IGD: ‘Industry must collaborate to rebuild supply chain resilience’

It has never been more important for leaders in business and government to join forces to rebuild resilience in the food supply chain.

This was the message from IGD as it released its Viewpoint report for September.

The grocery insights charity summarised that the UK food and grocery supply chain proved to be “impressively resilient” during the Covid-19 pandemic, however since then, the war in Ukraine and extreme weather have strained the system and exposed “pre-existing fragility”.

“International conflict, and extreme weather, coupled with pre-existing strategic weaknesses, such as labour shortages and underinvestment, have strained the system,” the report’s authors wrote.

“Consumers have experienced a long period of high food inflation and weaker than expected availability. These symptoms are now abating slowly, but the system weaknesses which helped create them remain in place.

“There is a high risk that future disruptive events or trends will create further waves of negative impacts for consumers, some of whom will struggle to cope. This may happen in the near future.”

In light of this assessment, the IGD concluded that it is crucial for leaders in business and government to join forces to rebuild resilience in the food supply chain.

“There is a need for improved visibility, management and understanding of risk across the industry,” according to the IGD. “This must seek to accommodate known and unknown future threats in order to protect public interest.”

IGD chief economist James Walton said: “We know that high food price inflation is partly caused by global forces such as the Ukraine-Russia conflict. However, we should also consider the UK’s capacity as a producer and how we can work and trade flexibly to be resilient.

“The continued labour shortage in the food supply-chain will challenge domestic productivity and a unified effort is needed from the industry to attract and develop talent. IGD is already beginning to see this happen.”

The organisation’s head of economic and consumer insight, Michael Freedman, added: “Although inflation is slowing and wages, in some industries, continue to grow, higher base interest rates and taxes will see households struggle for some time.

“When times are hard, and people face significant challenges, it is critical that the food supply chain works effectively, ensuring good availability and value for consumers.”

Food supply chain under pressure

IGD argued that high and persistent food inflation is a symptom of a supply chain that is not operating at its optimum level.

Food inflation peaked at a 40-year high of 19.1 per cent in March 2023, however it is predicted to decline to between eight and 10 per cent by the end of the year.

Meanwhile, “unusually weak” product availability is a further symptom of a faltering supply chain, according to the organisation.

IGD warned that “even the perception of low availability, over an extended period, may undermine the reputation or image of the food and consumer goods industry”, thereby making the recovery of volume sales more challenging.

Pre-existing fragility

The report accepts that the UK food system has come under unprecedented pressure in recent years, and part of the reason why some of the shocks have had such a serious impact is due to their severity. For example, gas prices increased nearly seven-fold from pre-Ukraine war levels during the energy price spike.

IGD notes, however, that these shocks have exposed “pre-existing fragility” across the supply chain in the following areas:

• Agriculture: current self-sufficiency levels mask food security exposures at the product level and are at risk due to low farming confidence levels and a growing population.
• The global food supply chain: geopolitics and climate change are exposing the UK food system to higher prices and weaker availability.
• Labour: labour shortages are limiting the capacity of businesses to operate at their full potential and driving wage rises.
• Confidence in investing: pressure on profitability, combined with political instability and economic uncertainty is impacting confidence in investing.

Emerging threats

IGD pointed out that some of the factors which have disrupted the food and drink supply chain in recent years may be easing – or, at least, stabilising. These include high energy prices, HGV driver shortages and the impacts of conflict.

Other issues are likely to be more persistent, according to the insights charity, including farming capacity and labour challenges. Meanwhile, the following potential new disruptors are already emerging and may manifest over the next 24 months, according to IGD.

“Unless these can be addressed, at speed, consumers may face additional challenges,” the charity warned.

• UK border changes: prepare for significant change, and likely disruption, from border changes early next year.
• Farm subsidies: the Environmental Land Management scheme threatens the viability of some farm businesses and thus food production levels
• Climate change: extreme weather events are becoming more likely, a risk which food production is highly exposed to.
• Under-investment: this is weakening productivity and leaving the supply chain under-invested and less prepared for the future.
• Interest rates: higher interest rates may discourage future investment, leaving food and drink supply chains more exposed to future problems.