News of food dumping and farm worker shortages in March spread panic around the world about an imminent food security crisis. But that crisis never happened. The global supply chains carrying food around the world adapted quickly to absorb the disruption.
That’s because those supply chains developed resilience to the complexities of a demanding global market. Long before the pandemic.
“They have really come to manage uncertainty well,” said Penny Bamber, a Chile-based consultant and Duke Global Value Center affiliate who, along with her Duke alumna colleague Karina Fernandez-Stark, spoke at an event organized by the Duke Center for International and Global Studies (DUCIGS).
Bamber and Fernandez-Stark have conducted research across the world and consulted for international organizations including the World Bank. They found that during the COVID crisis, Latin American countries (LAC) – a region which represents the world’s largest, extra-regional trader of fresh produce – were able to protect their exports and, in a few cases, even increase their fresh produce shipments.
“What has been different than in the U.S. and Europe,” Fernandez-Stark said, “is that Latin America relied on their own labor.”
Duke Professor Gary Gereffi (director, Global Value Chain Center) and DUCIG’s director, Professor Giovanni Zanalda moderated the discussion.
The webinar was the fifth in the DUCIGS/Rethinking Diplomacy Program: “COVID-19 and Global Supply Chain Series," supported by the Josiah Charles Trent Memorial Foundation Endowment Fund. For articles and videos of the first four installments, click here.
Here are excerpts:
ON COVID 19’S EFFECT ON DEMAND FOR FRESH PRODUCE
“The supply chain has been able to adapt very quickly. And this has been very beneficial for a lot of the countries around the world that have been able to not only supply food, but also receive the imports from other countries.”
“Why this happened is because more people started eating and cooking at home, not only in the United States; there was a change in China, in Europe and in many countries around the world.”
“And this has been driven also by E-commerce. (Use of) certain E-commerce platforms from supermarkets increased by 300 percent.”
ON MAJOR CHALLENGES FACED BY SUPPLIERS FROM THE REGION DURING COVID 19
“The number one problem was shipping, in terms of availability and also cost. There were problems with regard to port clearance, a crew quarantine; sometimes crew had to stay two weeks in port; reduction in sailing and... a complete stop in air traffic at several airports around the world. “
“Another problem was the reefer shortage (refrigerated containers) - the type of containers in which the fruit and vegetable are transported by sea.”
“Another problem was the protocols to protect labor and produce from COVID 19, and the last challenge was the change in the market channel.”
ON EXPORTS FROM LATIN AMERICA
“...the sector exports from the region just dropped 1 percent compared to other sectors like tourism that dropped 70 percent or certain manufacturing products that dropped 50%. But, in general, the decline in total goods export was 15 percent. [A 1 percent decline thus, was] not bad for the region and they were very quick to adapt in their supply chain.”
ON HOW LATIN AMERICAN AGRICULTURAL FIRMS HAVE ADAPTED
“These agro-industrial companies are a combination of both domestic and foreign firms.…So we have this mix of strong domestic, strong northern foreign direct investment and strong southern foreign direct investment which has created a great culture for capability development. So as the region has worked and competed in the sector, it has become a world class supplier and these firms have become used to operating in a demanding sector... the demand is driven by countries such as the US, Europe....Those markets are dominated by large supermarkets, which have very strict standards. So, in order to be able to compete and supply that region, these companies have had to develop a lot of skills, whether it's weather, disease, natural disasters that are affecting the supply chain. They've come to manage uncertainty well”.
ON GEOGRAPHICAL DIVERSIFICATION
“…(T)he Latin American suppliers were really… in the third cycle of COVID to come about. They had already seen how different countries were beginning to operate within this context… that gave them a heads up on what they needed to be able to do…..to make sure by the time COVID became a real crisis in Latin America, to ensure that they had the protocols in place to protect their workers.”
“…(I)n order to be a 365-day supplier, you have to supply from a large number of places around the world. And so we've seen these different companies both expand their own production area…[and]…move their sourcing operations into new countries…to diversify that risk.”
ON PRODUCT DIVERSIFICATION AND UPGRADING
“Over the course of time, these firms have been doing it to increase the value captured for themselves as well as the quality of the products and to reduce the risk. So, we've seen producers diversify across a really wide range of products.”
“…this has given them flexibility in response to changing consumer demands under COVID-19…as well as spread out [production] to reduce impact of a bad season on overall annual profitability…”
“When we look at the producers’ 2019-2020 season, they're reporting higher profitability than they were in the 2018-2019 season.”
ON DEGREE OF AUTOMATION
“These technological upgrades have been put in place to remain cost competitive [and] efficient, to be able to respond to the really strict [requirements] of the supermarkets that have become more and more demanding over time.”
“One of the things that's helped now in terms of COVID is that you have far fewer people in the factories and far less risk of infection or even cross contamination within these pack house operations.”
ON DISTRIBUTION FUNCTIONS AND DIVERSIFIED MARKETS
“This has been 20-30 years in the making; a very strong upgrading story which prepared them …to be able to respond very quickly to this crisis, and I think this has important implications for other regions around the world.”
“COVID 19 had caused so much slow down among all world regions, that to have a big industry like this that didn't lose dynamism that basically, I think, is a real surprise that this is one of the few industries that wasn't taking a nosedive in terms of output and demand.”
ON IMPACT OF COVID 19 ON THE WORKFORCE
What has been really different from the European Union or the United States is that Latin America relied on their own labor inside the country. And what happens in the United States is that they rely on immigrants. So as soon as the pandemic started in, for example, in the United States or in European Union they closed the borders. And they couldn't allow workers to enter.”
“Many industries got hit…hard and ended up laying off their workers, particularly,…their temporary workforces and so there was an ample supply…within the labor market.”
ON NEW TRADE AGREEMENT BETWEEN MEXICO US AND CANADA
“... (I)t's of extreme importance to Mexico…because Mexico is by far the largest exporter of these products from the region. And the majority of it, about 85% is going to the United States. So, they are very interconnected with the US and anything that interferes with that flow becomes very important.
“DUCIGS was fortunate to host the webinars recently with Martha Bárcena Coqui, Mexico's Ambassador to the U.S. and Christopher Landau, U.S. Ambassador to Mexico …. And both of them remarked that the USMCA trade agreement is working well even in light of COVID 19.”
“Fresh produce exports have to be able to get products all year round to all parts of the world, and both hemispheres. So that means you need as many trade agreements as possible linking all the countries so that you've got a continual supply of this fresh produce everywhere.”
Watch the full webinar here.