Prof. Dr. Arzu Tektaş
Department of International Trade
“The supply-demand gap occurred not because of inadequate production or drought during the COVID-19 pandemic. It is caused by the risks of access to products and uncertainties because of changes in demand. The pandemic will have at least short and middle-term effects on global and longer chains and governments will tend to prefer shorter and regional chains. This may decrease the role of China’s role in these chains.”
The pandemic has shown up as global trade wars already going on and it particularly has affected the global supply chains. As a result, governments and institutions have decided to review their supply chains. The period of pandemics can be defined by VUCA, namely Volatility-Uncertainty-Complexity-Ambiguity. The VUCA period affected the supply chains by creating both supply and demand shocks and caused supply chain disruptions. A recent PwC study showed that the number of companies that are planning to change their supply chain structures has significantly increased.
The sustainability of agriculture and food supply chains are vital in this period. There are mainly two risk factors for agriculture and food supply chains. Governments have forced limitations on exports to maintain domestic supply-demand balance and price stability. For example, Eurasia Economic Union brought limitations on sunflower, rye and onion exports while Russia, the biggest global wheat exporter, has done the same for a couple of products including wheat, barley, and corn. Another risk factor for the supply is the logistic disruptions and delay because of measures being taken against cross-border and intercity transport. On the other hand, some products saw a demand boom because of panic buying during the first days of the pandemic and that has evolved into changing habits since then. For example, staple food products like flour and pasta saw a high level of demand in the first days but as lockdowns started snacks saw higher demand. Uncertainty and instability for both producers and consumers complicated predictability and planning within the chains. That is to say, the supply-demand gap occurred not because of inadequate production or drought during the COVID-19 pandemic. It is caused by the risks of access to products and uncertainties because of changes in demand.
Supply chains have globalized in the last few years as a result of increased product range, advanced technology, and cost management applications. Raw materials and intermediate goods have also become more diverse. The number of main suppliers and suppliers of them has increased and they have been dispersed to different geographical regions. As a result, the structure of the chains has become longer and more dispersed and they have become vulnerable to disruptions especially during the pandemic. These experiences showed the importance of factors like sustainability in addition to cost reduction for supply and production. We can say that companies that have more flexible and agile supply chains to spread the risks by diversifying supply channels to various regions can manage this crisis better.
Businesses are redesigning their chain structures with these perspectives. For example, if a company is dependent on a single country for specific input and this country brings restrictions on exports for that input, the supply chain is disrupted. Therefore, companies try to create alternative chains by diversifying single chains. Alternative chains mean new opportunities for undeveloped or developing countries that have advantages such as production experience, logistics opportunities, and low cost. Alternative chains for supply and production are usually at the expense of China which already has a role within the chains. These conditions increase the importance of strengthening domestic production in agriculture and food and self-sufficiency, especially in critical products. For example, Turkey is self-sufficient in wheat but it imports wheat for its flour and pasta industry on condition that products would be exported. As the big grain producers like Russia continue to implement grain quotas, the supply chain for flour and pasta industry might be disrupted and this would put a significant export potential at risk for Turkey. It is strategically important for such critical products that a domestic-production-based export approach to be adopted and support and pricing policies to increase production be developed. The pandemic will have at least short and middle-term effects on global and longer chains and governments will tend to prefer shorter and regional chains. This may decrease the role of China’s role in these chains and Turkey can make an export spurt by being more active within the new regional food chains. It is worthwhile to highlight that thanks to some support programs and the Contactless Export Model, fruit and vegetable exports of Turkey have continued without interruption.
In high-uncertainty and high-risk situations such as epidemics, the sustainability of stocks is also critical. It is important to protect and sustain products by establishing regional grain warehouses with the capacity to meet basic needs and by expanding licensed warehousing to balance supply shortages or excess stocks that may occur with supply and demand volatilities. The need and demand for these are expected to increase.
Another point that stands out during the pandemic period is the increase in communication and collective movement among the players in the chain. As long as the farmers in the chain produce at adequate levels, agricultural industrialists can continue production. On the other hand, if the agricultural supply surplus occurs, the farmers can survive as long as the industrialists purchase and process this excess. Industrialists can improve the in-chain balances with the messages to the farmers regarding the expectations regarding the demand. Increasing cooperation, activation of organizations such as cooperatives, and increased tendency towards planned and contracted production will reduce risks.
Businesses that produce appropriate innovative solutions by observing emerging needs and demands during the pandemic period, will have important opportunities. In the agri-food sector, food safety and food accessibility have come to the fore. In this respect, food industrialists will focus on technology and digitalization investments as much as possible, which will increase efficiency and reduce food losses. For example, by creating a blockchain infrastructure in the supply chain, flour industrialists can track information such as the origin of the seed, the rate of pesticide used, transportation and storage conditions for each party of the wheat and they can make all these data available to the consumers. The transparent tracking of the chain will not only provide food safety but also reduce intermediaries and product losses within the chain.
One of the effects of the pandemic has been changing trends in market channels. Due to reasons such as hygiene measures and lockdowns, there was a need for consumers to access food through safer channels. E-commerce for the virtual market category grew by two or three times in the world and Turkey. About half of consumers using these channels in Turkey are new customers. It shows that e-commerce will have a larger share within food supply chains during and after the pandemic.
With a high potential for agricultural production, Turkey has opportunities to strengthen domestic production, to increase its role in the international food chain, and to create new regional chains in the post-pandemic period. To achieve that, it is important to determine the strategic products, develop policies of sustainable production, promote contractual production, increase the use of agricultural land and technology, activate cooperatives, establish sustainable and effective support and incentive mechanisms, and develop policies to increase regional cooperation. With the help of these kinds of sustainable policies, Turkey will be able to ensure the balance of supply and demand and create new opportunities in international trade.