Ingredient Sourcing in a COVID-19 World

Effects of the global coronavirus COVID-19 pandemic were dramatically evident in early March when New Hope Network postponed the annual Natural Products Expo West exhibition in Anaheim. The move immediately impacted an estimated 90,000 attendees and 3,600 exhibitors.

There have been more visual ripples this week with COVID-19 outbreaks nationwide across the United States. For food and beverage manufacturers, concerns now involve every aspect of day-to-day office management and operations as well as material supply chains.

Looking specifically at those ingredients originating from China and the Far East, Prepared Foods reached out during the first week of March to ingredient supplier associations. They included the American Spice Trade Association (ASTA), American Botanical Council (ABC) and Flavor & Extract Manufacturers Association (FEMA).

For its part, FEMA did not have a public comment but had cancelled the organization’s annual spring committee meetings March 11-12 in Alexandria, Va.

Speaking on behalf of ASTA was Executive Director Laura Shumnow.

“The spice industry is not experiencing any broad supply chain challenges related to the coronavirus at this time,” she said. “However, each company’s supply chains are unique and companies must work individually with their suppliers to assess their particular situation. Of course, as this situation is rapidly developing, ongoing supply chain monitoring and contingency planning is recommended.”

Separately, ASTA did create a COVID-19 task force to study ongoing developments on behalf of industry members. Discover more about the details.

ABC did not release an official public statement but also did respond to Prepared Foods’ inquiry.

“There is a substantial risk that the outbreak may lead to supply disruptions since China is one of the main suppliers of botanical dietary supplement ingredients,” noted Director of Development Denise Meikel. “The impact of this supply shortage will depend on the size of the inventory and number of ingredients from China that a US dietary supplement manufacturer has, and also the duration of the shutdown of manufacturing plants in China. It also may move some of the sourcing temporarily to other countries, or to less affected areas in China. Another effect of this coronavirus outbreak is the increased difficulty to travel to and from China.”

Echoing those sentiments is one US importer-supplier of vitamins. Speaking on a condition of anonymity, the supplier shared some additional insights about China sourcing conditions.

“Fortunately, manufacturing had increased vitamin production in advance of the Chinese Lunar New Year holiday vacations (Jan. 24-30) so distributors had material. However, these supplies would be drained when entire cities and factories were closed with workers staying at home. That lasted to mid-February and even up to March.

The supplier adds, “During that time, we experienced some price gouging due to the unknown with distributors asking for up to 150% more per kilo. Today, those prices are starting to come down as factories reopen and workers return. However, overall supply has not returned to normal as of yet and you’re still dealing with the activities at Chinese docks and ports—not to mention disruptions with ports and supply chain concerns here in the US.”

The supplier concludes, “For those customers relying on vitamins for a significant portion of their products, place purchase orders as far as possible to give supply chains a chance to work. We recommend through May and possibly June. We don’t recommend contracting for prices and supply from now through May as pricing will have to be at the spot market cost, which could be much more expensive.”

Taking a pulse at the other end of new product spectrum is Digital Commerce 360, which said it already has surveyed as many as 304 retailers about their near-term concerns.

In an article titled, “Taking the pulse: Retailers and the coronavirus,” senior consumer insights analyst Lauren Freedman summarized retailers’ worries and expectations concerning their business and the coronavirus.

Results from this survey show that:

• 47% of retailers expect some downside revenue implications

• 80% of retailers believe the coronavirus will have at least some impact on consumer confidence

• 30% of retailers suspect that the coronavirus will cause their ecommerce business to be somewhat up, and 32% expect their online business to be somewhat down

• Only 36% of retailers are taking a “wait-and-see” approach to the level of action they are taking relative to COVID-19, while the rest are being proactive

• And 44% expect production delays as the coronavirus progresses

“Much of the challenges retailers face in our interconnected world is supply chain-related,” says Freedman. “When asked ‘which of the following actions are you taking as a result of the coronavirus,’ supply chain communication (48%), contingency planning (34%) and hopes to minimize disruptions (32%) top the list of retailer actions.”

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