Andy Harig is VP of tax, trade, sustainability and policy development for FMI–The Food Industry Association. On Feb. 24, he fielded policymakers' questions at a USDA Agricultural Outlook Forum; afterward, he spoke with WGB about the impact of Russia's invasion of Ukraine on inflation in the U.S. and globally. Harig also discussed why, amid continued supply-chain disruptions and economic uncertainties, it's important to be preparing for the next crisis.
Christine LaFave Grace: What kind of conversation was there at today's USDA forum about the implications for the food industry of Russia's invasion of Ukraine?
Andy Harig: We got a handful of questions, and they were sort of all the same—what does this mean for food prices, for inflation? I was foolish enough to take the lead on that one. It’s going to increase the inflationary pressure, and this is not what we needed, obviously, on a lot of different fronts. It’s a challenge.
I think on the energy front, we’ve already seen oil prices spike; that’s a huge concern. Ukraine is not necessarily a huge trading partner of the U.S., [but] we import a lot of sunflower oil from them, and you saw the edible oils sector out of control, so that’s going to be really challenging in an environment where we really just didn’t need any more challenges. And then I think the impact on European supply chains—Ukraine is a huge supplier to the European Union and also Asia, so what’s that going to mean for the crops there, the animal ag there.
Our feeling is, right now, a lot’s going to depend upon how this goes. Is this going to be a long, pummeling war; is this going to be a really quick situation that resolves itself, even if it resolves itself in kind of an occupation? That’s going to determine how it goes. But either way, it is an additional inflationary pressure that the supply chain doesn’t need right now, and it’s going to create some challenges.
Our hope is it won’t make the supply chain worse in terms of getting product on the shelf, because they are not a major food exporter to the U.S. In terms of inflation, yeah, it’s going to drive prices up.
For retailers and CPG makers, is there a productive, proactive response at this point?
It’s a tough one to respond to, because there’s just not a lot we can do. I do think—and a lot of folks have already done this—but to the extent that you can map out your supply chain and understand where you’re vulnerable is going to be important.
You look at the edible oils sector—I’ve been at FMI 19 years, and I had maybe five discussions of that the entire time, and then in the past six months, I’ve had maybe 150. [Editor's note: Ukraine is the world's top producer of sunflower seeds and sunflower oil.) It’s just a different environment now; people do have much more supply-chain visibility than they did previously. But that’s really, I think, the important thing: Understand where you’re vulnerable, and to the extent you can mitigate against that, that’s going to be important. You know energy prices are going to go up more, so you have to build in for that. And that’s inflationary not only for food, but also for all the transportation that we do. It’s going to be more expensive to get food from the distribution center to the retail shelf.
We heard throughout last year, again, calls for greater federal attention to supply-chain challenges, and the Biden administration in June launched a Supply Chain Disruptions Task Force as part of its own review of U.S. supply-chain vulnerabilities.
Do you see this latest crisis shifting the discussion around the federal government’s role, if it has one, when it comes to supply-chain coordination?
I think the challenge we have is that there’s not a silver bullet for a lot of these issues. A lot of people look at this as, “How do we solve this problem now?” And it’s just not probably going to be solved now. It’s also driven by COVID, which is not just a once-in-a-lifetime but once-in-a-century kind of disruption. We want to be careful that as we move forward, and hopefully move on the other side of COVID, that we’re not looking at supply chains and protecting against the last crisis, that we’re really looking forward to the next crisis, which is likely to be different from this one.
There are certainly areas where people are really engaged—you see this on the computer chips front, on semiconductors, on PPE—I think those kinds of things make sense. I would be interested in seeing more of a fleshed-out approach in how [the government] is going to address supply chain on the food side. It’s important that if we move ahead with a [federal supply-chain office], we’re working with the government as an ally and that we’re really moving forward with the same goal.
Was there anything in particular that struck a chord with you in today's discussion?
I’ve been really amazed at how well not only other industries, other businesses, NGOs, academics, how well they have understood the issues that are being faced. That has kept, I think, consumer sentiment and spending relatively strong.
They’re feeling inflation, obviously, but they’re adapting to it remarkably well and, I think, understanding the causes of it. What people know about the supply chain now always amazes me. I’m betting pre-COVID, none of them talked about supply chain, ever.
There’s a lot of consensus that a lot of these issues are not going to get solved overnight. There’s a pretty broad sentiment of, “Yeah, we think we’re going to see some of these supply-chain issues persist probably at least through the first half of the year, and we’re hoping in Q3 that they’ll start to get ironed out.” And inflation will probably lag that process by a few months, too.
The strategies for consumes to address inflation—we actually got a question on this; what can consumers do to address inflation? Big picture, they can’t drive that down; you just have more demand chasing less supply, and that’s what driving this. But on a personal level, they can pursue strategies to do this. We’ve already seen a little bit of “flight to value”—for example, movement away from chicken breasts to chicken thighs, a bigger push on shelf-stable such as pastas, a private-brands strategy. Making a list, planning things out—that can really help you minimize the bite of inflation.