How Covid-19 could accelerate the digitization of the food supply chain

The coronavirus outbreak has acted as a catalyst for an inevitable long-term trend: the increasing role of digital technology in the supply chain revolution.

Digital solutions are offering new ways to produce and distribute food. Photo: Omer Rana

Lockdowns across the world in the wake of Covid-19 have not only restricted people’s movement but also their access to traditional sources of food. This has prompted the search for alternatives, especially in urban centers.

Consumption patterns have had to change, with consumers seeking out reliable food delivery services, as they try to shorten the supply chain, and cut out bottlenecks. An Indian online grocery platform has moved to a community selling model where it is asking apartment complexes to put orders together for their residents. This helps the company meet consumers’ demand despite having a smaller-than-usual workforce.

Out of town, farmers, seed and fertilizer suppliers, as well as food wholesalers and distributors have turned to online platform services as distribution and marketing channels. E-commerce and other smart logistic fulfillment services have been helpful in matching supply and demand for agricultural produce. As a result of lockdown restrictions vegetables were being discarded by farmers in the Malaysian Cameron Highlands. An e-commerce platform connected vegetable farmers to last-mile delivery service providers and consumers in Kuala Lumpur.

With social distancing and quarantine measures not likely to be going away any time soon, food supply chains require further digital innovations to be ready.

The food value chain for staple commodities (rice, wheat, corn, soybeans) is less sensitive to labor shortages from movement restrictions. But the logistics in distributing the commodities from farms to consumers is heavily affected by such restrictions.

High-value commodities (fruits, vegetables and livestock products) are perishable and sensitive to labor shortages at the production level on farms and in sorting, packaging, and processing. Besides the movement restrictions, limited labor availability can quickly derail these supply chains. A vivid example is the closure of meat processing plants in the United States and Europe due to Covid-19 cases among staff.

In the People’s Republic of China, disruptions to the flow of seeds, fertilizers, and temporary labor for the spring planting season threatened farming productivity. Regular distribution channels were disrupted at retail and wholesale points and hit by plummeting demand from shutdown of restaurants and canteens. Thanks to several policies targeted at keeping “green channels” open, overall food prices and availability remained stable. However, there have been shortages in some locations where lockdown measures resulted in large amounts of unsellable seasonal vegetables and fruits backlogged or even unpicked in farms.

E-commerce enterprises developed dedicated agricultural product or labor platforms, which helped reduce the mismatch of supply and demand in countries throughout the region. Thai durian was sold through an e-commerce platform to customers in the People’s Republic of China during lockdown in Thailand.

Digitization has also helped to set up and optimize the logistics and fulfilment services required for distributing food during Covid-19 disruptions. At locked-down urban communities, Covid-19 has accelerated the trend toward the use of online platforms for food purchases.

In remote rural areas, digital infrastructure plays a critical role, making food accessible and reducing the risk of food perishing. Farmers with online marketing skills and simple food products that do not need complex processing and packaging have been able to sell their products directly to consumers. Most interventions have been targeted at delivering packaged food from retail outlets to consumers.

In some cases, this has shortened food supply chains for high-value commodities that are perishable and highly sensitive to any movement restrictions. Digitally connected farms, farmer cooperatives, sorting, packaging and processing enterprises have been able to connect directly to consumers through online platforms, shared sale points, and smart logistics.

Individual small-scale farmers cannot be expected to attend to production management issues and at the same time specialize in online marketing of their food products. A recent study among farmers in Southeast Asia and East Asia has shown that only a small fraction of farmers with smartphones are using dedicated e-commerce applications.

But giving farmers access to e-commerce requires support to standardize production, organize the farmers, and build logistics capacity in remote areas. The private sector has a comparative advantage in expanding and adapting e-commerce and other platforms into food supply chains.

Free two-way flow of information with direct feedback loops about food characteristics such as price, safety and origin of production is essential for an effective food supply chain.

There is no doubt that digitization has helped improve existing supply chains and catalyzed supply chain restructuring. However, key enterprises and supportive government policies are the drivers for the evolution of food supply chains to be more robust to restrictions such as Covid-19.

More investment is needed in public sector food safety and quality certification to service decentralized and digitally connected food value chains. Investments into a more digitally connected and decentralized food processing supply chain with linkage to alternative logistics providers would increase resilience.

Only with further investments into cold chain logistics, warehouses, packaging and processing capacity closer to production areas can we reap the benefits from digitization. Urban consumers would benefit from increased resilience of the food chain while rural areas would be provided services and income opportunities.