Shifting sands in the supply chain world
February 22, 2021
Author: Guy Soreq
Countries are flexing their control over soft commodities markets amidst continued rising prices around the world. We are seeing yet another wave of protectionist policies intended to control domestic grain prices. While these measures may offer some relief in the short term, they are likely to lead to further erratic market behavior in the medium and long terms. Today we are reviewing the latest in shifting economic policies, and reminding our readers to stay nimble as the aftershocks reverberate across our supply chains.
In Russia, the government has launched export duties on grains in response to rising prices. The duties started as a €25/t ($30.33/t) levy on wheat shipments, and will be raised further to €50/t beginning the 1st of March. Duties for corn and barley exports are next, beginning mid-March. Russia accounts for 20 percent of the global wheat market, and is among the top 10 exporters for all grain crops, so we can be sure that the world will feel the impact of these decisions.
Meanwhile, the government of Argentina has taken a different approach, forcing price caps on food and other goods ahead of the midterm elections this October. The worsening business climate has forced companies to leave the Argentine market. Most notably, Walmart departed after 25 years in the country. The CEO of Danone has also announced that the company is reviewing its operations in Argentina. As suppliers are forced to sell at a capped price, we are likely to see a ripple effect across the supply chain.
In the long term, these policies may disincentivize production of crops for the following season as producers’ profit margins narrow. So how can we build contingencies to help our businesses cope with the onslaught of aftershocks to come? We suggest three ways:
1) Daily (yes, daily!) risk assessment. Log into Glowlit over your morning cup of coffee to assess daily changing prices. Remember that your report is open and updating live for one full week after a price entry.
2) Weekly (don't overdo it) communication throughout the supply chain. Be sure to communicate both upstream and downstream of your position in the market.
3) It's never too late to establish and maintain relationships with alternative suppliers and logistics networks. It all boils down to these important words: know your products.
What else are you seeing in the market that will cause further disruptions in the supply chain? Let us know.