Food and beverages are not doing well. The price of commodities has been affected by geopolitical tensions. Businesses around the world are experiencing uncertainty due to tariff barriers imposed by the United States. Cyber attacks are causing companies to spend more on security and eat into their profits.
How do these threats affect the food industry as a whole? What are the companies doing to deal with this threat?
Food safe from geopolitical uncertainties?
According to a new study by ING Bank, global food insecurity is on the rise.
Geopolitical risk is on the increase, according to surveys of food executives. Europe, with its dependence on raw materials, energy and technology, is especially vulnerable.
ING says that crises such as the conflict in Ukraine or disruptions in shipping routes in the Red Sea are continuing to have a negative impact on the global food supply.
Thijs Gieder, Senior Sector Economist at ING, explains that the increased risk can lead to companies becoming vulnerable due to dependencies such as their suppliers. Today, the challenge is for businesses to “assess which dependencies may become a vulnerability.”
Geopolitical uncertainties have increased in the commodity and foreign exchange markets. The tensions in the world have increased volatility, both for commodities and agricultural inputs like fertiliser.
In an attempt to maintain food sovereignty, countries are also localising their production in response to geopolitical uncertainties. The industry may view a greater focus on food safety as positive, but it can have negative unintended consequences, such as causing price fluctuations and distortions in the market.
What will happen to the Food System if Tariffs are Increased?
The tariff barriers put in place by President Donald Trump’s administration have affected many industries, including the food and beverage industry.
The trend of tariffs declining over time has been disrupted. Geijer explains that tariffs had been declining for a long time. The fact that they are now at a record high has caused a great deal of anxiety for businesses. The business community has responded to the spike in oil prices by a variety of means.
Nestle, Heineken and other companies have stated that a localised supply chain may protect them against the worst tariff effects, reducing the geographic barriers. Others, like Diageo do not enjoy this luxury.
Geijer explains that larger companies are better able to achieve this because they aren’t tied to a specific region for production. They have more facilities around the globe and can therefore produce more locally.
Some companies have even dropped their revenue targets for the year.
Geijer says that while tariffs may lead some EU companies to set up in the US afterward, it could take three years.
You need to make sure that your current situation is the same as what you’ll have three years from now, otherwise you risk having different parameters.
This certainty is impossible due to the volatility of tariffs. Businesses are therefore delaying making decisions.
There are other options available to companies. These include leveraging their inventory, importing first into the US market, discussing prices with customers or suppliers, and optimising your supply chain.
Indirectly, trade wars also affect food and beverages. Consumer confidence in Europe is also low, but the US situation is worse, with the recent record of the second lowest since 1950.
Companies that deal with consumers are feeling uneasy because of low consumer confidence. Food isn’t as susceptible as some other industries (Geijer cites cars, electronics and furnishings), but there is still the risk of consumers spending less. Many Q1 earnings reports have expressed concern in this regard.
As revenues are uncertain, companies may be hesitant to invest in new production lines or facilities.
Cybersecurity and food
Food and beverages are increasingly at risk from cybercrime. Cyber attacks have had an impact on UK retailers Marks and Spencer and Co-op. Cyber attacks are finally causing companies to wake up.
Geijer explains that “in any conversation where the topic of cybersecurity came up, we all felt like it was becoming an even bigger issue.”
Many companies spend more money on cybersecurity, but reluctantly.
The spending is a necessary necessity, but they are hesitant to do it because “it’s not spending money on things that make you more productive because the product will be inferior.”