A few weeks ago, the New York Times reported on how mis-matched supply and demand has propogated down the food food supply chain, all the way to farms themselves. This sudden change in consumer demand (a shift from eating out at restaurants/schools to cooking more at home) has ended up with farmers destroying much of their produce.

A huge question that's come up as a result has been: why can't we embrace "farm-to-table" at scale to avoid so much raw material waste? The answer - and solution - lies in the intracacies of food supply chains.

At it's core, the effect we're seeing is happening becuase of two factors: a huge mismatch between supply and demand, and an inelastic global logistics and production chain.

A typical food supply chain follows this process:

(1) Farm

(2) Processors (the manufacturing companies that take raw foods in mass quantity and processes, color, and package - like Dannon or Chobani)

(3) Distributors (the 3PLs or logistics coordinators that have cold storage trucks aka massive freezers on wheels - you might have seen Sysco trucks on the freeway)

(4) Retail/Restaurants/Schools

(5) Consumers

Therefore, the biggest changes in the supply chain happen at stage (2) and (3) at the processor and distributor level, respectively.

Because of the coronavirus, restaurants and schools (4) have been shut down. Although retail sales have spiked (4) and companies like Instacart and Doordash have been hiring more and more people to meet america's "eat at home" needs, it's not enough re-distribution in the supply chain.

In order to re-route the food meant for restaurants/schools to consumers directly, producers two notches down the supply chain would have to make massive changes to their packing machinery and assembly line infrastructure. Say a production plant has 5 packaging machines, 3 of those machines might be dedicated to bulk packaging for restaurants/schools, while only 2 might be focused on packaging in consumer-friendly sizes that're sent to retail establishments. This capex hinderance creates an inability for quick turnaround and re-distribution of goods.

Another question that's come up is "why can't the food not being sent to restaurants or schools just be donated to food banks?"

In our value chain map above - Food banks fall under retail/restaurants/schools (4) - but lack the cold storage volume/infrastructure to store that much excess quantity of perishable goods.

In the normal world, revenue from restaurants trickles down the value chain. This is how distributors, and before them, food processors, get money to run production. When you replace restaurants with food banks , you rely on donations and volunteers to fund and run processing and distribution opreations. Oftentimes, the burden of getting the raw produce to the banks falls back to the already cash strapped farmers.

But this only addresses supply chains that are contained within the US.. Food supply chains make up a large part of the import export market. Food production was one of the first industries that succumbed to specialization and globalization. Certain geographies have higher natural propensities for food growth (think mangoes grown in Mexico), and different labor laws in different countries have made it more economically viable to produce at lower prices.

Global import/export chains are also facing a major hurdle as freight forwarders and warehouses are slowing down. They're not coming to a total stop, but small inefficiencies add up and are amplified as they propagate through the supply chain. Added to regional problems, this drop in international demand and the backlog of international shipping lanes has trailed back and reduced demand for farmers.

To summarize - there are a few main points preventing us from salvaging the farm food:

  1. Lack of consumer-friendly production capacity - A huge drop in demand from the restaurant/school catering industry has led to lost demand. Even though there's an uptick in retail demand, it's not enough to overcome the deficit from the other two industries. Simply re-routing produce to people's homes don't work because the things people buy at home are different in nature than those bought at an industrial scale (NYT - "people just don't make onion rings at home")
  2. Lack of consumer-friendly packaging capacity - Food processor's machinery is set up to package on an industrial scale when selling to restaurants. Any production capacity allocated for packaging to consumers directly is already going to the retailers. This is a production capacity problem (5 packaging machines, 3 are for restaurants/schools and package in massive bulk, 2 are for consumer sized and are already dedicated to shipping to retail)
  3. Lack of cold storage on multiple levels - Neither food banks nor average american families have vast amounts of cold storage infrastructure. Even if we were to start selling 100 egg cartons and 10 gallon milk containers to consumers, they don't have nearly enough cold storage to make that amount of food last
  4. Logistics - Even if you could get enough cold storage in food banks straight from processors, there's no means to pay for distributors to transport production from farms to processors and processors to food banks.

Depending on how long this pandemic is going to shut down restaurants/schools, there might be an opportunity for us to solve this logistical nightmare with technology. From the mid 1950's to the early 2000's, the world went through a quieter industrial revolution focused on dropping unit economic costs by batching and producing at scale and volume.

The 2000's and software revolution helped us re-think some of the fundamentals of supply and demand by creating a new model around resource flexibility (e.g. ramp up the shipment volume you need with Convoy, ramp up your production capacity with 3D printers, don't buy razors in bulk from Walgreens, just subscribe to a monthly D2C razor subscription you can shut off anytime).

This leads to an interesting thought experiment around the role technology and corporations can play in alleviating some of the burden on our existing supply chain infrastructure for each of the problems above:

  1. Lack of consumer-friendly production capacity - Can startups that specialize in the food CPG industry rise up and vary their raw material intake and launch new brands? E.g. the NYT article said people don't make onion rings at home, but people do still love onion rings. Is there opportunity for existing or new D2C food companies to launch new brands that focus on utilizing and launching produce that consumers wouldn't usually make on their own? I for one ate Funyans obsessively as a child - is there a new D2C brand oppurtunity hidden here?
  2. Lack of consumer-friendly packaging capacity - Can modern OEM's and robotics companies be re-purposed from traditional use, and be brought into these production centers to increase capacity for smaller packagings? We're seeing signs of this happening already across PPE production. Can companies like Lumi play a role here as well by lending their expertise in packaging sourcing?
  3. Lack of cold storage on multiple levels - Can corporate chains like Subway or Dunkin Donuts volunteer some of their cold storage capacity as an extra node on the supply chain to help alleviate the stress on Food Banks but let them take larger quantities of food?
  • Logistics - Through a hybrid of donations and corporate giving, can companies like Convoy, UberFreight, Uber (main), Lyft, Shippo, or ShipBob play a role in leveraging their marketplaces and services for freight? Firms like Flexport have shown early success in re-adapting their service capacities fueled by donations in the PPE delivery sector - can we do the same for food?

Supply chains are hard and complex, but this might just be the technology world's opportunity to rise to the challenge.