The Impact of COVID-19 on Australia’s Food and Agribusiness Sector
Rising uncertainties around the coronavirus pandemic have severely impacted Australia’s economy. The food and agribusiness sector have also been hit by the virus, to varying extents.
Some food and beverage businesses are experiencing a sudden surge in demand for consumer products as panic-stricken shoppers turn to stockpiling food items, while others are experiencing demand constraints.
But even those food retailers and consumer product companies that are experiencing higher product demand are struggling because of supply shortages at the supplier end and import restrictions. While the seafood industry has been able to maintain exports to China, for example, domestic demand from cafes, restaurants, and other food services has declined significantly, giving domestic seafood producers and suppliers a tough time.
Food businesses that would import packaging materials and food ingredients are further struggling due to the pandemic’s impact on global distribution networks and restrictions on ports and shipping.
Since most restaurants, cafes, and food services are opting for online deliveries due to the lockdown, there is a massive surge in demand for food packaging materials. But ever since the restrictions on imports, there has been a significant shortage of packaging materials and other food ingredients, which is posing a threat to supply chains.
Other major inputs for the agribusinesses, such as labour and chemicals, are also experiencing a supply shortage. Where possible, food manufacturers and retailers in Australia must review their wholesalers or suppliers and replace non-local products with local ware to keep their businesses running, at least until the import restrictions are lifted.
The majority of agribusinesses are doing relatively fine due to the widespread summer rain this year. But there are some areas that may require crucial monitoring as Australia’s food agribusiness sector is expected to experience the long-term impacts of the pandemic due to rapid changes in customer and consumer demand for food products, restrictions on shipments, and shattering supply chains, all of which are likely to grow worse.
Companies that are involved in the supply of food and beverages are also likely to experience financial lows that may indirectly or directly impact agribusinesses. While current food demand is likely to remain, as Australia sees the third wave of the coronavirus pandemic, the food and agribusiness sector seems well-positioned enough to promptly respond to this demand surge.
However, wholesalers, suppliers, and retailers in the food sector must build business continuity plans and adopt technologies to streamline order management, processing, and fulfilment processes, reduce wastage of resources, improve operational efficiencies, and minimise costs, in order to thrive through the pandemic.
Here are some key insights into the impacts of the COVID-19 pandemic on Australia’s food and agribusiness sector and some suggestions for businesses to maintain—if not grow—their profits during these unprecedented times.
Impacts on Agribusinesses (Food Producers and Suppliers)
International demand for food products produced in Australia is declining because of global restrictions and lockdown regulations among Australia’s leading trade partners. The decline in spending on food products and their consumption is impacting demand for farm-grown food products, ultimately affecting agribusinesses that supply products internationally.
With reducing global demand and border closures, Australia’s agricultural trade is seeing a significant downfall. According to a December Quarter 2020 report released by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), agricultural exports are expected to decline by seven per cent by year end, as can be seen in the graph below:
However, China, one of Australia’s major trading partners, has begun to reopen trade, which means demand for Australian food products will revert, if the pandemic situation gets better in the country.
The agribusinesses that are most threatened by decreased trade include aquaculture and seafood suppliers. For instance, China makes up approximately 95% of the average premium crustacean sectors’ sales (such as Rock Lobster); if China were to close its borders for trade to Australia, this sector would really suffer.
ABARES also estimated that the impact of this pandemic could reduce the bottom line of the Australian seafood industry by almost $389m. Record-high prices for livestock and reduced international demand (exports) for Australian meat is impacting trade for meat producers, processors, and suppliers.
Production of food crops may also experience a hit due to import restriction regulations, as the industry heavily relies on imported fertilisers, pesticides, and other crop protection inputs.
COVID-19’s Impact on the Supply Chain
Markets are extremely disruptive and volatile under current circumstance, creating a negative impact on the supply chains of the food and agribusiness sector in the following ways:
Lack of Labour
This remains one of the top concerns for the Australian food and agribusiness sector. Since the pandemic, food processing industry, agribusinesses, and horticulture industries have been experiencing a significant decline in labour availability.
As discussed above, the coronavirus pandemic has significantly impacted food sectors, such as wine producers, meat suppliers and producers, and seafood producers and suppliers that heavily rely on exports. However, local manufacturers are enjoying an increase in domestic demand for food products.
Delayed Order Fulfilment
Due to the restricted supply logistics and transportation services, bans on travelling, and reduced capacity limitations for sea freight and air logistics, the lead times for order fulfilment have been significantly extended, leading to order cancellations, expiries, wastage, and revenue losses.
It isn’t just the unavailability of logistics services impacting lead times, decreased imports of food packaging materials, and other inputs used in the manufacturing and supply of food products. The major reason behind these supply shortages is the closure of factories across South East Asia, Japan, China, and Korea, where the COVID-19 pandemic and its impacts are still being felt.
Market Accessibility Challenges
Due to strict regulations on imports and exports, quotas, and tariffs, markets are more difficult to access now; however, this has medium to low impacts on the Australian food and agribusiness sector.
Stringent Biosecurity Protocols
Since the emergence of the coronavirus pandemic, governments around the globe are paying more attention to health standards, especially in the food and beverages sector. Food businesses are now required to comply with strict biosecurity protocols and perform rigid inspections on their products to ensure highest health and food safety standards, leading to increased costs and longer lead times. Non-compliance can result in heavy fines and lawsuits.
What Food Businesses Can Do to Mitigate the Pandemic Impacts
Here are some steps businesses in the Australian food and beverage sector can take to minimise the negative impacts of broken supply chains due to the pandemic:
- Ensure the safety of employees by monitoring interactions between internal employees and labour hired across the supply chain, including employees in food processing units, farm operations, etc.
- Analyse supplier related threats by forming an immediate response team to ensure the consistent and smooth flow of all information between major suppliers and other supply chain partners, such as distributions, food services, and hospitality.
- Keep your customers and consumers informed about all changes in stock and the supply chain, and how they may impact their order fulfilment.
- Monitor every change in your food products’ demand and plan your production and inventory management accordingly.
- Integrate cloud-based order management systems for reduced data entry, eliminating errors, improving order processing and order placement, enhancing order management and fulfilment.
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