Finding value chain opportunities in a pandemic
With the COVID-19 pandemic changing consumer buying patterns from their favourite treats to pantry staples and familiar foods, experts urge producers to examine their role in their value chains and determine if new opportunities are present.
Dr. Martin Gooch, CEO of Value Chain Management International, says some of the food staples consumers crave right now are lesser processed – and as a result, lend themselves well to marketing outside of traditional channels.
Producers need to map out all their value chains and see where there might be opportunities.
“The first principle for effective value chain management is to focus on what customers and consumers value,” Gooch says. “This has changed since the COVID-19 pandemic. Right now, producers need to map out all their value chains and see where there might be opportunities.”
Diversifying revenue streams reduces risks
Dr. Simon Somogyi, Arrell Chair in the Business of Food at the University of Guelph, says when primary producers own successive parts of the supply chain, they diversify revenue streams and reduce risk.
“Vertical co-ordination - working with members of the chain that are downstream to producers, such as processors and retailers – is lacking,” Somogyi says. “There’s also a general lack of Canadian farmer-led vertical integration such as on-farm value adding, other than simple customer processing like grain drying.”
Somogyi acknowledges some agricultural sectors would be challenged by greater vertical co-ordination, but he still sees many opportunities. For example, he says, Japanese buyers praise the high quality of Ontario soybeans which they import and process into tofu. But few soybean farmers in the province have invested in soybean and tofu processing equipment to manufacture, brand and export tofu to Japan.
“Diversification, collaboration and integration help reduce risk,” Somogyi says.
Let basic food needs trump profitability
Gooch urges producers to rigorously analyze markets based on consumers’ interest in domestic food security, a scenario that has rarely played out in modern-day Canada.
He suggests replacing traditional marketing approaches supported solely by profit-related decisions - such as finding export markets for Canadian commodities – with marketing based on supplying Canadian consumers’ basic food security needs.
Practically, Gooch says producers can get a pencil and paper, and map out the production process from starting activity to ending output, then study each part of the process. For example, a case study of a blueberry operation, developed between Gooch’s firm and the Canadian Produce Marketing Association, identified 25 points in the post-harvest production process, from placing fruit in bulk bins to displaying the fruit on store shelves.
Another study of the fresh pork value chain showed significant performance improvements could be realized with only minor improvements at multiple points.
“Identifying and examining each point helps producers see where waste or opportunities might be present and streamline their processes to fit consumers’ imperatives,” he says.
Consider aspects of management change
Maggie Van Camp, national agricultural practice development lead with BDO Canada, says changing management approaches as a result of COVID-19 includes producers understanding their personal and their farm’s current financial position. Be up to date on finances, income taxes and have a current net worth and cash flow projection for the season, she says.
Van Camp suggests running cash flow projections including potential cost savings like lower interest rates, fuel prices and electricity rates, all of which have changed as a result of the COVID-19 pandemic.
With financial statements and cash flows in mind, she says producers should have a discussion with their accountant and banker about vulnerability points, and what can change to reduce risk and manage costs, such as principal payback free periods.
Then, start thinking about opportunities that take advantage of strengths and work to improve weaknesses.
“That could be trying to fill local markets, adding value, cutting back, selling unproductive assets or the myriad of other ideas that work for the current market, your assets, people power and logistics,” Van Camp says.
Local market development takes time
And while she says great examples are emerging from across Canada about the increasing demand for local food, farmers and processors must have large enough volumes to warrant an investment in time and assets.
“To set up local markets takes time, connections and skill sets that are not created overnight, and sometimes it’s simply not possible to get it done in the short-term,” Van Camp says. “For example, the number of provincially inspected slaughter plants has decreased rapidly over the last two decades and they do not come on-line with a snap. Farmers are producing biological, often perishable products, in the most efficient way possible for very tight margins and that is why we have production at larger scale.”
All experts agree the COVID-19 pandemic should catalyze a new look at existing value chains.
“This an opportunity for Canadian farmers, processors and retailers to stop differentiating our own marketplace and start sharing resources and knowledge,” says Van Camp. “Work together to find solutions to feed Canadians and the world.”
Creating clarity during the pandemic is a challenge, however, events and resources are available.
The COVID-19 pandemic has changed consumer preferences, in some cases, opening new opportunities in value chains for producers. Experts suggest farmers map out their value chains to seek openings, looking at diversification, collaboration, and integration. Accessing new markets during the current COVID-19 pandemic also means producers need to understand their financial position, both personal and farm business. Run cash flow projections and apply for current government support programs – including AgriStability.
Article by: Owen Roberts