Financial Times Europe - 26.03.2020

Thursday 26 March 2020 ★ FINANCIAL TIMES 9

CO M PA N I E S & M A R K E T S

E M I KO T E R A ZO N O A N D J U D I T H E VA N S

“Please get ready for the storm to hit,
because hit it will,” the head of Nestlé,
the biggest food manufacturer, told staff
on Monday.
“We need to focus our efforts on
securing supplies, manufacturing and
logistics every step of the way,” Mark
Schneider said. “For those areas that are
not affected yet, get prepared by build-
ing inventories of critical supplies and
products.”
To fill their pandemic pantries, con-
sumers have rushed to buy non-perish-
able staples such as toilet paper, canned
goods and pasta — especially pasta. In
the UK, for instance, pasta sales rose
168 per cent in the week to March 14
compared with the year before.
Following the journey of pasta from
farm to fork illustrates the processes
that will need to be kept running during
the outbreak. Like many foodstuffs,
pasta relies on a highly complex inter-
national supply chain, often passing
through several countries on the way to
consumers’ plates.
For pasta eaten in the UK, most is
made from wheat shipped from Canada,
which is processed by companies such
as Barilla and De Cecco in Italy, which
exported $3bn of pasta last year. After
being transported by truck through
Europe, UK wholesale distributors such
as Princes sell it t o supermarkets.
Wheat production should be rela-
tively unaffected. In Canada, grain pro-
duction and harvesting is largely
mechanical.
“One person can be planting hun-
dreds of acres,” said Chuck Penner, ana-
lyst at LeftField Commodity Research in
Winnipeg.

The wheat is transported to ports
by rail, and the handling is largely
automated.
The price of Canadian durum wheat
has risen 8.5 per cent since the start of
the year due to the stockpiling-driven
pasta demand, according to Mintec, the
commodity data group.
Nevertheless, at this point, many
large food manufacturers hedged
against commodity price rises for sev-
eral months ahead, said Andrew Searle,
managing director of consultants Alix-
Partners.
If port workers in Europe fall ill, how-
ever, supplies coming into Italy could be
affected; the country imports about half
of the 5m tonnes of durum wheat it uses
for pasta each year.
For now, production at Italian facto-
ries was running at full capacity com-
pared with the usual 75 per cent, accord-
ing to Ivano Vacondio, president of
Italy’s food and beverage federation,
Federalimentare, as producers strug-
gled to meet a doubling in demand.
This was despite a 12-15 per cent
decline in the factories’ workforce,
mainly due to staff childcare problems.
“You can imagine the pressure the
factories are facing,” said Mr Vacondio,
who is also the chairman of a leading
Italian flour producer, Molini Industri-

ali. “But things are under control. Facto-

ries won’t be closed.”

Even if production can be maintained

in Italy, analysts warn that there might

be further disruption if border controls

clogged motorways, deterring drivers

from delivering products.

“Food is a priority and things should

be moving freely, but no one wants to get

caught up in a line of 1,000 trucks,” said

Stefan Vogel, analyst at Rabobank.

Governments are stocking up on sta-

ples, with countries including Algeria

and Turkey issuing new tenders for

wheat, while Kazakhstan has stopped

exports of food including onions and

buckwheat.

For the UK, a potential pinch point is

the Channel crossing.

With more than half of freight from

Europe using ferries, the health of the

shipping sector could pose a risk, said

Bob Sanguinetti, chief executive of the

UK Chamber of Shipping.

“The country needs shipping to keep

moving for the supermarkets to func-

tion,” he said, noting that most ferry

operators relied on carrying passengers

as well as freight.

Passenger traffic has fallen 90 per

cent, however, leaving the companies

struggling.

Closer to consumers’ plates, distribu-

tors are recruiting staff to keep up with

surging demand.

“We work with one distribution cen-

tre handling food products, and their

labour requirement has trebled over the

past two weeks,” said James Mallick,

compliance director at the UK food

industry recruiters Pro-Force.

Some of that demand might ease as

households’ store cupboards are filled,

said Mr Mallick, but the shift away from

eating out was expected to fuel contin-

ued strong demand for retail food prod-

ucts, hence the need for extra workers.

While output of grain might escape

the ravages of the crisis, it was fruit, veg-

etable, meat and dairy products where

shoppers were likely to see fewer

choices if the crisis continued, said ana-

lysts and consultants.

The pandemic could disrupt the flow

of fruit and vegetables to households as

labour-intensive planting and harvest-

ing could be disrupted by immigration

restrictions.

Apart from potential labour shortages

affecting harvesting and picking, the

crisis could hit transport. Products from

other continents such as some exotic

fruits could be in short supply — also

produce that consumers expect to eat

regularly, such as avocados, mangetout

and baby courgettes.

“There may be certain fruits and veg-

etables that will be impacted,” said

David Howorth, executive director of

UK supply chain consultants Scala, who

notes that industrial food manufactur-

ing supply chains are more robust.

For the UK, with 90 per cent of the

food we consume produced domesti-

cally or in Europe, there is unlikely to be

an issue of having food on the table.

However, for the remaining 10 per cent,

“there may be some reduction in the

range of food that we are normally used

to,” he said.

This will apply to an extent even in

less import-dependent countries such

as the US: despite its large domestic

agricultural sector, the country imports

more than half of its fresh fruit, for

example.

For now, there are no problems with

overall supply, while companies along

the chain are frantically adapting their

operations to meet demand.

“People will get their pasta,” said Mr

Vacondio in Italy. “For the moment they

are producing, they are packaging and

they are shipping... Of course we don’t

know what’s going to happen in a

month. It’s difficult to predict.”

Supplies under pressure from farm to fork

Logistics operators face tests including labour shortages and border closures as food producers are pushed to capacity

Source: FT research

Global supply chains

From there it is

sent out to

supermarkets ...

Wheat is sown, grown

and harvested in

Canada

It is shipped

to Italy ...

... where it is

turned into pasta

It goes on a

truck journey

across Europe ...

... which sell it

to consumers

... and by ferry to

the UK

Panic is only on the demand end of things

(supermarkets/customers), but there is scope for further

issues, eg if

borders close or drivers don’t want to drive

sta in production or distribution fall sick

there is disruption at ports

... where it is put into

trucks and transported to

distribution centres

G R E G O RY M E Y E R— NEW YORK

US corn ethanol refineries have reacted
to a catastrophic loss of fuel demand by
repurposing some products to make
hand sanitiser.

Restrictions on movement to control
the pandemic have cut US petrol con-
sumption by almost two-thirds, or
6 m barrels a day, RBC Capital Markets
estimates. The decline will hit ethanol
hard as it comprises about 10 per cent of
most petrol sold in the US.
The looming demand shock is
reverberating through the rural US Mid-
west, where four in 10 bushels of the
corn crop is consumed by ethanol
plants. Corn futures in Chicago have
declined 8 per cent since March 1 to
below $3.50 a bushel.
“We’re losing money pretty fast right
now,” said Daryl Haack, a farmer and
board member of Little Sioux Corn
Processors, an ethanol plant in north-
west Iowa. His board planned to con-
vene today to discuss whether to slow
output, he said.
The coronavirus has triggered a
threefold rise in US hand sanitiser sales
from a year ago, according to Nielsen,
leading to widespread shortages. The
World Health Organization has recom-
mended either ethanol — grain alcohol

— or isopropyl alcohol for use in hand

sanitising products.

Last week the US Treasury depart-

ment exempted fuel ethanol and

spirits distillers from the need to

obtain permits before selling into the

sanitiser market, citing the urgency of

the pandemic.

The rise in sanitiser sales is unlikely to

offset the drop in volume to the motor

fuel market. In 2019, US hand sanitiser

sales totalled $193m, Nielsen said. Vehi-

cles last year burnt 14.5bn gallons of fuel

ethanol in the US last year, worth about

$20bn in the wholesale market.

“There are not enough hands to be

sanitised to meet the US ethanol pro-

duction capability,” said Bruce Rohwer,

a corn farmer in O’Brien county, Iowa.

Chad Friese, chief executive of Chip-

pewa Valley Ethanol in Minnesota, said

the company was trying to supply the

hand sanitiser industry, but the product

specifications were different.

“These ethanol fuel facilities are not

really designed for this. Pharmaceutical

grade is what you need because it’s com-

ing in contact with humans,” he said.

The turmoil in the ethanol industry

has exacerbated tensions with the oil

industry, whose companies are also suf-

fering from the effects of empty roads.

Donald Trump’s administration is seek-

ing $3bn from Congress to purchase

crude oil for a government stockpile to

assist petroleum producers.

The ethanol lobby, a potent political

force in states such as Minnesota and

Iowa, said it too deserved aid at a time

of duress.

“We expect fairness and equity in how

assistance is being provided to various

US energy industries,” Geoff Cooper,

chief executive of the Renewable Fuels

Association, said.

See Lex

Energy

US corn ethanol refiners left reeling

‘You can imagine

the pressure the factories

are facing. But things

are under control’

The price of Canadian durum wheat has risen 8.5 per cent since the start of the year— Mike Sturk/Reuters

UK shoppers stock up

Increase in weekly sales of top five

foodstus ()

  

UHT milk

Pasta

Canned pasta

Canned meat

Soup

Sales from Mar  to  compared with a year before

Source: Refinitiv

The demand shock is reverberating

through the rural US Midwest

MARCH 26 2020 Section:Companies Time: 25/3/2020 - 18: 30 User: cathy.pryor Page Name: CONEWS2, Part,Page,Edition: USA, 9, 1