Food Supply Chain Management and Logistics

Understanding the Challenges of Production, Operation and Sustainability in the Food Industry

Samir Dani

• Publisher: Kogan Page
• Year: 2021
• ISBN:
  9781398600133
• Edition: 2
• Topic: Business
• Subtopic: Operations
• Index: Business

First edition WINNER: ACA-Bruel 2015 - Prix des Associations Food supply chains are integral in ensuring that food makes it from the farm to the table. Understanding how these operate has never been more important. The new edition of Food Supply Chain Management and Logistics is the guide to all aspects of food supply chains. This book examines food production, operational challenges and the future challenges of the industry and sustainability. The emergence of new technologies, which are key in increasing the efficiency of processes, such as food apps, big data and blockchain, are discussed. As are wider trends including veganism and local sourcing. Food Supply Chain Management and Logistics embeds learning using case studies from leading companies such as Cargill, Nestlé and Starbucks. In addition, case studies from sustainable businesses such as Omnom Chocolate and ReFood also feature. The book is structured to provide readers with an understanding of the basics of food supply chain management and logistics before expanding the scope to cover more of a range of topics. Online resources include PowerPoint lecture slides.

02

Food production

The agriculture sector or food-producing sector is a major generator of employment and income worldwide. The majority of people within the agriculture sector work at the level of small farms within largely rural areas of the world. As the world’s challenges continuously grow on account of population and climatic changes (to name a few), the importance of the agriculture business sector or the food supply chain has grown significantly. The focus of the chain has moved to utilizing the food production stage of the supply chain as a stepping stone to create value-added products and innovations with the goal to ‘feed the world’. However, this requires food to be safe and traceable right from the seed and to move safely through the stages to reach consumers’ forks. As the world’s governments debate food security and sustainability, most countries are forming national policies and strategies to promote investments in agriculture value chain development. This requires a deeper understanding of the elements that affect the sector and the steps being taken by various world organizations (United Nations, Food and Agriculture Organization, Organisation for Economic Co-operation and Development), national governments and private businesses to facilitate efficient operation of the food value chain. This chapter presents the food production or agriculture supply chain. It explains the entities involved in the agriculture supply chain until it reaches the processor. The chapter also discusses the challenges faced by the agriculture sector and the factors that will enable future development. A few case studies demonstrate how entities in the agriculture sector are working with each other to add value in the chain.

Entities in the agriculture supply chain^1,2

The major entities in any agriculture system start with the input suppliers and end with the processor. However, an agribusiness chain (farm to fork) will end with the consumer. This chapter considers all the entities in the chain until it reaches the processor. The main entities are:

1. Input supplier. For the production process to work effectively and efficiently, the inputs to the process have to be of sufficient quality and delivered in a timely manner. These inputs are in the form of seeds, fertilizers, pesticides, machinery, labour and so on. Any disruption to the input supply chain can cause issues with food availability. The input suppliers are large international companies which have invested in food innovation (seeds, pesticides, etc).
2. Landowner. This is the entity that owns rights to the land on which food is produced. In most developing countries, land is an important resource and farming will take place only if a suitable piece of land has been identified. In developing countries, individual farmers have very few land holdings and hence controlling production is difficult. On the other hand, someone who has lots of land could subcontract or lease the land for a short period.
3. Food production/farmers. This is the most important stage in the agriculture supply chain, as it is the stage in which food is grown or managed (livestock, fish, meat, etc) as per the inputs and availability of resources. There are around 450 million farmers globally, who can be segmented by farm size, crops grown and level of sophistication of the production process. Farm sizes vary considerably and the majority of the farmers in the supply chain are smallholders. Farming is a very risky process within the agriculture value chain. It is subject to uncertainties of weather conditions and market volatility.
4. Traders. Traders occupy the position between the producer and the processor. Traders could be small businesses or very large cor­porations. Some also have significant food-processing capabilities. Within the agriculture supply chains, traders have both a positive image (as they maintain continuity of the chain and in some cases also invest heavily to make it efficient) and a negative image (some traders will use their buying power to reduce considerably the prices paid to farmers).
5. Direct markets. These are the markets that connect the farmer or producer to the consumer directly, without the need for any middlemen. These markets tend to operate when produce is plentiful. They could be an open platform, where two entities engage in the purchasing process or the produce reaches the small farmers’ market.
6. Within the Indian context, some states in India permit the distribution of farm produce only through the mandis (markets) under the Agricultural Produce Market Committee (APMC)³ Act. These are markets or traders who are certified within the APMC and have a licence to operate. These markets will purchase the produce from the farmer (through an auction) and then distribute it through the supply chain. Currently, the effectiveness of the APMC Act is under debate in India on account of food waste and farmers getting low prices for their products. Food processors have to buy the farm produce through the traders and cannot purchase directly from the farmers.

Along with these entities, logistics companies or transporters are very important for moving the raw food produce either to warehouses or to the trader/processor. The agribusiness or agriculture supply chain hence refers to any business related to agriculture, including farming, processing, exporting, input suppliers, trading, logistics and retailing.

The agribusiness sector is an important generator of employment and income worldwide, as even smallholders can participate in this activity and earn a livelihood. As the pressure on the sector to feed an ever-growing population has increased, mechanization and modern­ization of the sector have led to a change in the performance and organization of the sector. This is happening to a larger extent particularly within the developing world. Operational efficiency, food safety, food quality, innovation and new business models are helping the sector to reach the consumer faster and in a number of ways. Globalization and consolidation of agriculture produce put pressure on small farmers as they have to compete in a buyer-driven market without recourse to sufficient finance and funding to upgrade their capabilities.

The agribusiness sector deals with a product that is highly perishable and starts losing value as soon as it is harvested. Various processing and packaging techniques are implemented post-harvest to increase the longevity of the product so that the consumers can avail themselves of these. The products will vary in quality, depending on a number of external factors (such as climate and pests), and are also seasonal. This provides additional complexity for supply chain planning and requires coordination and integration across the chain.

The risks involved in the production process and the uncertainties in the post-harvest scenario create a risky investment environment for the agribusiness sector. This presents an entry barrier to the sector, especially for smallholders and micro-businesses that have neither the required financial backing nor the ability to manage risks. However, since the sector is directly responsible for ‘food security’, these barriers need to be studied and solutions need to be identified.

Agriculture and poverty alleviation⁴

Size of the farm

Small-farm agriculture has been encouraged as a solution towards alleviating poverty challenges within developing countries. However, small farms will require updated skills and training in order to manage their businesses efficiently and also have the ability to compete in a volatile environment. Lack of financial products and cash-flow issues complicate the situation. The new models of retailing and public policy overlook the challenges within the rural sector and work towards cost minimization and highest quality, both of which will need a considerable change in the operational capabilities of the small farmer. However, the opportunity to produce food for the chain is still a positive step towards creating employment and livelihoods. Future strategy should focus on upgrading small producers so that they can become members of global buyer-driven food chains. Trade liberalization, commodity chains and concentration of corporate players in the chain can compromise the potential of the sector to act as an effective route for small producers to exit poverty and contribute to and benefit from broader economic growth. Small producers in developing countries find it...