on UK suppliers of fruit and vegetables?
  3. What types of innovation are emerging within supermarket coordinated supply chains of fruit and vegetables?

 

Some headline findings are as follows (but do check out the paper for the full details):

Research Question 1: Change in Demand

  • The 12 weeks from 27th January 2020, compared to 2019, saw retail in the sector increase by 11% by value and 12% by volume.
  • In the 4 weeks following shut down of the food service sector, retail sales of the same lines increased by 14% by value and 13% by volume.
  • There was considerable variability across products. For example canned tomatoes, had an uplift by value relative to the same period in 2019 of 103% at the peak of w/e 15th March, and saw week-on-week uplift in sales volume exceed 22% for 3 weeks in a row. Over the 12-week period, the total volume of fresh vegetables sold was 11% higher than the same period in 2019, with carrots showing a 12% increase but broccoli having the same demand. 

Research Question 2: Impact on Suppliers

This section in the paper is quite short and I was left wanting more!  Here is a direct quotation indicating the importance of the analysis:

‘One of our interviewees, who source fresh produce internationally, reported that for the first 18 days of the epidemic, orders were running at 120% and then suddenly “dropped to zero”. They noted that their supermarket buyers had left the algorithms that control order replenishment to operate without human intervention, which resulted in supermarkets seeing increased waste as supply exceeded demand. Buyers then began to intervene, manually adjusting the previously automated orders. This had an enormous knock-on effect for the supplier, who ultimately decided not to trust the order pattern of their customer, to make adjustments based on experience and eventually “ran our own plan”. They noted that “whilst supermarket ordering systems are brilliant in normal phase, they didn’t compensate well for large variations emerging because of COVID-19”. The interviewee concluded that their waste bill was twice its normal level, and that profitability would be reduced accordingly. This was not an isolated example. An important issue for our supply chain partners was the “chaos” caused by this algorithmic ordering. Most large retailers use these algorithmic replenishment models and supermarket processes strictly control modifications to subsequent orders, but these huge weekly spikes led to a gross perturbation….’

Research Question 3: Innovation  

This issue is the leading motivation for these particular researchers. Again let me quote directly from the paper:

‘In some instances there was evidence that suppliers were able to adapt rapidly to changing market conditions – these were predominantly situations in which suppliers were already focused on the retail sector, and were primarily dealing with uplift in demand. Suppliers usually dealing with the service sector coped better in situations in which there were not significant capital assets (such as packaging equipment) required in order to enable them to switch product line (e.g. to create smaller volume packages to deliver to retail rather than wholesale) or channel (e.g. responding to increased demand from online retailers, or delivering direct to consumers via “veg boxes”). In situations where this was not possible the role of convening groups, representative bodies and levy boards has been visibly important. For example in early May, building on their open-access analysis of potato markets, AHDB launched “The Potato Portal” as a mechanism by which to connect potato growers with wholesale buyers (AHDB, 2020c).’

But overall they conclude that the system is stuck in a rigidity trap, unable to exploit more radical innovations such as more localised supply chains and industrial robotics.

Lockdown 2.0

Hand written 'Closed Sign' in shop window

 

By Tim Wilkinson

In the second national lockdown we saw food service and hospitality businesses restricted to takeaway only. The only option to ‘eat out’ was at outdoor street food markets, who could continue trading. A poll of 242 food business operators during the week of the announcement of the lockdown found support for the measures was divided (41% supported, 43% did not support, 16% undecided). In late October, business groups warned of the potentially devastating effects on hospitality and food service sector, emphasising the need for business aid and the prospect of a loss of 750,000 jobs. With bars, cafes, pubs and restaurants only able to offer takeaway, staff have been laid off and some hospitality workers are facing homelessness as a result. Although the extension of the furlough scheme has helped to retain staff in some cases, it may not be enough to keep businesses trading, for instance, where mandated closure and negative cash flow has caused a build-up of rent arrears.

Closure of hospitality businesses in lockdown 2 has also put pressure on suppliers and wholesalers serving the food service sector. Although schools, care homes and hospitals still need supplies, without food service customers, industry leaders warned that some wholesale businesses will become unsustainable. Strains on supply chains prompted reflections on the resilience of the food system and the ongoing pressures of the pandemic were found to be impacting some food exports, such as Scottish red meat and offal (which has fallen 8% according to levy board Quality Meat Scotland).

We have now heard that that the tiered system will return and I expect that the impacts of the second national lockdown will become clearer over the next month or so. November and December are of course a crucial trading period for many food businesses, and the altered system of restrictions will shape the strategies businesses can use to resume trading and recover.

 

Two National Lockdowns Compared

Like the first lockdown, it has been suggested there may be some benefits for local and independent food shops. Delivery of local food, through start-ups like Farmdrop, also look likely to continue. Garden centres staying open might also have supported speciality food, especially in the run up to Christmas. Research from Springboard, found that, 63% of people will spend more in local shops in the run up to Christmas 2020, while 36% will spend more on food compared to last year. We know some independent food businesses who made agile responses to increased demand for takeaways and home delivery benefitted during the first lockdown. But we heard from our Expert Panel this month that with larger and global businesses now well prepared for delivery and click and collect, competition will be higher. The pressures of lockdown 2 on independents may be harsher.

Similar, although not identical, to the first lockdown, there was a dash to stock-up ahead of the November lockdown; queues and shortages of some products were reported. However, this time the rush was not just to purchase food to eat at home, but to restaurants, and pubs, and for non-food retail shopping.  High-street footfall was up, at least in post-Covid terms (although it was still 28% down compared with last year, according Springboard data cited by the Financial Times). There was some stockpiling of products like sugar, flour and pasta. For instance, sugar sales were 74% higher than the same week in 2019. Once again, purchase of familiar foods is expected to grow in the lockdown and Premier Foods (makers of Mr Kipling cakes, Bisto gravy, Ambrosia and Bird’s custard) are expecting increased sales. So it looks like lockdowns are continuing to fuel a diet of familiarity and comfort.

Compared to the first national lockdown, many food businesses had better systems in place for managing demand this time. Supermarkets were better prepared to manage customer flows, operating traffic light systems or marshals in an extension of existing customer management arrangements developed over the summer/early autumn. While there was some panic buying prior to the lockdown, I haven’t found reports of long queues for supermarkets during the lockdown. Perhaps a combination of supermarkets messaging (for customers to shop alone) and online delivery options lowered footfall in supermarket stores.[1] Jo Whitfield, Chief Executive of the Co-Op said that consumers are spending more on ‘top-up shops’, which have come to complement a shift to ‘big shops’ and online orders, developed in the first lockdown. So more frequent, but shorter shopping trips, may also be spreading footfall in lockdown 2 as customer behaviour adapts.

There has also been continued evolution of customer management, such as the launch of Marks and Spencer’s Book and Shop system, a virtual queueing system where you can book a shopping slot and avoid queuing outside. Waitrose and Sainsbury’s are also trialling similar systems, so customers may see more of this next year. Being so new, virtual queuing probably didn’t have much of an effect on lockdown supermarket use, but may become more apparent in the context of ongoing restrictions. In the first national lockdown supermarket ranges were reduced and rationalised.  Even in June ranges were down 9% compared to pre-Covid. But recent research by Assosia found that the numbers of stock keeping units and promotions in nearly all supermarkets has all but returned to pre-pandemic levels. Supermarket supply chains seem to have been better prepared and adapted to Covid restrictions in lockdown 2.

The second lockdown has seen the benefits of the development of the at home market for meal kits – which allow customers to cook or reheat restaurant food at home. Global companies such as the Mindful Chef, Gousto and Hello Fresh have seen soaring subscribers. But local alternatives have also emerged, such as Prepped (there are of course many others) which delivers meal kits from multiple restaurants (in Cambridge and Saffron Walden areas) without a subscription. In 14 interviews with restaurants, an Evening Standard article gives reports from businesses that the market for online sales is becoming saturated and a strong sense of the precarious financial position that some businesses, who are making up for sales with meal kits, are in.

The tiered system will reopen much of the economy, but the survival of many food businesses is still in question. As Covid restrictions change food businesses and consumers are trying to keep up. We will have to see how the renewed tiered system affects the way we make, sell, buy and eat food.

 

[1] If anyone could point me to any supermarket footfall data for lockdown 2, I would be very interested to know whether numbers have dropped, or whether footfall had spread more evenly across the day, lessening customer pressure.

Online Food Business Barometer survey launched

We launched our short Covid Food Business Barometer survey this month. It’s about how things are going for food businesses right now, what they think about the future and how prepared they were for autumn’s Covid-19 restrictions. The survey is just 12 quick questions (we know there are a lot of surveys out there at the moment so we’ve tried to keep it short!).

If you are a food business we invite you to fill in the survey. If you’re not, please do circulate the survey to anyone you think might be interested. The hyperlink above will take you straight to the survey, as will this link: https://exeterssis.eu.qualtrics.com/jfe/form/SV_b29jd2mL3xjhNyJ

After the announcement of Lockdown 2.0 we decided to redesign a longer survey we were planning last month. That survey was about Covid-impacts in different time periods (the first national lockdown and the summer period/tiered lockdown system). We felt that the additional pressures the national lockdown placed on food businesses made a long survey inappropriate, and including an additional lockdown period in the survey would have made it substantially longer. So, with the help of our Expert Panel we have adapted and developed a shorter survey that takes a snapshot of Covid impacts now.

Mapping the UK Food System – A Review

 

By Prof. Michael Winter

Hasnain, S., Ingram, J. and Zurek, M. 2020. Mapping the UK Food System – a report for the UKRI Transforming UK Food Systems Programme. Environmental Change Institute, University of Oxford, Oxford. ISBN 978-1-874370-81-9.

The full report is available on the Global Food Security programme website, where it is supported by an interactive online resource.

This is an impressive piece of work which pulls together a wide range of data on the economic value of the UK food system, the number of enterprises, and levels of employment, providing an assessment of the overall shape of the UK food system and a foundation for further research. It also gathers together in an appendix a goodly number of diagrammatic conceptual representations of the food system. Not easy to copy these from a pdf file (and we might be in breach of copyright if we did!), so take a look at the original and the various attempts made by academics to conceptualise how this complex system works.

Some of the report highlights are as follows:

  • The UK agri-food sector is a major driver of economic growth. Overall, in 2018 it contributed £121 billion or 9.4% to national Gross Value Added (GVA) and the wider system employed 4.3 million people.
  • Food and drink accounts for 20% of the total manufacturing sector by turnover and employs over 430,000 people in the UK.
  • Concentration in the UK economy has increased with time. There are ten large food retailers. Together, the top five food manufacturers have a £30 billion turnover. There are two main UK big players in contract catering while US multinationals dominate fast food alongside SMEs.
  • While the food sector is the biggest employer in the UK, 30% of food manufacturing employees are from the EU (63% of which are in meat processing plants). Other sectors in food employment have low wages, and there is an increasing issue of a lack of appropriate workplace skills.
  •  The UK has the third highest volume sales of ultra-processed foods per capita out of 80 high and middle-income countries, and the most processed diet of countries in Europe. This contributes to the 63% of UK adults being obese or overweight.
  •  Land use is dominated by animal and cereal production (e.g. 52% of croppable area in the UK is covered with cereals).
  • The UK heavily relies on external food sources, particularly the EU. 53% of food consumed in the UK in 2018 was produced domestically, followed by 23% sourced from the EU. There are financial deficits in all food categories, except for drink (due to whisky exports). The UK is importing food that can be grown here, albeit often dictated by seasonality.
  •  Although there are enormous economic benefits from the UK food system, it faces multiple challenges. Diets too rich in fat, sugar, and meat and too low in fruit and vegetables are contributing to obesity and related health problems, especially in deprived households. Unsustainable production methods are driving biodiversity loss, soil degradation, pollution, water scarcity and climate change in both the UK and overseas. Poor working conditions persist, especially for low-skilled labour in the food sector. Meanwhile, stresses and shocks including climate change, COVID-19, and EU-exit highlight the need for greater resilience. It is clear that transformational change is needed, but this must balance with complex trade-offs and competing needs and interests across the food system.

 

Let me also highlight a few key findings from the main body of the report itself:

 

 

Number of people employed Number of enterprises Economic summary £billion
AGRICULTURAL INPUTS SUPPLIERS

56,000

4,800

3.3

FARMING

447,000

217,000

10.3

FISHING & AQUACULTURE

16,000

4,000

0.9

PROCESSING & MANUFACTURING

430,000

11,000

31.1

WHOLESALING

60,000

16,000

3.0

RETAILING

1,171,000

54,000

30.3

CATERING

1,831,000 135,000

36.4

The UK Food System (Figures 2, 3 & 7 of the report)

 

In addition, there are those employed in the production of packaging (a total of 85,000) and logistics (a total of 2,540,000), for which it is impossible from official data to disaggregate food-related elements.