Summary
Covid-19 linked air freight, sea freight, road freight and port disruptions are placing strains on fruit and vegetable supply chains serving the UK and EU markets. Movement restrictions are leading to labour shortages which threaten future domestic European fruit and vegetable production. This is likely to push up prices throughout 2020, with this continuing well into 2021 for the UK, if the UK governments chooses at the end of 2020 to leave the EU customs union without a trade deal being in place. This is seeing a growing focus on shortening supply chains, with this likely to make itself felt first through the revision of supermarket sourcing practices. ACP governments should look to supporting policy responses to the Covid-19 trade disruptions across Europe which also address longer term issues in relations with the UK, including deferring the UK’s departure from the EU customs union to allow trade to recover from the devastation of in the post Covid-19 pandemic. ACP private sector exporters meanwhile should examine how they can cost effectively shorten their supply chains to reduce their vulnerability to future transportation disruptions, in a context where the transport sector knock-on effects of recent developments are likely to be felt for some years to come.
While currently there are no shortages of fresh food products as a result of the current Covid-19 linked logistical challenges, UK supermarkets are reporting increasing supply pressures for fresh fruit, vegetables and other short shelf life products as air freight, sea freight and road freight services are disrupted (1).
International air freight of fresh fruit and vegetables has been severely affected by the reduction in air passenger services by 95% as a result of Covid-19 linked travel restrictions (2). This has seen freight charges for Kenyan horticultural exports such as green beans and peas tripled over a two-week period (from $1 per kg to $3 per kg) (1).
These logistical challenges in shipping products from Kenya to Europe have seen half of the workers in the green beans and peas sector sent home on mandatory leave, despite surging demand in the UK and Europe for green beans and peas. This needs to be seen in a context where Kenya provides fully half of UK extra-EU imports of green beans (57.1% by value and 65.8% by volume) and 23.4% by value and 15.3% by volume of EU27 imports of green beans.
The Fresh Produce Exporters Association of Kenya (FPEAK) estimates Kenyan suppliers could easily fill a 100-tonne plane shipment several times a week if the logistical challenges can be addressed (3). Some innovative solutions are being found with passenger flights being reconfigured to allow certain fresh produce to be carried in the main body of the plane and not just the cargo hold.
These problems of inter-continental shipments are being compounded for supply chains which serve the UK market via the Netherlands, Belgium, and France by the Covid-19 related disruptions in road freight services, which are central to onward shipment. There is a growing shortage of truck drivers as illness related absenteeism compounds pre-existing shortages of licenced heavy vehicle drivers. There is also an emerging shortage of trucks along EU27/UK routes, as border crossing delays elsewhere in the EU feed through into vehicle availability.
There is in addition an emerging problem of service restrictions linked to absenteeism amongst seafarers. Indeed, there is a more general problem of commercial viability emerging in the cross-channel ferry service sector. This is linked to the total collapse of cross channel passenger service demand. This is seeing growing calls from ferry companies for government support to sustain cross channel ferry services; ferry services which are critical to UK food supplies.
Problems are also emerging for longer shelf life products which use sea freight services. The earlier global imbalance in the distribution of refrigerated containers is now being exacerbated by reduced capacity at ports, as port workers fall ill and social distancing requirements are introduced. Thus, we find South African ports are now operating at only around 30% of capacity just as the main citrus export season gets underway. This is threatening sea freighted citrus deliveries to the UK and EU markets, despite surging demand and a projected 13% expansion of its export capacity (4).
According to Hans Muylaert-Gelein, Managing Director at Fruits Unlimited, a South Africa-based company that exports fruits and vegetables to the UK ‘we were in reasonably good shape until earlier this week but now things are becoming very difficult’ (1). This followed the introduction of a 21-day lock-down in South Africa.
With labour shortages threatening agricultural production disruptions in the UK and across Europe, the pressures on the UK food supply chain, particularly for fresh products is likely to increase throughout 2020 and into 2021.
This is seeing greater emphasis being placed on developing local supply chains. In the UK, a variety of farmer led initiatives have been launched to strengthen locally sourced supply chains (5). This is being complemented by supermarket initiatives aimed at helping smaller scale suppliers get through the Covid-19 crisis.
Morrisons, ‘Britain’s biggest single foodmaker’ has agreed to pay smaller scale suppliers immediately. According to Morrison’s announcement ‘all firms with a turnover of up to £1m will be paid immediately’. The national chairman of the Federation of Small Businesses, Mike Cherry, described Morrison’s move as ‘heartening and very welcome’, given Morrison’s previously did not have the best track record of prompt payment of suppliers (6).
The action by Morrison’s was welcomed by the Environment Secretary George Eustice, who argued ‘these measures will support our farmers and food producers in their vital work of feeding the nation’. He stressed how he was ‘working closely with Morrisons and other retailers on their response to coronavirus.’ (6).
There is thus a growing emphasis on increased local sourcing of fresh fruit and vegetable products, a policy focus which is only likely to be strengthened if the UK goes ahead with current plans to leave the EU customs union and single market on 1st January 2021 regardless of the state of the Covid-19 interrupted trade negotiations with the EU.
Elsewhere in Europe in response to Covid-19 related transportation disruptions, similar moves towards expanded local sourcing of fresh produce are underway. This could potentially carry longer term implications for demand for some ACP fresh fruit and vegetable exports to Europe.
| Comment and Analysis The disruptions to supply chains which the policy response to the Covid-19 pandemic have given rise to, could lead to a review of current sourcing practices of supermarkets across Europe. This is a particular concern in the UK where the threat of a ‘no-deal Brexit’ and related trade disruptions, arising from a failure to reach agreement on future UK/EU trade arrangements, is once more looming large.Against the background of a Covid-19 pandemic which has highlighted the greater resilience of shorter supply chains to trade disruptions, ACP fruit and vegetable exporters using single distribution hubs and associated triangular supply chains to serve diverse European markets (especially the UK), could find themselves vulnerable to supermarket reviews of current sourcing practices. The rapid escalation of air freight rates which the collapse of air passenger services has given rise to, may well serve to shift the commercial balance towards greater use of direct cargo services in the future. What is clear is that reduced passenger services, which to date have carried the bulk of high value inter-continental fresh fruit and vegetable air freight shipments, are likely to be a feature of the airline industry for some considerable time to come. Even when current lockdown restrictions are lifted, social distancing requirements are still likely to remain in place. In this context, it is unlikely air passenger services will return to anything nearing pre-Covid-19 levels until well into 2022. This is likely to see airfreight rates remaining high. ACP exporters may therefore need to review their production and export options to increasingly focus on products which can bear additional airfreight costs in the medium term. Against the background of escalating airfreight costs, if trade is to play a role in containing food price inflation in countries such as the UK, then any government financial assistance packages for the struggling airline sector should consider including provisions which freeze cargo freight rates for short shelf life food products at pre-Coviod-19 levels. Equally, consideration should also be given to including similar stipulations in any financial assistance packages being requested by cross-channel ferry companies, with this being linked to commitments to maintaining pre-existing levels of freight services for short-shelf life food products in 2021 and beyond. In the absence of such initiatives ACP fresh fruit and vegetable exporters using triangular supply chains in serving the UK market will need to seek out alternative direct routes to serving UK markets which are far less vulnerable to disruption and which provide customers with a higher degree of assurances over regularity if supply. This will be particularly the case if no special arrangements to facilitate the continued smooth functioning of EU27/UK triangular supply chains are set in place. This needs to be seen in the context of the Covid-19 disruption of EU/UK negotiations on future arrangements and the growing prospect of a no-deal departure of the UK from the EU customs union and single market at the end of 2020. In this context a vitally important question in the coming months will be the UK government’s approach to the timetable for the UK’s inevitable departure from the EU customs union and single market. While the UK Chancellor has acknowledged the depth of the economic recession the Covid-19 pandemic will give rise to, he has also asserted the UK government is ‘not just going to stand by’ in the face of a Covid-19 induced recession (7). A critical test of the UK governments resolve to make hard choices and not just stand by, will be the government’s willingness to acknowledge the transformed economic context the Covid-19 pandemic has given rise, which makes the conclusion of negotiations of future arrangements with the EU and there ratification by the end of 2020 an impossibility. Unfortunately, to date UK government representatives continue to assert the formal legal position, enshrined in an act of Parliament, which prohibits any extension of the transition period (during which the UK remains part of the EU customs union and single market) beyond 31st December 2020. It remains to be seen whether Prime Minister Johnson will be able to find a solution which, while avoiding requesting a formal extension of the transition/implementation period, will nevertheless secure continued UK membership of the EU customs union, single market and existing EU negotiated trade agreements, while the UK, EU and global economy recovers from the devastating trade and production consequences of the Covid-19 pandemic. Such a recovery would appear to be essential for all concerned parties, prior to the UK embarking on its final departure from the EU customs union and single market, a move which will inevitably result in the disruption of the functioning of existing supply chains. However, it remains uncertain whether appeals from the Managing Director of the IMF to the EU and UK not to ‘add to uncertainty’ will be heeded (8). There remain Conservative hard Brexiteers who implicitly argue the Covid-19 pandemic has created ideal conditions for a ‘no-deal Brexit’ since ‘the coronavirus pandemic would limit the damage of failing to secure a deal because trade would already have been reduced to a minimum’ (9). |
Sources:
(1) Reuters, ‘Fresh produce in Europe set to be more scarce as coronavirus strikes’, 17 April 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/04/17/Fresh-produce-in-Europe-set-to-be-more-scarce-as-coronavirus-strikes
(2) Guardian, ‘Coronavirus outbreak could cost world’s airlines up to $314bn’, 14 April 2020
https://www.theguardian.com/world/2020/apr/14/coronavirus-outbreak-could-cost-worlds-airlines-up-to-314bn
(3) COLEACP, ‘Vegetable exporters can fill an airplane several times a week’, 3 April 2020
https://eservices.coleacp.org/en/actu/kenya-vegetable-exporters-can-fill-an-airplane-several-times-a-week
(4) CGA Statement, ‘Citrus industry expects record export season’, 17th March 2020
https://www.freshplaza.com/article/9199991/citrus-industry-expects-record-export-season/
(5) Farming UK, ‘Covid-19 crisis shows importance of buying British, report says’, 17 April
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/04/17/Covid-19-crisis-shows-importance-of-buying-British-report-says
(6) BBC, ‘Morrisons to pay small suppliers immediately’ 13 March 2020
https://www.bbc.com/news/business-51870146
(7) BBC, ‘Chancellor Sunak warns of ‘tough times’ for UK economy’, 14 April 2020
https://www.bbc.com/news/business-52279871
(8) BBC, ‘IMF head calls for Brexit trade talk extension’, BBC 16th April 2020
https://www.bbc.com/news/business-52304821
(9) Guardian, ‘UK-EU talks on post-Brexit relations ‘in deep freeze’, 26 March 2020
https://www.theguardian.com/world/2020/mar/26/covid-19-puts-post-brexit-relationship-talks-in-deep-freeze