Rabobank this week published a new research report looking at the current food and agriculture supply chain, identifying flaws that they say leave the sector ill-equipped to respond to new complexities, specifically calling on the industry to transform the way supply chains are organized.
Rabobank identifies a dedicated supply chain model as the best step for F&A companies to take, and recommends the adoption of longer-term supply agreements and cooperative relationships with suppliers and marketers.
In the report, authored by Rabobank's global Food & Agribusiness Research and Advisory, the bank's analysts look at how the operating environment for F&A companies is becoming increasingly complex, as new external influences compound traditional pressures such as rising commodity prices.
Rabobank says that the dedicated supply chain model has potential to revolutionize the F&A industry by making it more productive, innovative, safe and sustainable. The bank's report stresses that all of these outcomes are vital if the sector is to deliver food security to a future global population of 9 billion.
Limitations of the current structure
Rabobank says that supply and demand dynamics, a growing population, and rising commodity prices are being compounded by a new set of external influences. The direct use of commodities for biofuel, for example, has sparked an ongoing food vs. fuel debate.
Similarly, speculation in commodity markets and the regulatory responses this has triggered from governments worldwide have added to the complexity of the environment in which the F&A sector operates.
These new pressures also serve to exacerbate the flaws in the current supply chain model, Rabobank says. The dominant supply chain model is currently structured in a linear fashion, in which suppliers, processors and retailers form short-term partnerships independent from the influence and interests of other members of the chain.
This model is highly inefficient, Rabobank's report maintains, restricting F&A companies' ability to respond to changes in supply and demand dynamics, limiting productivity and restricting innovation.
Adding value through closer cooperation
Rabobank believes that switching to a new supply chain model – the dedicated supply chain – has the potential to transform the F&A industry. In a dedicated supply chain structure, upstream suppliers and processors enter into long-term partnerships with each other and a downstream partner.
Justin Sherrard, Rabobank Global Strategist, says closer cooperation of this sort will "transform the nature of F&A partnerships from transactional ones that are centered around chasing price, to a system focused on creating value."
Rabobank speculates that the companies embracing this thinking will result in reduced risk, improved productivity, access to new markets, enhanced brand and reputation and improved access to capital.
Making the change
Rabobank's report encourages the industry to abandon its preoccupation with short-term price spikes. Rabobank believes that a model based on chasing price is a narrow approach that will restrict the ability of F&A companies to realize their growth objectives in this more complex and demanding environment.
The report calls for prominent F&A brands to create initiatives that will lead to cooperation between their upstream partners. Furthermore, Rabobank believes that sector leaders undertaking such initiatives must become advocates for dedicated supply chains.
Barry Parkin, Mars Global Chocolate Procurement and Sustainability Head, says his company has already taken these steps.
"Mars believes that closer cooperation, both up the supply chain with suppliers, origin governments and NGO's, and across the supply chain with other manufacturers, is critical to achieving the cocoa industry's growth and sustainability goals," Parkin said.
"Through Mars' Sustainable Cocoa Initiative, we are actively engaging with all parties in an effort to drive a step change in farmers' cocoa yield, which is the key to driving economic, social and environmental sustainability. We have already demonstrated with our partners up the supply chain that a 3-fold increase in yield is realistic."