Supply Chains - Climate Change - Inflation
A Smarter Purchasing Toolset for Commissary Buyers
For many years, the United States has been facing significant challenges. First, COVID-19 caused major disruptions in the way Americans lived their lives. That put the country on a precarious economic footing, given the uncertainty of when the pandemic would end. Then, as the pandemic began to wane, pent up demand for goods and services precipitated supply chain disruptions as suppliers and transporters tried their best to respond to the sudden and massive surge in demands for goods. The container ships stacked up at major US maritime ports – Long Beach, Los Angeles, etc. – visually depicted the problem for the world to see. Rapidly rising prices for gas and basic food items led the way to inflation that remains a challenge to consumers and businesses.
Government Recognizes the Need – Through all of the turmoil referenced above, there has been a growing awareness in government policy circles that food prices have risen, impacting negatively household budgets; supply chains are challenged and competition from oversees farmers and producers, especially in the specialty crop area is an issue that must be addressed at all levels as they impact farm profitability. USDA recognizes the need for increased government support for the food challenges associated with climate change, market disruptions, inflation, and food supply issues. To that end, USDA recently announced a $3 Billion Agriculture Investment Program. Among its many initiatives, this program provides $500 million for relief in agricultural markets for transportation disruptions, and the increasing costs of marketing and distribution of food and agriculture commodities. The Department of Defense is also taking on a leadership role on the issue of food insecurity through its Roadmap for Food Insecurity Initiative (Strengthening Food Security in the Force: Strategy and Roadmap – July 2022). This is based on a gradual recognition by top military officials that rising costs for food and the ability of service members to afford enough food to feed their families adversely affects the country’s military readiness.
DeCA Commissaries – The Defense Commissary Agency (DECA) operates the 236 military commissaries that sell some 12,000 different items of groceries and household goods. The aggregate sales of all commissaries combined is approximately $5 billion annually. DeCA’s principal mission is to provide discounted fresh fruits and vegetables, groceries and household items, to active-duty military, retired military, members of the Guard and the Reserve, and their families.
In September 2022, DeCA announced that military families will soon see a 3%-to-5% decrease in their commissary bills as part of a DOD initiative to bolster economic security and stability for military families. In announcing the new Initiative, DeCA’s Director, Bill Moore, said that “DOD’s added investment allows DeCA to reduce commissary prices by 3%-to-5% on most items, particularly on food staples such as bread, eggs, milk,” and hundreds of other items. “With this boost,” Moore added, “we can achieve at least 25% in overall annual savings” for our military families as they shop at DeCA’s commissaries. However, challenges remain to ensure DECA reaches these savings.
Supply Chain Disruptions – According to the Federal Trade Commission, “Supply chain disruptions are upending the provision and delivery of a wide array of goods, ranging from computer chips and medicines to meat and lumber.” The supply chain disruptions that have led to shortages of goods across the American economy are caused by multiple factors, including: the Covid-19 pandemic causing pent-up demand for goods; shortages of workers in key industries (such as warehousing); shortages of truck drivers to get goods from ports to supermarket distributions centers; and even something as mundane as a shortage of pallets which slowed down the palletizing and transportation of goods to market. The global supply chain, which formerly ran like clockwork, is now significantly more unpredictable and exposed to various risks. The major issue is that key managers throughout the supply chain have limited information and related insights, hindering their ability to better predict when or where bottlenecks will occur. The prevention of such blockages in the future will require better data for improved logistics’ forecasting. All players in the supply chain must be able to react quickly to prospective supply chain disruptions. Supply chain managers who are effectively able to navigate this labyrinth of challenges are using data to assist them in more accurate demand planning in order to stay ahead of the curve.
The best tool for managing supply chains is insight-ready data. Access to data is critical for effective decision-making. If managers know how much produce is being shipped from a particular country, on a particular date, then they can track it effectively, and can optimize their planning.
76 Key Variables – Experts with decades of experience in agriculture have identified 76 variables that underpin the global supply chain for perishable crops. These include such variables as: how much of a particular crop (e.g., strawberries, tomatoes, etc.) is grown in specific growing regions of the world; the time of year when those products are harvested; and what means of transportation are used to get the products to the shipping ports. Also included among these 76 variables are: historical weather patterns, prices of fuel, transportation disruptions, labor shortages, labor unrest, and border closures. Any one of these 76 variables can impact supply chains at anytime, anywhere in the world, and can lead to unforeseen supply disruptions.
International Competition – DeCA must also take into consideration the increasing role that other major countries play in international food markets. For example, the USDA Foreign Agriculture Service reports that China has become the world’s largest agricultural importer, surpassing both the European Union and the Unites States with imports of over $133 billion in 2019. According to The Diplomat (November 25, 2021), China has closely linked food security to its underlying national security. To that end, by the close of 2021, China has signed over 100 agriculture agreements with countries around the world in its quest to lock up reliable sources of food supply.
India is also reaching out across the world in its efforts to feed its growing population. According to the International Trade Administration (U.S. Department of Commerce - Sept 2022), India is becoming an increasingly important player in international markets. Consumer-oriented food imports, fresh fruit in particular, are among the fastest growing segments of imported agricultural products, exceeding $6 billion in 2021. So, competition from China, India, and other major international players is increasing for dependable food sources.
Climate Change Impacts – The Salinas-Watsonville area in California is a renown iceberg lettuce producing region. A report developed by Agtools shows that temperatures are slowly rising in that region as a result of climate change. Agtools’ analysis confirms that, as temperatures rise, lettuce production diminishes. As production and therefore supply decreases, prices increase. Two contrasting years illustrate the phenomenon. In the year 2018, temperatures were optimal in the Salinas-Watsonville growing area. Lettuce production grew by 17% and prices were stable. The following year, 2019, temperatures rose several degrees above normal. Lettuce production went down by 19% and prices rose.
The data for the Salina-Watsonville area in recent years clearly shows the correlation between climate-driven, rising temperatures and lower lettuce production. This is illustrative of the trends that data can reveal to buyers who know how to access and understand the data. The example above shows how data can help buyers understand crop trends in one region of the U.S. On a broader scale, data can help buyers understand and anticipate how climate change affects entire regions, such as Central America. In 2018, BioMed Central issued a report (Agriculture & Food Security - August 14) which found that climate change poses a significant threat to farmers throughout Central America, especially smallholder farmers.
There are over 2 million farmers in Central America (many of them smallholder farmers). BioMed surveyed 860 farmers across Central America, focusing on how climate change affects their cultivation of corn, beans, coffee, and other such crops. In its Report, BioMed indicates that almost 95% of the surveyed farmers said that they “are already experiencing impacts of rising temperatures, unpredictable rainfall, and extreme weather events on crop yield.”
Understanding how these extreme changes affect plant phenology can also help reveal trends in crop productivity around the world. Phenology is the study of the stages in the biological life cycle of plants. It’s typical, for example, for plants to have over 150 phenological phases in their growth to maturity. Changes in climate, especially increasing temperatures and diminished rainfall or long-term drought, greatly affect plant phenology. By studying the phenological phases of plant growth, it is possible to foresee the effects of drought, or higher than normal temperatures, and other extreme climate events well before reduced crop yields, or crop defects, become evident at harvest time
Smarter Tools Needed – In today’s world of supply chain shortages, bottlenecks, and uncertainties, DECA buyers and sellers need and can have access to a smarter toolset to navigate increasingly competitive waters in their quest to find the best suppliers and buyers they need to maximize margins. The toolset must have a broader perspective on world food and agriculture markets given their connectivity. DeCA commissary merchants and buyers need access to these commercially available Big Data sources to see the big picture with respect to the many variables that affect agricultural production and markets worldwide. In recent years, various companies in the agriculture sector have developed extensive databases on almost every crop grown, including row crops (primarily grains), and specialty crops (primarily fruits and vegetables). These databases cover a wide range of variables such as: production volumes, crop prices, transportation costs, border closures and labor disputes affecting deliveries, weather patterns in the areas where the crops are grown, and so forth. This data covers a span of many years, ranging from 25 years for most crops, and up to 50 years for weather data.
This data is public and available for commercial use; normalizing the data and preparing it for insight development is a complex process requiring a unique combination of the nuances of the products analyzed and the technology available for its processing. Ongoing training is normally provided to enable users (particularly corporate and government buyers) to fully understand how to access and use the information they need to improve their buying activities, but easier access could change the effectiveness of merchants and buyers in the system.
Access to such data bases, contextualized at the commodity level, is the key to giving DECA buyers a smarter toolset for understanding domestic and international food markets and achieving the reductions in food prices for the commissaries supporting today’s active-duty military, retired military, members of the Guard and the Reserve, and their families.
For questions, please contact:
Martha Montoya, CEO
Conduit Government Relations
Agtools, Inc. is a data science and analytics company headquartered in Orange, California.
Its Founder and CEO, Martha Montoya, has sourced virtually every type of fresh produce for
international markets from growing areas all over the world for over 25 years. Agtools utilizes public data along with their 76 variables to provide information to farmers, producers, shippers, buyers and retailers to make better decisions on their day-to-day businesses.
Brief video: https://vimeo.com/531092227