The last two weeks have seen an increasing impact of the novel coronavirus (COVID-19) in Europe and the USA – both generally and within the food and nutrition industries.
From the postponement of multiple trade shows and expos – Natural Products Expo West, Bio Spring Europe, SupplySide East, Vitafoods Europe and CPhI South East Asia to name just a few – has caused shockwaves amongst the industry as we scramble to rearrange plans, cancel travel, and hopefully re-book events.
But what about the wider impact of the virus on an industry with often complex global supply chains. Many people suggest it is ‘business as usual’, while there seems to be absolute panic from other corners of the industry.
“They are both true,” says Blaž Gorjup, chairman and founder of PharmaLinea. “It depends on which part of the industry people are in, and what you are dealing with.”
Speaking with NutraIngredients, the executive noted there is also a significant difference between different countries.
"In Italy for example, we can say there is a full standstill. Also, in places like South Korea. However, if you go to Thailand, Indonesia, Malaysia, nothing has happened - for them it is business as usual,” he said. “We are seeing different responses in the markets. It also depends how close you are to the supply chain.”
Gorjup noted that most brand owners and contract manufacturers will be buying ingredients in – and that there may be a certain amount of panic in the supply chain.
However, he cautioned that not all the panic is real or needed.
“It is in the interests of people further up that supply chain to push story and make sure there is more crisis than there actually may be, so that people pick up on their buying activities and ensure they have enough stock.”
Gorjup said the industry will likely see some price pressures on certain ingredients – but that the real issues will be restricted to ingredients that are traded on the market.
"Right now, people will try to use a lack of information to suggest there is a lack of stock, and drive prices,” said the executive. “People will say, if you don't buy now the next guy will, and then we'll be out of stock. And so the prices go higher. That's the nature of commodity trading.”
“It's ruthless, but that's how it is.”
However, Gorjup noted that it also pays to remember that the industry is starting from a position of over-supply for almost every ingredient.
“That has to be taken into account,” he said. “That's where it helps having ground information - what's really happening, beyond what the traders are telling you.”
“It is in the interests of certain players to make sure there is a bit of crisis in the supply chain. Or at least there is a feeling of supply chain crisis. But from our information, that is not the case.”
However, he noted that if brands are dealing with reputable companies, and not spot buying, then they are in a much better position.
“If you are a company based on driving low prices. If you are a me too company and you main point is to be the price leader, then you will face some issues because the prices will go up, and the supply chain and margins are always tighter there,” he said. “That is the nature of the beast.”
Gorjup said the fact that the COVID-19 outbreak occurred primarily during, and just after, Chinese New Year, may actually be very lucky for the industry when it comes to managing stocks and supply chains – since factories in China were already planned to be closed, and the industry had already planned for issues with supply.
“This is actually the time when supply stops from China anyway, where actually everyone stocks up anyway. So that was a lucky factor.”
Furthermore, he said that most companies who understand the complexities of the supply chain will always carry critical stock.
“The big guys will always have a minimum of two months of safety stock,” he said. “That, combined with the fact that there was already an expected drop in supply because of Chinese New Year means that the industry is not at a critical stage yet.”
He added that in China most of companies - and especially outside of the Hubei region - are fully running, or are close to fully running, and ‘fully understand’ the need to pick up business for those who cannot run.
“We don't think there is any need to panic,” he added. “There are some specifics, like maybe on B vitamins or certain amino acids there are factories in the region which was heavily affected, but in general we are seeing the supply chain is holding on.”
And when it comes to supplies – both inside and outside of China – he noted that suppliers and distributors are very aware of the situation and are preparing businesses for any challenges.
“People were not born yesterday, and there are already many activities done already,” he said.
“Chinese authorities are very clear, and they know the stakes, and they ae fully pushing to make sure that factories are supplying.”
Opportunity … but not exploitation
Gorjup told NutraIngredients that with any health crisis there is both a opportunity for challenger brands – but that the industry must also be wary of rogue traders looking to exploit the situation.
“You may see the very big multinational brand owners pulling back and waiting to see how things pan out. But this is an opportunity for challenger brands,” he said. “We are seeing challenger companies investing more because they know the big guys will put a pause on many activities.”
Indeed, Gorjup says crisis is often the time when market shares change: “You don't see substantial changes in market share when everyone is doing well. So, maybe one of the things to watch is the opportunity.”
He added that the premium market for supplements may also see some opportunities as the public look to ensure they are in top condition: "In times of health issues, people look on the market and say 'do I really want to buy a supplement for 2 euros' or should I look at something that is the real deal?”
“There is a health crisis at the moment. People are not, and in some cases cannot, spend money on things like travel. But they can take better care of their health. And we are seeing that in the market.”
Despite seeing opportunity for challenger brands and premium products, Gorjup also warned that the industry must be clear to work against rogue companies who promise 'silver bullets' and make false claims against the COVID-19 crisis.
"Everybody in the industry. All of the relevant players. Have to say very clearly that those actions are just plain wrong."
He noted that the industry has already seen companies exploiting the situation, adding that this is a primary reason why many reputable companies do not suddenly launch more immunity products.
“If you want to launch it in a proper way and make sure you know what you ae doing then that is a long-term investment.”