Recent geopolitical events marked a seismic shift in global supply chains.
In 2021, Ukraine exported half the world’s sunflower oil. Together with Russia, it accounted for more than 70% of global supply. But when Russia invaded Ukraine in 2022, oil that was ready for shipping languished at the ports, and crops burned under bombings. As a result, the global supply of sunflower oil fell off a cliff, causing prices to skyrocket. Since then, countries like the United Kingdom, which imports more than 80% of its cooking oils, have been forced to make painful adjustments.
“Supply chains, already disrupted by COVID-19, have been further complicated by the war in Ukraine, which is causing shortages in some ingredients like sunflower oil and raising the price of substitute ingredients,” Kate Halliwell, chief scientific officer of the Food and Drink Federation, told The New York Times. “Manufacturers are doing all they can to keep costs down, but inevitably some will have to be passed to consumers.”
Halliwell also suggested that manufacturers and retailers have been left with two tough options: raise prices, or find a different supplier.
Sustainability Efforts Apply Pressure
Consumers around the world have increased their call for more sustainable food and beverage products, creating additional pressure on brands to rewrite their environmental and sustainability practices.
McCormick & Co. is among the big-name organizations ramping up its sustainability efforts. In 2021, it launched a “Grown for Good” sustainability standard that it used for suppliers in its herbs and spices division. The practice included metrics such as economic stability for farmers, biodiversity conservation and regenerative farming practices. At the time of launch, the program targeted a handful of crucial ingredients such as black pepper, red pepper, vanilla, oregano and cinnamon. The sustainability program led to McCormick being featured on Barron’s 2023 list of the 100 Most Sustainable Companies.
Companies are also on the lookout for suppliers that can provide bio-based ingredients, traceable and biodegradable materials for packaging, and regenerative agricultural practices, among other things.
The protein segment plays a huge role in sustainability practices. Beef and dairy products generate an inordinate amount of greenhouse gas emissions in the food sector. That has led to the alternative protein boom, including plant-based milk and cultured meat products.
A Manufacturing Homecoming
To counteract supply chain disruptions brought on by the COVID-19 pandemic, more manufacturers have turned to reshoring.
In 2021, more than two-thirds of manufacturers (69%) told Thomasnet they’re “likely” to “extremely likely” to reshore their operations. In late 2022, Deloitte reported that 62% of surveyed producers had begun reshoring or “nearshoring” their production facilities. And Kearney recently reported that “79% of executives who have manufacturing operations in China have either already moved part of their operations to the United States or plan to do so in the next three years, and another 15% are evaluating similar moves.”
We can expect more small factories and warehouses to spring up across North America, in response to the “buy local” movement. Simultaneously, manufacturers will be open to adopting smaller local operations instead of relying on far-off suppliers, which will lead to reduced supply chain costs and fewer potential supply chain disruptions.
Co-manufacturing Finds its Moment
Labor shortages coupled with rising costs have brands leaning into co-manufacturing. TraceGains’ second annual customer survey found that almost half of food and beverage brands now use co-manufacturing processes to operate more efficiently. And about 47% of these companies work with up to 10 different co-manufacturers.
While many factors are causing this trend, the top three highlighted in TraceGains’ survey were:
We’re looking at a new age of manufacturing, causing a dramatic shift in how global supply chains operate. In response, brands must diversify their supplier base, consider sustainable supplier partners, and work with co-manufacturers to increase operational efficiencies.
Gary Nowacki is chief executive officer of TraceGains.
Timely, incisive articles delivered directly to your inbox.