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News Article

COVID-19 is Pushing Farm-to-Consumer Deliveries

By Jan Hogewoning | Wed, 05/13/2020 - 12:17

The SARS-CoV-2 virus has had a disruptive and potentially long-lasting impact on how our food supply chains function. A very strong disruption emerged in labor availability to pick harvests. In Europe, the closing of borders between member states has led to a steep decline in seasonal workers arriving from Eastern Europe to work in fields in Germany, France, the Netherlands and the UK. This has forced farms to seek hands elsewhere, a call partly answered by people who have lost their job in other segments. In Spain, the government has allowed the unemployed to work at farms while keeping access to welfare checks. While farms are in desperate need of these new pickers, many have little experience and need to suddenly adapt to heavy work in challenging climatic conditions.

In the US, farmers have been forced to let crops wither as labor supply dropped and not enough hands have been able to fill the void. The issue has been exacerbated by the decision of the US state department to suspend new visa approvals for Mexican and other central American field workers who are crucial for American harvests. Labor supply has also been hitting processing plants, particularly in the US pork industry, where several major plants were shut after workers were diagnosed with the virus or workers decided not to show up. In Mexico, labor supply for processing plants and farms has not been affected heavily, yet. However, farms have benefited from a new labor supply from people who have been furloughed from other industries. One example is Green Gold Farms in Jalisco, which has hired workers from local industrial sectors. The government has kept its essential categorization and health safety measures have been implemented along the supply chains. While urban areas are greater hotbeds for virus contagion, rural areas including farms are not immune and remain at risk.

Farmers in the US have been provided with access to credit to help make it through the situation. On April 17, the European parliament passed proposals for financial support to farm sectors. Nonetheless, these supports will not suffice in compensating the financial damage or the operational holes that the crisis has caused. Many farmers around the world have been forced to take measures to reduce costs and reach their customers in new ways. Reuters reports that Europe’s largest wholesale produce association, Rungis, went from 250 deliveries two months ago to 6,500 a week through online sales. Online selling is thriving not just in developed markets but also in less likely locations. The Indian producer Sahyadri Farms in Maharastri state has started making 3,000 daily deliveries to urban consumers as a result of lockdown measures. The fact that people are going out in lesser number to purchase food goods, has meant producers are reaching consumers directly at home. The chairman of Sahyadri, Vilas Shinde, says: “As we are eliminating middlemen in the distribution chain, both farmers and consumers are happy.” The fact that smartphone ownership per capita is so high in developing markets makes e-commerce easier to adopt. In Mexico, smartphone ownership is as high as 89 percent of the population. It is unclear whether these e-commerce solution emerging right now are still reaching primarily upper and upple-middle class consumers over lower socio-economic segments.

So far, a lack of foods in supermarkets in the US has not been the case. However, experts have warned that there is a risk of less variety of food products, particularly pork cuts. Food supply remains sufficient in Mexican supermarkets and public markets. Supply chains have been forced to adapt to spikes in demands for particular products that consumers are stocking, such as eggs, flour and pasta.

For seasonal migrants, harvesting salaries are so attractive that this transborder movement is likely to return once borders are opened up again. However, considering the financial incentives of new forms of delivery, we could see more middlemen being cut out in the future. In Mexico, farmers are known to earn a very small share of the final selling price of a product. Online direct delivery could change that by removing the usual logistics partners and retailers. Setting up e-commerce channels requires an investment and operational costs. This could prove to be a barrier for smaller scale farmers. Large farmer organizations have access to greater spending power and labour. Fortunately, many smaller scale farmers in Mexico, particularly in the vegetable and exotic fruit area, are part of associations. One company which is already working to change the supply chain between the farmer and consumer is Jüsto. In our interview with the founder and CEO, Ricardo Weder, he points out four advantages of e-commerce for food grocery in Mexico: 1) the first is fresher product, sourced directly from farmers, 2) the second is best price, with an asset-light model that allows pricing parity while improving margings, 3) convenience and agility, with tech for better inventory management, and lastly 4) fair trade, providing fair prices and support to local producers. These advantages seem a strong argument in favor of e-commerce growth. However, with food e-commerce at only 2 percent of the current grocery market in Mexico, there is still a long way to go. Perhaps this crisis will once again, prove a turning point for a new segment.

The data used in this article was sourced from:  
Mexico Business News, Reuters, Euronews, Europarl
Jan Hogewoning Jan Hogewoning Journalist and Industry Analyst