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Covid-19: A wake up call for the food industry

30 November 2020

A recent report from S&P Global Ratings looks at how the ongoing Covid-19 pandemic looks set to fundamentally change the food industry. 

The pandemic has brought social aspects of the food processing industry further into the spotlight and it must be expected that issues relating to the health and safety of employees will lead to more rigorous global industry standards in the coming years. S&P Global Ratings sees the main push for change coming from government agencies and regulators seeking to reduce risks to the population from contagious diseases. Consumers are also more closely scrutinising the source and quality of what they eat and drink – companies slow to meet stakeholders' demands for better production and quality standards could fall behind their competitors. The sustainability of food and beverage businesses will increasingly depend on how companies address changing consumer preferences, engage with stakeholders, and manage production safety.

Ongoing uncertainty regarding the new coronavirus, and the risk of new deadlier pathogens emerging in the future, mean that tougher food processing industry standards are likely here to stay. In the short term, these tougher standards will mean higher costs – S&P Global Ratings foresees, among other things, an increase in investments for automation or plant reconfiguration, possibly higher labour costs due to shorter shifts and employment structures, as well as expenditure to bolster hygiene standards. However, it says that most of these costs will eventually be recouped through stronger workforce morale, productivity, and consumer perception, provided consumers are prepared to pay more for food products.

S&P Global Ratings also predicts that the pandemic will finally elevate social factors to the level of environmental factors in the ongoing debate on the true cost of food. In the first instance, this will affect retail and manufacturer brands sold in developed markets, where product claims need to be verifiable. Suppliers to retailer-owned brands won't be exempt from such scrutiny. In our view, food producers' only way forward is to modify their pricing and operational structures and discontinue certain products. Many have already started or completed this transformation to maintain profitability since the pandemic began. Because automation is more common in businesses farther along the food value chain –such as branded packaged foods – these sectors have been less affected than more labour-intensive operations closer to the food source, such as meat and poultry processing.

Traditionally regulatory oversight of food processing has focused mainly on preventing food contamination and the spread of food-borne diseases. However, outbreaks of Covid-19 at food processing plants – particularly meat facilities – implies a breakdown in health and safety protocols and this has led to authorities reviewing the health, working conditions, and treatment of the food processing industry's workforce. I should be expected that, as a consequence, the industry is unlikely to maintain its pre-pandemic operating status quo.

What's next?
S&P Global ratings anticipates that companies will spend more money on automating processes, reconfiguring physical workstations, implementing better employment and work practices, and improving health and safety standards. 

The German meat producer Tönnies, for example, has introduced new hospital-grade air filters into its ventilation systems, while other companies have shortened work shifts, thereby slowing production lines, and have imposed social-distancing conventions for workers. 

There is a need for the food industry to catch up with other consumer goods sectors, when it comes to the adoption of advanced technology such as robotic automation. It has traditionally lagged behind other industry sectors primarily due to the variability of products and complex supply chains. Consequently, a permanent change to food processors' business models in the future should be expected as the sector adjusts to the new normal. 

Key takeaways
Key takeaways from the report include the expectation of a permanently change in how companies approach workforce safety, particularly at meat facilities, where coronavirus infection rates have been high.

With consumers, regulators, and other stakeholders demanding change, food companies will need to invest in new technologies in order to help them adjust to new operating and safety standards but also to ensure continued global food supply.

https://www.spglobal.com/en/


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