F&A supply chain needs reform, Rarobank says

NEW YORK – The food and agriculture (F&A) supply chain is the focus of the latest Rarobank research authored by bank’s global Food & Agribusiness Research and Advisory.  In it, the bank’s analysts point out the flaws affecting the way companies respond to certain complexities, and recommend a change in the setup of supply chains. It identify a dedicated supply chain model as the best step for F&A companies to take, and recommends the adoption of longer-term supply agreements and cooperative relationships with upstream and downstream partners.

The operating environment for F&A companies is becoming increasingly complex, the analysts said, as new external influences compound traditional pressures such as rising agri commodity prices. The dedicated supply chain model may be able to transform the F&A industry into a more productive, innovative, safe and sustainable sector. These are all imperative if it is to deliver food security to a future global population of 9 billion, Rarobank says.

Limitations of the current structure

The traditional pressures on the F&A industry (supply and demand dynamics, a burgeoning population, and rising agri commodity prices) are being compounded by a new set of external influences. The direct use of agri 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 vs. fuel debate. Similarly, speculation in agri commodity markets and the regulatory responses this has triggered from governments worldwide have added to the complexity of the environment in which the F&A sector operates.

These new pressures also serve to exacerbate the flaws in the current supply chain model, Rabobank says. 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, while fleeting partnerships limit productivity and restrict innovation. This system also results in wasteful processes that cause more environmental degradation than is necessary.

Adding value through closer cooperationNike