There have been many challenging periods over the years, but the situation currently unfolding in global supply chains is unique, in as much as it has had a global impact. And the ripple effects are widespread, impacting production, operations, and consumption.
Global agriculture under pressure due to supply chain risks
The Eastern European region is known for the many commodities they supply the world with. Both Russia and Ukraine account for a large component of the wheat 14%, barley 19%, and corn 4%, ingested across the globe, adding up to more than one-third of the global cereal. Their output is used to feed at least 50 countries across the globe, many of which include the least developed nations, according to the Food and Agriculture Organisation of the UN (FAO).
Russia is a major global producer of fertilisers, including nitrogen, phosphorus, and potassium, all of which are essential for crop agriculture. Due to the rising conflict in the region, there are legitimate worries that there will be shortages and issues with yields, not only in Ukraine and Russia, but globally as farmers all around the world will be impacted by the Eastern European supply shortage. Adding to the situation is increasing energy prices affecting the cost of transportation of the commodities that have been produced.
This impacts global businesses in a significant way. Should Ukraine and Russia not be able to produce their usual output, the scarcity of resources will not only bring about higher demand of those products, prices will also increase. The conflict has already seen wheat prices rise with 50% in the last month.
Consequently, if poorer countries are forced to buy much needed foodstuff at much higher prices, it might trigger further economic protectionism and the global buying power will decrease, across all sectors.
Semiconductor and chip industry shortages
Not only is the above a worry, but so is the semiconductor and chip industry.
Prior to the ongoing conflict in Eastern Europe, the world was facing chip shortages. Throughout the pandemic, supply and demand did not align and many consumers were unable to get the chips they needed. This situation could be made worse by the ongoing crisis. Ukraine is a major producer of neon, and Russia is a key producer of nickel, platinum, silver, and palladium, the latter which Russia produces 45.6% of the world’s used. All are essential ingredients in the semiconductor industry. Industry experts are worried that semiconductors industry will grow with 50% in the coming four years. Should the situation continue to evolve the way it is, prices for semiconductors and semiconductor materials will continue to rise in price, in response to shortage in supplies.
Impacts across the globe
As the conflict in Eastern Europe continues to unfold, we will learn more on how this will affect customers supply chains. According to FAO, the current conflict in Eastern Europe may result in food prices rising by 20%. FAO food price index reached a new high in February, with agency experts worrying that it will continue to rise. As food insecurity rises, it might trigger further inflation and affect consumer habits, as consumers may become more hesitant in utilising their buying power. On the other hand, key countries may choose to release more of the crop supplies, lowering food insecurity and inflation.
On the matter of semiconductors and chips, some companies, such as Tesla, are rethinking how they are producing them, with consumer buying power and supply as key drivers.
On top of this, Covid is still playing a substantial role in disrupting global supply chains. We see pockets of improvements, only to get setbacks when key sites encounter a COVID-19 outbreak and renewed lockdowns.
Innovation on the agenda
At this point, it is still very difficult to predict what the conflict in Eastern Europe and the supply chain bottlenecks & sanctions will have of effect on economies, prices and supplies. But as global disruptions remain ever present, staying on top of your supply chain and having end-to-end visibility has never been more important. Building that mid-term plan and identifying possible issues early on, will allow you to plot out your supply chain and will make it easier to react quicker, and make decision based on data versus time.
Digital Innovation may be key for many companies, resulting in solutions that could change landscapes. As inflation continues to rise, so might also business growth as companies are forced out of their regular habits.
What does your action plan look like?
