Supply chain has been a major topic of conversation (and consternation) across various industries for quite some time; the agribusiness supply chain is no exception and farmers are feeling the crunch during one of their busiest times of year. While dealing with the regular dynamics of harvest season, farmers now must also contend with planning for delays and headaches caused by the world-wide supply chain bottlenecks that started months ago and show no real signs of improving soon. Combined with lags caused by rainy weather, farmers can expect significant impacts to the 2021 and 2022 seasons.
Supply Chain Interruptions and Impacts
Supply chain issues started during (and have been exacerbated by) the COVID-19 pandemic – now well into its second year. Farmers and other agribusiness professionals require farm supplies such as fertilizers, seeds, crop protectants, equipment (including parts), and other materials that have been difficult to acquire, both due to scarcity and increased pricing. Complicating an already stressed market are labor shortages, which are affecting every area of the industry.
Transportation backlogs have become a significant issue, and transporting crops is more expensive and difficult than prior to the pandemic. Trucks take longer to get to farmers, and equipment parts are often delayed or unavailable, so when machinery or trucks break, holdups can be extensive. Maritime shipping is experiencing setbacks, as well. In fact, things are so backed up that many farmers are making the difficult decision to leave their crops in the field until they have the ability to transport or store them, which is certainly not ideal. Finally, petroleum prices have been steadily rising (they are almost triple what they were last year at this time), which hits farmers particularly hard because they use diesel fuel to power much of their equipment. What’s more, fertilizers contain petroleum, which means its prices have increased, as well.
HW&Co.’s agribusiness clients have been feeling the crush of these supply chain issues throughout the pandemic, but the issues are escalating. One of HW&Co.’s clients who farms 3,600 acres and operates a farm transport business in Central Ohio is experiencing difficulty acquiring equipment parts and semi-truck tires. In addition, a new tractor he ordered this year is not expected to arrive until May 2022, and the supplier won’t guarantee that it will arrive in time for planting season. Another agribusiness client anticipates problems obtaining the fertilizer he will need for the upcoming season. Both clients cite the labor shortage as their most significant issue, with long-time employees resigning and an inability to backfill those positions.
Dave Shealy, managing principal of HW&Co.’s Mansfield office, has had many discussions with farmers around supply chain concerns.
“Our agribusiness clients have been significantly impacted by the supply chain crisis, and unfortunately, we aren’t expecting these issues to resolve anytime soon,” he said. “The challenges are affecting every industry, and farmers are being impacted from multiple directions.”
What’s Being Done
Several groups are taking action by petitioning Transportation Secretary Pete Buttigieg to make policy changes to improve the supply chain issues affecting agribusiness (many of which also overflow into other industries). The Agricultural Transportation Working Group (ATWG) submitted a letter to Mr. Buttigieg and the U.S. Department of Transportation (USDOT) stating its recommendations for the major problems they see occurring in the supply chain. The letter was signed by 52 food and agribusiness organizations and addressed labor shortages, climate policy, transportation policy, container shipping, inland waterways, and rail transportation.
The ATWG stated that its most pressing recommendation is to address labor availability, as the current labor shortage is detrimental to operations and has led to increased pricing for food and other agricultural products. The ATWG specifically recommends that the USDOT standardize truck driving age limits to enable drivers aged 18 to 20 easier entry to the trucking industry. They also acknowledge that climate change and supply chain policies are fundamentally linked because agriculture is often significantly impacted by climate change policies. As such, ATWG recommends that that the applicable USDA agencies collaborate when feasible. They also endorse using working land programs they feel will incentivize agribusinesses to use best practices with regard to farming and ranching operations. Finally, the ATWG letter provides several specific recommendations to improve the U.S. freight transportation system, which they believe would support the agricultural supply chain.
The entire letter submitted by ATWG can be downloaded at: https://www.regulations.gov/comment/DOT-OST-2021-0106-0367
Farmers know that managing the costs of the supply chain in today’s environment is unpredictable and complex. Contact us for details on how we can help.
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Senior Manager sue.bennett@hwco.cpa
