Rabobank study looks at flaws in food supply chains

The operating environment for food and agriculture  (F&A) companies is becoming increasingly complex as new external influences compound traditional pressures like rising agricultural commodity prices, according to a new report from Rabobank. Rabobank addresses the flaws in the current F&A supply chain structure that leave the sector ill equipped to respond to this new complexity. It calls for the industry to transform the way supply chains are organized, by adopting longer-term supply agreements and, cooperative relationships with upstream and downstream partners.

The report identifies the dedicated supply chain model as the best next step for F&A companies. This structure has the potential to revolutionize the F&A industry by making it more productive, innovative, safe and sustainable; all of which will be vital if the sector is to deliver food security to a future global population of nine billion.

Limitations of the current structure include the traditional pressures on the F&A industry (supply and demand dynamics, a burgeoning population and rising agri commodity prices), which are being compounded by a new set of external influences. The direct use of agricultural commodities for biofuel production and an increased awareness of the energy intensity of food production, for example, have embroiled F&A companies in an ongoing food versus fuel debate. Similarly, speculation in agricultural commodity markets and the regulatory responses this has triggered from governments worldwide, has added to the complexity of the environment in which the sector operates.

These new pressures also serve to exacerbate the flaws in the current supply chain model. The dominant supply chain model is currently structured in a linear fashion, in which suppliers, processors and retailers form short-term partnerships independent from the influence and interests of other members of the chain. This model is highly inefficient, restricting F&A companies’ ability to respond to changes in supply and demand dynamics, whilst fleeting partnerships limit productivity and restrict innovation. This system also results in wasteful processes that cause more environmental degradation than is necessary.

Rabobank believes that switching to a new supply chain model has the potential to transform the F&A industry. In a dedicated supply chain structure, upstream suppliers and processors enter into long-term partnerships with each other and a downstream chain leader. Crucially, information and insights are shared along the chain’s length for the benefit of all members. Justin Sherrard, Rabobank global strategist says, “Closer cooperation of this sort will transform the nature of F&A partnerships from transactional ones that are centered around chasing price, to a system focused on creating value.”

The advantages of dedicated supply chains over the current system are manifold, with reduced risk, improved productivity, sccess to new markets. enhanced brand and reputation, and improved access to capital.

Adopting the dedicated supply chain model positions F&A companies for longer-term growth, as the sector rises to meet the over-arching challenge to feed the world in coming decades.