Agriculture is a key component of the supply chain, supplying raw materials and food products to manufacturers and retailers.
The agriculture industry is constantly evolving, with new technologies and methods increasing yields and reducing costs. However, agriculture also faces challenges, such as climate change and the need for more sustainable practices.
As the world population continues to grow, there’s an increasing demand for agricultural products. This puts pressure on the industry to meet this demand. In addition, agriculture often relies on transport to get products to market. These hauls can be impacted by factors such as fuel costs and infrastructure. As a result, the agriculture industry must constantly adapt to changes in the supply chain to remain competitive.
How supply chain issues are affecting agriculture
Produce isn’t the only commodity suffering in the agriculture supply chain at the moment. With supply shortages, livestock food is becoming more scarce. Also, equipment parts such as tires, crop protectants, tractors, and other equipment technologies are now in short supply.
Bottlenecks at almost every major port are a massive concern for commercial agriculture. As bottlenecks continue to clear and conditions improve, equipment will be more available. However, the rolling impact of improvements will be slow.
In some areas of the world, people and animals are starving as the supply chain remains congested and commodities lag. In other areas, fresh food is rotting in fields as they are left unharvested due to the labor shortage.
The USDA recently announced a plan to transform the food supply chain. This includes mitigating loss and making raw, healthy options accessible to all.
Major issues facing the agricultural industry
- Lack of food storage: Warehousing isn’t just for eCommerce. The impacts of warehouse shortages have devastating effects on the agriculture supply chain.
- Natural disasters: The recent droughts have rippled through the commercial farming community, making critical commodities such as hay nearly impossible to produce.
- Processing facilities: With decreased access to raw materials, processing facilities are not operating efficiently; they are unable to process commodities in demand.
Recent droughts decrease the supply of agricultural products
According to the National Integrated Drought Information System, 43% of the United States is in a drought this week. However, recent summer storms across the country have improve conditions of some farmland, providing much-needed soil moisture.
Even as soil conditions slowly improve with the late summer weather changes, some crops will not reap the rewards. Droughts have heavily impacted wheat, corn, and soybean production, and the United States has seen a substantial drop in production over the last year.
Decreased Water Availability
With limited availability for crop or forage irrigation and to water livestock, the cost to access water has massively increased in the last several months. Even with precipitation returning to normal, the surface and groundwater supply take much longer to replenish than soil moisture.
Financial impacts of droughts on the agriculture supply chain
The cost to access water trickles down to other sectors and industries, such as food processors, and reduced input, such as farm labor. This can cause a ripple effect through the agricultural supply chain.
NIDIS reports, “In 2015, farms contributed $136.7 billion to the U.S. economy and accounted for 2.6 million jobs, with about half of farm revenue coming from livestock production. Other agriculture- and food-related sectors contributed an additional $855 billion and accounted for 21 million full- and part-time jobs.”
In 2012, severe drought impacted over 80% of farming lands in the United States. Two-thirds of the counties affected were declared natural disaster areas, and over 10,000 seasonal jobs were lost in California alone. The impacts of crops in the Great Plains and Midwest added up to $14.5 billion in loss payments by the federal crop insurance program.
The limited availability of water leads to an increased use of groundwater. The excessive pumping of water supplies can cause the ground to sink (called subsidence). Subsidence creates a risk for sinkholes and can cause significant infrastructure damage.
The World Bank reports that as of July 29, 2022, the Agriculture Food Index indicates a 19% price increase from January 2021. The biggest challenge over the coming months will be crop fertilizer access, which can create an even higher rate of food insecurity in the United States.
Globally, food prices have skyrocketed due to natural disasters, supply chain issues, and war. Other countries will continue to suffer as these events unfold, and the United States will be impacted as global trade experiences more disruption.
Soil conditions will slowly continue to improve, but impacts will not be felt immediately. Consumers, farmers, and businesses should prepare for potential rate increases across the various stages of commercial agriculture, starting from water supplies and ending in transport.