It was only a matter of time before growing anxiety over food supplies and prices across the globe induced action by nation-states and citizens alike. As 2022 motors along, concerns about the health of the global economy, the lingering hangover of the COVID-19 pandemic, as well as its recent return to China, and the economic consequences of the war in Ukraine have come together to create a perfect storm. Food prices are going through the roof in a number of nations, and it was only a matter of time before citizens took to the streets and protested.
Over the weekend Iran saw a wave of protests break out across the country over cuts in state subsidies on food. To be fair, Iranians already have a laundry list of grievances with their government and economic conditions always serve as a barometer of the population’s feelings. It comes as no surprise to see Iranian citizens come out in large numbers to protest the subsidy cuts, as well as other issues. The swift and brutal response by the Iranian government, however, has raised some eyebrows around the world. Tehran’s readiness to clampdown on and make an example of anti-government protesters is an indication the government expects prices to rise even more in the coming weeks. With the cut of subsidies last week, prices on a number of flour-based food staples rose in excess of 300%
There are also protests and street violence over rising food prices and inflation going on in Sri Lanka and Tajikistan. Those situations will be discussed in more detail later in the week.
Then there is the increasing worry over food supplies. India is moving to take pre-emptive action by restricting exports of wheat to create a safety cushion of sorts for its own population. The Indian government seeks to control rising prices and diminishing output due to global economic conditions and the extreme heat wave that has affected Indian wheat production. Predictably, India’s move has sent global prices skyrocketing and prompted the US and European Union to begin searching for solutions to improve food supply chains. Given the current conditions, Washington and Brussels need to hurry. At the present time, the situation worldwide appears fated to become significantly worse unless measures are taken within weeks.
Shortages in the United Kingdom are providing plentiful ammunition for many critics with an axe to grind. Brexit opponents were quick to lay the blame directly upon Great Britain’s departure from the European Union. Anti-Globalization activists have pointed out the dangerous vulnerability of Just-In-Time supply chains. Then there is COVID-19 where we are seeing the anti-vax and pro-mandate camps slinging blame for the shortages at each other.
The fact of the matter is we’re in a perfect storm of conditions and circumstances at present. COVID restrictions and mandates, post-Brexit teething issues and supply chain disruptions in other parts of the world have combined and brought chaos to the United Kingdom and other nations. It will be some time before normal conditions return. Even though the UK is receiving the lion’s share of media attention for its fuel and food shortages it is not the only one dealing with shortages. In the United States, most major ports are dealing with extreme congestion. Dozens of merchant vessels sit at anchor off places like Long Beach, Elizabeth, and Dundalk, waiting for extended periods of time to enter and unload. This has resulted in a growing number of shortages across a wide range of sectors in the US. Panic buying has exacerbated the situation as well.
Under normal conditions, Just-In-Time supply chains work efficiently. In short, JIT is an inventory management strategy designed to guarantee fast order fulfillment. Production starts only when an order is placed, and inventory stock shipped out as needed. The onset of the pandemic changed the dynamic markedly. Restrictions, shutdowns, and a growing shortage of workers has plagued Asia where much of the manufacturing is done. This was Patient Zero for the current disruptions, for lack of a better term.
Modern supply chains were neither designed or intended to weather a storm of conditions like the one we are seeing. Supply chains were not built for this. Their vulnerabilities have now been made abundantly clear and systematic changes are most certainly on the horizon. Before that time arrives, though, the current storm needs to be handled.
As China’s power crisis becomes widespread and continues to slow Chinese producers, the situation there is fast becoming a major threat to global supply chains and markets. With over half of China’s provinces now conserving energy usage, factories are limiting production at a critical time. The holiday shopping season is approaching. Producers and shippers are frantically racing to meet demand for consumer products ranging from electronics to clothes. There has already been a steady stream of supply line-related disruptions recently, resulting in everything from shipping container shortages to significant delays at ports around the world. The energy issues in China threaten to add even more chaos and uncertainty to supply chains in coming months.
The extent of China’s current energy issues remains unknown, yet outside experts believe the problem is long term. One of the prime causes of this situation is a coal shortage. Stockpiles across the PRC are approaching critically low levels. China is the world’s largest consumer of coal, a nation that runs on the dirtiest of fossil fuels. On Monday, the China Electricity Council said in a statement that it will increase the purchase of coal from suppliers at “any price to ensure heating and power generation in winter.” This is a far cry from not very long ago when high coal prices kept Chinese buyers on the sidelines. The consensus at the time was that the existing inventories of coal would be sufficient to weather the storm. Things are different now and China is adjusting to meet the new realities.
Of course, China’s power crisis is not the only worry for global supply chains. The fuel shortage in Great Britain is spiraling out of control and there’s growing concern the effects of it could spread swiftly. We’ll discuss that tomorrow evening.
The coronavirus outbreak has cast a light on the indispensable role China plays in global supply chains. China is the manufacturing base for a large percentage of global businesses and the virus has kept many factories and plants shuttered since the end of the Lunar New Year holiday. As the virus continued to affect every facet of life in China, with large swaths of territory under quarantine restrictions, multinational companies are waking up to the realization they could be facing a potential long-term disruption in the supply chain. The electronics industry is being particularly hard hit by disruptions to its supply chain. With assembly plants that make the iPhone in China still closed Apple will likely ship 5-10% fewer iPhones this quarter according to analysts.
With the economic blowback of the coronavirus continuing to expand, many companies are coming to the realization of how vulnerable their current supply chains are to disruption. The single geography sourcing strategy is suddenly not so appealing. As a result, alternatives are being examined carefully. The race is on to design sustainable supply chains that can overcome the disruption challenges of the present-day and the future. Regional sourcing will become more prevalent, meaning an economic boost for developing regions in places like Africa, and South America. Unfortunately, their good fortune will come at China’s expense and this is something that Beijing will not take lightly to.
Author’s Note: Short posting today, I apologize. Chemo effects kind of knocked me out, but I’ll bounce back with more detailed posts tomorrow and this weekend.