It was clear as the pandemic hit in early 2020 that the agricultural value chain had some weak links that were shored up, but continue to be stretched as the world grapples with COVID-19 for a second year.
Iowa State Agricultural Economist Bobby Martens has been researching U.S. ag supply chains for over 16 years. He will share his perspectives on supply chain management at the Farm Futures Business Summit and Ag Finance Boot Camp Jan. 19-21 in Iowa City, Iowa.
When the pandemic hit, lockdowns, illness and death rippled the global economy, causing supply disruptions. Low inventories were quickly exacerbated when people began shopping again, driving up prices. It was the same scenario in 2008 when fertilizer prices skyrocketed, then plummeted, leaving some dealers owning expensive inventory. This risk exists in most global supply chains today.
“There is a risk in managing inventory and a cost with owning inventory — and that depends on the supply chain,” says Martens. “Some supply chains are different than others; some have transparency, and some, like ag inputs, do not. There’s not much visibility between a cooperative and a company producing fertilizer or chemicals. They don’t know exactly where inventories stand between supply chain partners, which creates added price volitivity and increased product availability risk.”
Farm Progress examined portions of the ag supply chain — farm equipment, transportation, fertilizer and crop protection — and offered ways to reduce business risk.
Since the farm crisis of the early 1980s, much of agriculture has adopted “just in time” systems — from dairy plant supplies to farm equipment manufacturers.
“Deere got burned on that in the 1980s,” says Martens. “So now — at least for their larger equipment — they produce when orders exist. Even with their dealer network they haven’t been trying to push tractors out there as much as they did a decade or two ago. They like firm orders where they have much more visibility to what demand is and then can produce to that demand. So, tractors weren’t just sitting around waiting for buyers when global supply chain disruptions slowed equipment manufactures.”
Parts availability could become an issue if we don’t start seeing port congestion ease soon, but Martens does not expect widespread shortages. “Dealers are on top of what they need,” he adds, “but it could be a problem for some parts or components.” Martens added that continued global supply chain disruptions will increase the likelihood of parts availability challenges.
Farm equipment dealers can reduce their stress and risk by ensuring farmers do preventative maintenance this winter and spring, including restocking spare parts.
“It’s more important than ever before,” says Martens to farmers. “Think about what you should be replacing, what has aged out, and communicate with a dealer to understand what parts are available and how to get them.”
So what can dealers and their customers expect in the equipment and parts chains?
“It all depends on when we reach a new equilibrium — when ports finally get consumer durables through the network and delivered,” he says. “If you look at the sheer volume of what goes through our ports, there’s a lot of strain and pressure in that system, and that creates even more inefficiencies. It’s hard to point a finger and blame someone; the system is very full. If we can work through that backlog, lead times go back to something closer to normal. We then know what the lead time is to get a container from the coast to the Midwest. Then we have more certainty in our business especially if it’s related to spring planting.”
Today’s economic disruption has Martens reflecting on just how stable the world economy has been for the past 30 years — and what the future may hold. Some of the stability the U.S. once enjoyed may fade.