Major impact on agricultural production seen from COVID-driven labor shortages in labor-intensive processes such as meat packing, as well as disruptions in containerized transportation, are driving up costs and, as in other sectors, leading to reconsideration of lean inventories and a greater emphasis on automation.

The agricultural commodity impacts have been profound, but they have been very uneven in that they have impacted different sectors in different ways. For example, in ocean transportation, dry bulk shipments of grains and oilseeds, which is a big part of agriculture, for the most part has not been impacted; we’ve seen only a few disruptions here and there. In contrast, the container shipping impacts highlighted earlier have had a significant impact on agriculture. Critical as we move forward in 2022 is that the duration of the impacts have been longer than anyone expected and as a result, the consequences will have a more profound structural impact on the industry.

With respect to the container shipping side, the impact to agriculture has been especially severe on high-value commodities such as dairy, meat, fruits, and vegetables. A lot of the agricultural product moving in containers are backhaul. That is, the container will come in with another item—for example, computer chips and auto parts—then it gets loaded with food commodities. Currently, the situation is the carriers are less interested in that backhaul. Agricultural products are low value compared with items such as computer chips or iPhones, and so agricultural products are not going to be the haul of first choice for the ocean carriers. They want to get the container back for those high-value items, and this has had a big impact on agriculture. We’ve seen instances where products that are high value in an agriculture and food sense cannot get containers as they are of much lower priority to container owners and shippers. The problem has become so severe that in some cases these products have to be shipped by air just to get them from point A to point B—something that was really inconceivable to think about a year or two ago.

Another impact to agriculture has been on any labor-intensive process, for example meat packing and fruit and vegetable harvesting, which have created really big problems in the supply chain that have persisted in 2022. The Omicron variant of COVID-19 is more highly transmissible, and for labor intensive operations such as meatpacking, where workers are in close proximity, the impact in late 2021 and now in 2022 is as bad if not worse than previous waves of infection. Then there are indirect impacts from things such as packaging materials, resins, linerboard, and aluminum—all vital inputs to the food products that consumers buy. Even if you can get the commodity to where it needs to be, getting it packaged up and to the consumer has been a serious challenge.

All of these disruptions relate to cost. When you increase costs in the supply chain, two things can happen. It can increase the cost to consumers, which has been very visible and has contributed to inflation and new political pressures. But the other impact is that for those commodities affected, it can mean lower prices to the farmers. You disrupt the export markets, and you disrupt the food supply chain, which increases costs, and that will lower the price the producer gets.

Coffee is a clear example of the impact of supply chain disruption. We can all relate to coffee consumption and coming out of the pandemic, we saw demand increase for all foods, including coffee. The onset of the supply chain issues described in this report probably increased shipping costs for coffee by approximately 30%—and ultimately, the price of coffee, by 30% or 40%. Then the coffee market was hit with frost in some key coffee-producing areas of Brazil. The frost, and the impact this had on the size of the crop, came on top of the existing supply chain problems. This combination of supply chain disruption and weather-related problems ratcheted up coffee prices in a very short time to the point where coffee prices doubled and haven’t really come down. Layer on top of that the shift during the pandemic from foodservice to retail, the adjustments that had to be made in the supply chain, and the difficulty of getting packaging materials—adding them together really creates a really difficult situation. All of this translates into cost increases back to the consumer as well as lower prices to the producer.

While much of the discussion of supply chain issues focuses on the consumer or manufacturer, agricultural production has been impacted with respect to crop inputs such as fertilizer and crop protection products. For example, supply chain bottlenecks have disrupted vital ingredients needed to produce crop chemicals; increased energy costs, especially for fertilizer producers; and have disrupted supply chains into farms. The cumulative impact is higher production costs, lower profits at the farm level, and some reallocation of crop acres from high-input crops to crops that are less intensive users of fertilizers and crop chemicals. These impacts have carried over into 2022 and we will see the consequences come harvest time.

In terms of the longer-term outlook, labor was a problem in agriculture before the pandemic, as it has been in other industries as well. For example, agribusiness and agriculture had really struggled with labor in certain sectors such as meat packing, production agriculture, and transportation. In transportation, truck drivers have been and remain in short supply. The increasing tightness in labor supply means that the negotiating power is shifting even more from employers to employees. As a result, if you have not been looking at automation as a solution to labor cost and availability before the pandemic, you’re going to have to look at it coming out of the pandemic. How you can better manage labor costs is going to be a key issue moving forward, and automation is one of the answers.

Another consequence is that a generation of business leaders have focused on building “just-in-time” supply chains that by their nature have kept inventories minimal. That is not going to be reversed 100%, but we’re definitely encouraging our clients to think about inventory levels—and more broadly their supply chains—and what they need in terms of buffer stocks and other forms of resiliency to guard against future supply chain disruptions. That adds to working capital and it comes back to cost. But the trade-off is a more reliable supply chain and better ability to meet customer needs.