COVID-19 Impact on Food Equipment in Food and Beverage Industry
Food equipment industry includes processing machines, components and systems used to prepare, handle, store, cook and package food and food products. Even though these food equipment are mainly aimed towards the transformation such as increasing the consumption, palatability and digestibility or preservation which means enhancing the shelf life of food. Some other types of equipment are also employed to perform auxiliary or preliminary functions, such as preparation, handling and packaging. Food equipment are used in various applications ranging from beverages industry to bakery products and dairy to produce wide variety of food processing equipment available to perform the various unit operations required during a complete production cycle, such as separating, washing, baking, mixing, sealing and freezing. One of the hardest-hit industries due to the COVID-19 is the food equipment manufacturing industry. The COVID-19 originated in China, which is a major country for the supply of raw materials to the factories across the world. The measures such as lockdown and ban on transportation are being taken to restrict the spread of the coronavirus which has led to the shutdown of the manufacturing facilities and derailing the entire global supply chain. This has affected the chain of events which includes a downturn in economies across the world and decline in global FDI inflows. According to the United Nations Conference on Trade and Development (UNCTAD), COVID-19 is expected to cause decrease in the global FDI by 5 to 15% owing to the downfall in the manufacturing sector coupled with factory shutdown.
ANALYSIS ON FOOD EQUIPMENT INDUSTRY
In this scenario of COVID-19 pandemic, food equipment manufacturing companies are facing significant reduction in the consumption and also the supply chain issues which is affecting the demand for food equipment. Food and beverage industry is the largest user of food equipment. According to the estimate of French trade group ANIA, the food & beverage manufacturers have suffered a 22% loss in turnover across the world. This shows that the demand for food equipment has also reduced. The supply of raw materials to the site is affected which has hampered the production of equipment which is forcing manufacturers to shut down the operations, also the companies are facing manpower issues in the time of social distancing.
Food equipment is used in various food related industries such as dairy, meat, fisheries and oil among others. These industries are affected owing to the COVID-19 pandemic which in turn is expected to reduce the demand for food equipment in these industries. According to the Food and Agriculture Organization (FAO), the global meat production is expected to reduce by 1.7% in 2020 owing to COVID-19 related market disruption. The prices of meat in the International market have fallen by 8.6 percent from January 2020 owing to the COVID-19 related measures. The COVID-19 pandemic has heavily affected the fish industry. The global demand for the fish is expected to fall by at least by 15 percent in 2020. The global sugar production is also expected to reduce. The global dairy exports are expected to fall by 4 percent amid faltering import demand. This shows that the negative impacts of COVID-19 on these industries is also expected to reduce the demand for food equipment needed in these industries.
DISRUPTIONS TO SUPPLY CHAINS
The measures which are being taken to restrict or prevent the spread of COVID-19 are also affecting the functioning of food equipment supply chains. The impact on labour availability is of major concern. The food equipment industry is expected to be vulnerable to the adverse impacts on the workforce from the spread of COVID-19 (workers being in isolation or sick) and may face additional distribution and production costs, a result of safety and health measures introduced to decrease the exposure of their workforce. Two clear mechanisms of virus transmission are people in contact with contaminated surfaces and people who are in close proximity. Managing these risks require immediate changes to the way food equipment is distributed and processed, but could be difficult to implement in the short term owing to challenges with regard to sourcing protective equipment and masks for workers. Because of increasing infection rates and absenteeism, the available workforce has already been reduced. In addition to disruption to supply, infection rates in processing facilities have in turn led to reductions in demand. Restrictions on the mobility of the people and lockdowns is also affecting the provision of equipment safety, certification checks and quality, including those which are required to facilitate trade such as physical inspections of equipment to certify compliance sanitary and phytosanitary requirements (SPS).
Measures to restrict the spread of the COVID-19 are causing disruptions and delays to logistics and to transport services. Border closures and additional checks and procedures have led to delays and congestion affecting the transit of food equipment products. For instance, social distancing rules have decreased the numbers of export and import inspectors at borders which has increased the time required for custom clearance. The shutdown of airlines and increased cost of international flights due to decreased volume of trade and unavailability of commercial passenger flights is causing major problem for the export of high value food equipment products. The closure of port is arising as a problem too when the food equipment are to be diverted from one port to another or to others country’s port. The COVID-19 pandemic is expected to have impacts over the long and short term for equipment industry loss.
Bottlenecks in logistics and transport have disrupted the movement of equipment along with supply chains. Food equipment is transported with the help of three major modes of transport which includes bulk (barges and ships), containers (by boat, truck or rail) and other road transport and air freight. The mode of transport depends upon the type of equipment. The COVID-19 impact on these transport modes varies considerably. Bulk shipments have not faced any major disruptions and prices for bulk freight are actually near multi-year lows. However, air freight has been greatly disrupted. World air cargo capacity in the week of 10th to 16th May was 26% lower than during the same period last year with the largest reduction in capacity on routes between Latin America and Europe (with reductions of more than 80%). The disruption is affected by the steep decline in passenger air travel, which is in the normal time and accounts for the majority of air cargo capacity. Disruptions to truck and container transport fall somewhere in-between, currently the number of container ships is 8% below normal owing to COVID-19 restrictions such as restrictions on crew changes, mandatory quarantines, additional screening and reduced demand. Commercial road transport in April was about 20% lower than normal in the United States and Canada. In Europe, truck traffic is initially reduced by more than 50% in Spain, 37% in Italy and 46% in France. This shows the impact of COVID-19 on the transport or supply of food equipment to various destinations.
MANUFACTURER’S RESPONSE TO COVID-19
“We are temporarily closing some of our plants, beginning with one- to two-week closures in early April for five of our ten America region plants and three of our six Europe and Middle East and Arica region plants. All four of our Asia-Pacific region plants are currently operating on normal schedules. We will continue to adjust these schedules based on governmental requirements, health, safety and demand factors on an ongoing basis as we proceed through the COVID-19 pandemic and related market impacts”
• Rich Sheffer, Vice President Investor Relations and Risk Management and Treasurer for Welbilt, Inc.
“With the global outbreak of COVID-19 and an increasing number of countries under lock-down, negative effects are expected in the global economy going forward. In this context, the company has decided to launch a cost reduction program to proactively address the expected weaker conditions in the next few quarters”
• Tom Erixon, President and CEO for the Alfa Laval Group
“Due to the current development with the spread of the COVID-19 virus and the related directives of the French Government, Bucher Industries has decided to temporarily shut down production sites in France”
• Silvia Oppliger, Head of Group Communications for Bucher Industries
“Our global network of manufacturing sites is working together with our suppliers to mitigate as much as possible, any impact on the supply of Tetra Pak’s complete offering to our customers. We are also co-ordinating with our global logistics partners with the aim to ensure continued shipments to our customers in various potential scenarios”
• Adolfo Orive, President and CEO for Tetra Pak International S.A.
All the food equipment manufacturers are suffering during the time of COVID-19. Disrupted supply chain and reduced demand are some of the major factors that manufacturers are facing due to COVID-19. Once the pandemic situation settles, the companies will find it imperative to change with time and innovate to remain relevant. However, the growth in the demand of processed food products has continuously engaged the food manufacturers in the production process which has led the requirement of the machineries across globe. The disruption in the supply chain including raw material, equipment and other beneficiaries have impel the food processing market, whereas the demand of the food products through e-platform have shown anonymous growth in the retailing of food products. There is a seismic effect of the COVID-19 pandemic on businesses across the world, but there are lessons that can come out from it. This is an opportunity to fine tune business contingency and continuity plans, but it is also a chance to decide what things are mainly important and find new ways in which to grow.