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Rabobank points to food supply chain flaws

By Nicholas Robinson , 15-Feb-2013

More and more complex
More and more complex

A report carried out by the Dutch banking group Rabobank has highlighted flaws within the food and agricultural supply chain.

According to the bank, the operating environment for the food and agricultural supply chain is becoming more and more complex, as new “external influences compound traditional pressures, such as rising agri commodity prices”, the report said.

The report also highlighted the fact that flaws in the supply chain structure leave the sector “ill equipped” to respond to complexities. As a result, the bank has called for the industry to transform the way supply chains are organised. It asked for longer-term supply agreements to be adopted alongside co-operative relationships with upstream and downstream partners.

Identified within the report is a dedicated supply chain model, which Rabobank said is the “best next step” for food and agriculture businesses. According to the bank, the new supply chain model has the potential to revolutionise the food and agriculture industry by making it more productive, innovative, safe and sustainable.

Pressures

Pressures currently faced by the sector, such as supply and demand dynamics, a growing population and rising commodity prices, are being added to by new circumstances. As such, Rabobank said the use of agri commodities for biofuel production – and an increased awareness of the energy intensity on food production – have played a part in troubling companies in the sector.

The new pressures, it said, are playing on the flaws in the current supply chain model. It added: “The dominant supply chain model is currently structured in a linear fashion, in which suppliers, processors and retailers form short-term partnerships independent from the influence and interests of other members of the chain.

“This model is highly inefficient, restricting food and agricultural companies’ ability to respond to changes in supply and demand dynamics, while fleeting partnerships limit productivity and restrict innovation. This system also results in wasteful processes that cause more environmental degradation than is necessary.”

Solution

Rabobank believes that switching to a new supply chain model where upstream suppliers and processors enter into long-term partnerships with each other.

Rabobank said it believed that switching to a new supply chain model had the potential to transform the industry. It said that as part of a dedicated supply chain structure, upstream suppliers and processors can enter into long-term partnerships with each other and a downstream chain leader.

Global strategist for Rabobank Justin Sherrard said: “Closer co-operation of this sort will transform the nature of food and agriculture partnerships from transactional ones, centered around chasing price, to a system focused on creating value”.