The Real Economy, Canada

The pandemic's impact on Canada's food supply chain

Feb 24, 2022
Supply chain Economics The Real Economy Consumer goods

To get a sense of the pandemic's impact on Canada's real economy, look no further than the food supply chain.

With the omicron variant sweeping across the country, shoppers are once again confronted with empty shelves at grocery stores. The same picture played out when the pandemic first hit in early 2020, and for every wave since.
To make matters worse, not only are food products less available, but they are also less fresh and cost more, so Canadians are paying more for less.

The pandemic has upended Canada's food supply chain at every level, including production, manufacturing, packaging, transportation and retail. There are serious implications for consumers and businesses.

The reasons for the disruption to the food supply chain are many, but they include a shortage of workers, transportation bottlenecks and the time-sensitive
nature of food.

For consumers, the result is food prices that far outpaced core inflation last year, with the most dramatic increases in edible oils (22.2 per cent) and beef (15.4 per cent), while other items had more moderate increases like poultry (6.2 per cent). Some items had modest increases more in line with target inflation like fresh vegetables (2.3 per cent) and fresh fruits (1.5 per cent).

Worker shortage

Even before the pandemic, jobs in the food sector already had trouble attracting workers as they tended to be lower paid with few benefits and physically demanding conditions. This is true for workers in food processing plants and grocery stores, as well as restaurants.

The downsides have been exacerbated by the pandemic as workers face an elevated risk of infection. The outbreaks in 2020 in processing plants showed that many workers did not receive adequate protection from COVID-19.
The pandemic prompted an unprecedented number of people to switch industries and find new careers. The food sector has been no exception as workers leave to seek higher pay and job security.

The fast-spreading omicron variant resulted in droves of workers having to isolate, leading to an acute worker shortage. While overall demand for food did not decrease, the workforce this year has had a temporary but prominent reduction in size.

Time sensitivity a key issue

While few industries are immune from supply chain disruptions, the food sector is even more susceptible because of the perishable nature of groceries.

Starting Jan. 15, unvaccinated American truck drivers have not been able to enter Canada, while Canadian truck drivers re-entering Canada from the United States must be tested and quarantine themselves. The policies have been met with rising protests.

With such a shortage of truck drivers, even a small drop in the number of cross-border drivers could further strain the food supply chain. The RSM Canada Supply Chain Index notes that Canada's supply chain health took a turn to the worse in the past couple of months, while remaining well below sufficiency level.

In addition to the floods and landslides in British Columbia, other factors also exacerbate delivery times. High COVID-19 case counts mean there are fewer workers checking inventory, moving boxes and stocking shelves. As a result, everything takes longer.

Longer delivery times translate to more food waste, which could increase prices even more as businesses pass on the cost to customers.

Implications for the Canadian economy

Since food is a necessity, consumer behaviour is affected not only by current food prices but by consumers' anticipation of future prices. Many consumers expect food prices to continue to rise substantially this year, which will lead to behavioural shifts that hinder the economic recovery.

Households will switch to eating out less and shopping at discount stores, as well as substituting items that had the most increases over the past years - like meat - for lower-priced items.

In addition, when consumers have to spend more money on food, they have less money left for discretionary spending on things from entertainment to electronic devices. This presents yet another barrier in the recovery as households keep their consumption in check.

Opportunities and solutions

With COVID-19 causing much uncertainty, businesses need to be prepared that each subsequent wave might require some employees to isolate temporarily. With as much in-person contact as in the food businesses, this is inevitable.

In addition to maintaining measures to keep employees safe, businesses should lean into the power of technology.

  • Adopt smart management tools: These tools could enable management to update scheduling instantaneously as they learn of which employees need to take time off and who can step in. Employees could trade shifts, giving them additional flexibility and resulting in lower turnover.
  • Look to innovation: Plant-based meat and fish substitute production, for example, can help companies source food close to home without the added challenge of navigating the strained global supply chain. Companies will also be meeting consumers rapidly growing demand for plant-based meat alternatives. While shortening the food supply chain and going local could increase costs, some consumers are willing to pay the premium.
  • Reduce food waste: Given that Canada wastes more than half of all its food, reducing food waste needs to be a top priority. Tech companies are spearheading this space by matching customers with food near their sell-by dates, but reducing waste is something any business can do to lower cost and improve efficiency.

The takeaway

Canadian businesses in the food industry need to adapt as the COVID-19 pandemic transitions to an endemic, where surges in cases and temporary bouts of restrictions remain a threat though with less severity.

Canada's food supply chain also struggles from other factors, such as high fuel prices and extreme weather events.

Still, the shortage of workers remains a long-term challenge. Working conditions, compensation and benefits all need to improve drastically to attract and retain workers amid an overall tight labour market.

RSM contributors

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