Is the Coronavirus Makin’ Bacon Cheaper?
The past decade has been a wild ride for the makers and partakers of bacon. A 2012 grain shortage prompted some forward-thinking citizens to “procure as much bacon as humanly possible and hide it in as many locations as [they] can.” In more recent years, the African swine flu ravaged Chinese hog farms, causing U.S. exports of pork products to China to skyrocket. This year, in 2020, with the global disruption of exports caused by the coronavirus, lovers of salty, smoky breakfast meats may be wondering what all of this chaos will do to the price of a hot breakfast.
Supply chain disruptions do not eliminate demand, and commodities analysts still predict a long-term bull market for lean hogs. Once the problems of post-outbreak logistics are solved, U.S. pork exports are expected to continue to grow. All this is to say that in the long run, if domestic Chinese demand remains strong and the country’s pork producers continue to grapple with the swine flu, the average American’s bacon budget probably won’t get any smaller.
How the Coronavirus is Affecting Ingredients Sourcing
In the near term, the outbreak is a major obstacle for American bacon to reach China, the world’s largest pork market. The international rush to contain the novel coronavirus COVID-19 outbreak has created labor shortages and logistical nightmares at Chinese ports, some of which have no electricity to keep refrigerated containers from spoiling. The result is a glut of U.S. agricultural products, including pork, piling up on farms and at ports with nowhere to go.
Exports woes could also potentially put price pressure on numerous other U.S.-made, non-breakfast products that depend on shipping to Chinese buyers. China is the primary trading partner of most states in the U.S. For example, California, which grows 80% of the world’s almonds, had a historically large harvest last year, much of which farmers had expected to send to China. Without access to Chinese markets, that bumper crop could potentially bring down the cost of almonds and related products at home.
Supply chain disruptions have created shipping delays and sales losses in everything from soybeans to ice cream. Beverage sales are expected to take a short-term hit due to the sudden drop in coffee, liquor, and bottled water consumption in China, as bars and entertainment venues temporarily close. Without a means to transport these products or markets in which to sell them, many U.S.-grown foods, beverages, and ingredients will divert into other markets or simply go to waste.
How to Navigate Supply Chain Disruptions
Amid the current confusion and panic surrounding coronavirus, it is crucial that CPG producers stay informed about potential supply chain problems that could not only affect exports but also impact the sourcing of imported ingredients. For example, potential shortages in high-intensity sweeteners have prompted soft drink manufacturers to develop contingency plans for alternative sourcing. Honey may also be hard to source this year as travel lockdowns have prevented Chinese apiarists, who produce about one fourth of the world’s supply, from tending their hives, thus potentially endangering the entire year’s output.
Fortunately, food and beverage manufacturers can weather the storm if they proactively anticipate potential problems, rather than reactively respond to issues as they arise. Alternative plans for sourcing ingredients need to be in place to ensure minimal interruptions to production. Furthermore, manufacturers who rely heavily on sales to China must be ready to diversify into new markets. Even planning ahead to conduct remote meetings can prevent setbacks caused by unexpected travel cancellations.
A forward-thinking business strategy can help brand owners to be prepared for adverse events that disrupt markets. At MarketPlace, we put strategy first. Interested in how we can help you strategically solve business problems? Let’s talk.