In this issue, Asia Food & Beverages Report will specifically look into the wide range of impact COVID-19 had on the food manufacturing industry and how do consumers react to this outbreak in terms of their food consumption patterns.
Never before in 100 years, a virus could wreak much havoc to world markets causing panic among consumers, while manufacturers scramble to keep their factories open in the midst of potential lockdowns, and food services operators facing severe losses as they have to shutdown their operations or face a dwindling number of customers to their stores.
Major economies all over the world have come up with emergency support packages to keep companies afloat and to assist their lower-income populations.
For the food and beverage industry, despite food being an essential commodity, the industry also faces many challenges. The following are 4 major trends or challenges faced by this industry with the ongoing COVID-19 pandemic:
(1) Fall in commodity prices
As the pandemic affected most countries, import and export of commodities are stunted as logistics and transportation is put to a halt due to limited movement of goods and personnels across the globe. This has caused an oversupply of some commodities.
In India, for instance, tea prices have plunged by almost 40% as Iran and China have stopped importing the commodity due to the outbreak. This has resulted in an unprecedented level of carryover stock of up to 50 million kgs of tea from last year.
Meanwhile, global prices of cooking oil are also falling due to the coronavirus. This is despite the fact that demand for essentials have been growing rapidly as consumers all over the world have been stocking greater quantities of food at home.
(2) Disruption in supply of Food and Beverage Ingredients
China, being one of the world’s biggest factory for many ingredients and commodities, had seen its major cities being shutdown for several months and are now getting prepared for gradual opening and resumption of businesses.
In the past few months, global giant Coca-Cola had seen its supply chain disrupted as it could not source for artificial sweeteners from China which is used for its diet and zero-sugar drinks like Diet Coke and Coke Zero.
The primary artificial sweeteners Coca-Cola uses in its products include aspartame, acesulfame potassium, sucralose, saccharin, cyclamate and steviol gylcosides. In its annual report, Coca-Cola indicated that it considered sucralose a “critical raw material” sourced from suppliers in the US and China. Splenda, a sucralose product used in Diet Coke with Splenda, is made in the US and not sourced from China.
While situation in China is improving, other countries like US and Europe are now facing crisis situations with regards to the outbreak, which in turn will disrupt demand side and might affect logistics on the other end of the supply chain.
(3) Growing demand for Essentials/Instant/Frozen Products vs decline for Non-Essentials
Consumers worldwide are stocking on essential food products like rice, flour, sugar, eggs and the likes while luxury/leisure food products like chocolates, liquor, durians and premium ice cream saw their greatest slowdown in years. In China for instance, instant or convenient food products like instant noodles, pre-packaged meals and frozen food products are making a strong comeback as sales surged during this first 3 months of 2020. As these products are convenient to prepare and can be stored for a long period of time, consumers who face a lockdown period or a potential lockdown will prefer to stock these products.
Due to unprecedented growth in demand, the online stores of 4 major frozen food players including Synear Food Holdings and Sanquan Food, have run out of most of their products in late February with no certainty when supply will resume back to normal.
Another essential food product, infant milk powders continue to maintain steady demand. Australian baby formula producer Bubs reported more sales in the first 2 months of 2020 with traders stocking these products in order to secure baby food supplies for the Chinese market. According to Bubs, they are mainly buying from the corporate Daigou distribution channel in Australia. However, should the outbreak persist for a longer period, this might disrupt delivery and logistics.
On the other hand, demand for luxury goods face a downturn. Diageo, the group behind Johnie Walker and Guinness beer predicted that its profit will be cut by at least US$180 million as more consumers are staying at home while the tourism, travel and hospitality industries took the most hit from this outbreak.
Public health measures taken by various countries have resulted in restrictions or cancellations of many major gatherings or events as well as closures of entertainment centres and bars amongst others.
Food Services Sector faces the greatest brunt from the epidemic
With COVID-19 outbreak not going away anytime soon, respective governments in the Asia Pacific region have implemented various measures to reduce the spread of the pandemic.
One of the main measures taken is to close down shopping malls, entertainment outlets and eating places where close customer contact will inevitably happen.
For food service operators, if their shops were closed, that will translate to a huge loss in potential revenue. As a result, some of these stores depend on online food delivery services to keep their business afloat, but many will still be affected due to shortage of available manpower.
In China for instance, nearly half of Haagen-Dazs ice cream stores in China were temporarily closed during the first 2 months of 2020 while the other half had to operate under restricted operating hours.
The same pattern follows in other countries in Asia as the outbreak became a global pandemic. As of 7 April, the world had approximately 1.35 million confirmed cases of COVID-19 with almost 75,000 deaths. The figures for both the number of infections and deaths seem to double every 9 days. However, in the ASEAN region, total number of cases were approximately 14,000, just about 1% of global cases despite ASEAN having more than 600 million people, roughly 8% of the global population.
Should the same trend continue, we will have more than 2 million confirmed COVID-19 infection cases by 3rd week of April. For more details on the effects of COVID-19 pandemic on the food and beverages industry, please read through this issue of Asia Food & Beverages Report.
