The agro sector is one of the largest and most important for the economy. The country’s food security and the availability of products in retail chains and on consumers’ tables depend on the efficient operation of supply chains. Meanwhile, the entire food production and distribution sector has been undergoing a real revolution for the past two to three years. The pandemic, the war in Ukraine, drought on the continent, rising energy prices, and high inflation – all these factors accumulated in a short time have caused a real armageddon in the agro industry. However, without rapid process automation, the chaos will only deepen. What challenges await supply chains in the coming months and quarters?
There are many such challenges, and they naturally vary depending on the position in the supply chain and the type of business activity. However, one can attempt to find a common denominator that applies to challenges for the entire sector. It is certainly the digitalization of the distribution network, which cannot succeed without data exchange between participants throughout the entire production and distribution process. But that is not all.
Temperature and delivery time
– Prices and availability of raw materials, energy costs, and the search for stable partners for cooperation are just some of the challenges facing companies in the agro industry. Another is the lack of predictability, in which we have been learning to function over the last few years. You simply have to find your way in this reality. But we also remember the need to adapt to the principles of sustainable development and reduce the carbon footprint in production and transport – summarizes Ilona Wzgarda, Director of the Organizational Division at De Heus Poland, an international company producing feed for cattle, poultry, and pig breeders.
– Temperature and delivery time of products play a key role in the food production sector. This applies in particular to the distribution of vegetables, fruits, and meat products, but not only. Giant queues in front of ports in Gdańsk or other Polish ports show, for example, all the bottlenecks in grain distribution. Because the loading time of wheat or corn, which then goes to Germany, the Netherlands, Sweden, Great Britain, as well as to African countries, affects the quality of the transported grain. – During long stops in ports, grain can become damp. This causes further complications in handling cargo and meeting contract terms – says Tomasz Okoński, Head of Logistics at Osadkowski sp. z o.o. The company supplies farmers with artificial fertilizers and plant protection products, and also deals with the purchase of agricultural produce.
What can be done in such a case? For example, introduce delivery scheduling, as well as a transport tracking service, to efficiently carry out the unloading process and reduce waiting time for service to the necessary minimum. Meanwhile, in Gdańsk, one has to wait up to 30 hours for unloading, which causes frustration among carriers who could take on new orders during this time. Moreover, queues of trucks stand not only in front of ports and grain silos, but also in front of food plants and processing plants where grain, vegetable oil, and other agricultural products are delivered.
Automation is a necessity
– The lack of delivery automation concerns the majority of companies operating in the agro sector. But what is the problem? We have already mentioned this: systemic changes make the most sense if they concern the entire supply chain. – We perfectly understand the need for delivery automation. We use a proprietary system for handling the transport of agricultural produce, thus limiting work on Excel files and notes on paper. However, it is difficult to persuade many of our partners to use similar tools – comments Tomasz Okoński, the aforementioned Logistics Director at Osadkowski sp. z o.o.
The problem therefore lies more in mentality than in implementation costs. Because for companies and carriers using transport platforms, implementing a time slot management service, delivery tracking, or, for example, settlement for transport per ton, is neither a difficult nor an expensive undertaking. The latter solution, in particular, is still little known in the agro sector. And it should be, because it introduces significant simplifications in the process of ordering and settling the transport of bulk materials, e.g., grain, feed products, artificial fertilizers, and other raw materials and agricultural products.
– Meanwhile, losses during the transport of bulk products are the norm in the agri-food sector. Settlement for the actually transported cargo makes the entire process more transparent, easier to measure, and objective. – Our research shows that the distribution of bulk materials is settled differently than deliveries in other industries. Here, we are dealing with product losses and constant quality verification. And that is why we created the possibility on the platform to settle for every ton of transported goods, not per trip. Everything is transparent and visible in the system. Starting from obtaining a transport offer, setting the terms of the order, to the actual execution of transport and settlement based on the reported cargo weight – explains Robert Kutera, Product Manager at CargoON, a supply chain expert.
Freshness is important
– Automation of processes and implementations improving the work of the entire chain are necessary so that products reach the producer (farmer, food industry company, etc.) as quickly as possible, and ultimately – the consumer on the table. And in the case of, for example, the distribution of fresh fruits and vegetables, the speed of transport is crucial for the success of the entire operation. – Feeding large cities is still a huge challenge. High-quality fresh products are highly valued but difficult to produce and transport over long distances – confirms Prof. Woody Maijers from Inholland University of Applied Science.
This is also pointed out by the Food, Beverage and Agriculture Supply Chain Risk Report from March 2023 (author: WTW). The report summarizes the threats to global food chains, but sees great opportunities to limit potential crises in intelligent solutions. Thanks to technological solutions, it is also possible to ensure higher product quality.
– Technology also has the potential to reduce the amount of spoiled products in the logistics chain – for example, by using telematics and the Internet of Things to track goods in transit and monitor their condition – adds Simon Lusher, WTW’s global leader for food and beverage.
The Polish Fruit Union also draws attention to ensuring the freshness and durability of products. Polish products reach the European Union market, but also increasingly the Asian markets, Egypt, Jordan, the United Arab Emirates, and Saudi Arabia. And in so-called warm countries, high temperature becomes a challenge if exporters want to deliver fresh products to the final recipient. Access to refrigerated containers is no longer a problem, but exporters must also ensure high product quality during distribution in destination countries, e.g., in Colombia and Costa Rica.
Investments, investments
– Deliveries here and now are becoming increasingly important, as is the availability of products all year round. Importers from African or Asian countries expect high-quality fruit not only at the time of loading in Poland, but above all during their commercial trade in the destination country. And that costs money and requires additional investments in quality – explains Paulina Kopeć, General Secretary of the Fruit Union association.
Polish producers export primarily fruits and dairy products, and these are products that require maintaining the appropriate temperature, especially during transport in so-called warm countries. The sector is favored by lower transport costs, which is of significant importance given the rising production prices. Not only sea freight prices are falling, but also truck transport prices.
– Lower transport costs than a year ago are, however, a temporary situation, because with economic growth, the demand for transport will quickly increase again. And with it, transport costs will skyrocket. And again: without technological tools, the agro sector may plunge into chaos. – We have long since left the Excel era in the area of logistics, which does not mean that the digitization process has ended for us. We are aware that there are still many areas for improvement. From a logistics point of view, we are facing the optimization of systems to keep up with the times – says Ilona Wzgarda from De Heus.
Supply chain challenges in the agro sector
- Implementation of sustainable development principles. Sooner or later, all participants in the supply chain will have to apply ESG principles in daily practice. The obligation to conduct non-financial reporting and measure the carbon footprint for large companies from 2024 will cause a chain reaction. Contractors and suppliers who do not measure carbon dioxide in their operations (and reduce its emissions) will fall out of the supply chain.
- Storage of raw materials. Uncertainty of supply, especially important in the production of feed, feed additives, raw materials, and semi-finished products, makes it necessary to accumulate them. Lack of free warehouse space can cause limitations in the supply of finished products. One solution is to shorten the supply chain by delivering finished products directly to the customer.
- Production costs. In the face of increasingly higher production costs, the challenge for companies in the agro sector is to maintain a competitive price. Rising energy prices, costs of raw materials and semi-finished products, distribution, as well as costs associated with reducing greenhouse gas emissions inevitably lead to an increase in product prices. The effects of drastic cost-cutting can be very serious. Due to sudden gas price hikes in the Netherlands, for example, greenhouse tomato production collapsed, and Polish distributors often gave up on drying grain.
- Automation of supply chain management processes. Long queues in front of warehouses best testify to the level of digitalization of distribution networks. Without data exchange between participants in the food chain, without a delivery scheduling system and transport tracking, etc., efficient delivery management is not possible. Carriers are increasingly avoiding orders that expose them to long queues in ports, in front of silos, and warehouses of food sector companies.
- Investments in RES. The direction set firmly by the European Union, i.e., achieving climate neutrality and using alternative energy sources, also determines changes in the agro sector. Some companies in this sector are already investing in photovoltaic power, used, for example, for lighting warehouses and yards. Investments in RES also allow for reducing costs associated with the purchase of electricity, which in turn contributes to lowering operating costs. However, to save, you must first invest.
The report is available at the link.
Source: CargoON