The Australian grocery industry, driven by the Just-In-Time (JIT) supply chain model, could be underprepared for the threat of a global pandemic, a leading expert has warned.

Concern is mounting about an epidemic following the reported deaths of 86 people in Mexico due to Swine Flu and the illness of around 1300 in Mexico and 20 in the US. It is hoped that the outbreak will fizzle out within weeks, but it has forced the topic of a pandemic back onto the agenda.

Professor Joe Lederman, Managing Principal of the FoodLegal law firm and an Adjunct Professor of Food Law at Deakin University, said that working parties liaising with governments and major industry participants had been aware of a number of supply vulnerabilities for several years and had previously issued Australian households with an emergency planning checklist over a year ago, through a retailer-funded website (www.pantrylist.com.au).

However, the website has been given minimal publicity and an anticipated community TV campaign and brochure-drop to be connected with it had yet to proceed. Concerns had previously been privately expressed amongst supermarket and grocery industry participants that any stronger message expressing a sense of emergency might trigger panic-buying. Of course we only need to think back to last year when Americans began stockpiling rice and wheat products after the media jumped on worries of a global food shortage. However, Professor Lederman advised that if any emergency actions were to be taken, it was critical that the general community be brought into the picture to avoid any cause of misunderstanding or distrust of government policy to address the situation.

He said the Australian Federal government had tacitly accepted the reality of the “very real risk of a pandemic” by its pledge of AUD$160 million in the May 2008 Federal Budget 2008-9, apart from the previous pledge of $133.6 million committed in the Federal Budget in 2004-5.

However, most of this money had been allocated towards the cost of replenishing anti-viral drugs being available for medical workers and other frontline personnel in the event of a pandemic. This did not include the allocation of any budgetary amount for expenditures or subsidies involved in creating extra food reserves or logistics rearrangements that might be required in order to avert or alleviate food shortages.

Food Supply Logistics issues
“Governments must not rely on strategies that depend purely on the market place or on the public having equitable access to existing stored goods if it transpires that there is a lack of reserve stockpiles,” Professor Lederman advised. “Historically, in similar emergency situations, governments have had to intervene to impose temporary regulations on food distribution (such as changing shopping hours) as well as subsidising the immediate creation of emergency extra food inventories.”

The configuration of most supermarkets deliberately places refrigerated produce at the back of the store. In a pandemic, any visit duration by consumers to the store would need to be minimised and configuration of goods within the store would need to be re-organised, even if refrigerated goods and perishables were not being sold, Professor Lederman suggested. Various perishable products might have to be sacrificed in the supermarket context because such products require more handling and energy inputs and, in a pandemic scenario, both labour shortages and power failure risks might be greater.

Also, a major crisis could require a need to create reserves of “priority foods” quickly. To do this might require a slowing down at the retail-end pending the build-up of extra reserve capacity at the supply end. The community would need to be properly informed to understand this process while the cost to the community of these changes would need to be covered by governments at least for the shorter term, and might even need to be cross-subsidised by higher prices for the “less essential” foods.

He added that the experience of the Hurricane Katrina disaster in the USA in 2005 had been a wake-up call.

“One of the difficulties for New Orleans was that the population was predominantly poor and among those least likely to have excess food supplies at home,” Professor Lederman said. “Poorer people on average are more frequent visitors to supermarkets and food takeaways compared to wealthier population groups. However, after the hurricane many shops in New Orleans were closed and inventory ran out quickly in those that were open.”

“Consequently, even in households where homes were not destroyed and inhabitants not injured and able to shop, there was a lack of food especially for the poorer population groups.”

During the 2002-2003 SARS epidemic many people in countries such as Singapore stayed in their homes for fear of contagion, while in Taiwan over 1500 people were forced to stay home on home quarantine. Such behaviours inevitably must considerably change the usual pattern of food purchases.

Government Prognosis
In June 2006, the Federal Government released a Business Continuity Guide.

The Guide advised that “the prospect of an influenza pandemic is real” and could have a substantial impact on staffing levels. Experts suggested that business should plan for 30-50 per cent staff absences at the peak of any pandemic.

The Guide also urged businesses to be prepared for 2 or 3 waves of infections, which could last up to 12 weeks each.

During that period, many people would be socially quarantined as the best means of controlling the spread of the disease. As mentioned, this appears to have been the only way in which the SARS outbreak could be contained in Asia in 2002-2003.

Domestic Household food reserves
The length may prove concerning as many Australian households appear to not even maintain a food pantry.

And, while the Pantry List website recommended Australian households have grocery provisions to last 2 weeks, this is much less than the 10 weeks recommended by Sydney University expert nutritionists (in a report released a year and a half ago) and the potential duration of a pandemic.

The problem with inventory management systems of Australian supermarkets
Australian supermarkets provide up to 80% of Australian food (fresh or packaged) sold by retail but hold limited reserves or food storage facilities. Most food inventory supply management systems are designed for merely short-term methods of inventory control such as pick-and-pack, flow-through, or cross-docking.

Professor Lederman noted that one of the main characteristics of the modern supply chain system has been the emphasis on reducing the need for the warehousing of excess supplies and producing “just in time”. Additionally, inventory replenishment systems normally operate through communications technologies, which make it possible not only to monitor stock levels across the supply chain but to trigger replenishment of stock based on point-of-sale data being fed to suppliers by the major supermarket groups.

Where consumer buying patterns change from making smaller purchases regularly to larger purchases less often, the current systems of inventory management might not cope well, according to Professor Lederman.

“The problem is that a supply chain such as this might become a tightrope with there being no slack or buffer reserve to act as a safety net in any crisis,” he said.

The current system of supply chain management is efficient because it lowers the costs of supply in good times. However, in the event of a supply chain scenario such as mentioned above, when there is a potentially major disruption to consumer buying patterns, the existing systems may be compromised unless food suppliers and raw material suppliers : (1) are carrying adequate buffer stock or (2) are able to source ready stock or (3) are able to find a suitable way to market.

“The just in time approach is not the right one for a pandemic. Government intervention is required in the event of a pandemic: suppliers might not be well placed to generate supplies if the stock levels data is not coming through because a pandemic scenario can impact big-time on buying patterns,” and Professor Lederman concluded: “Existing automated replenishment trigger mechanisms might well need to be overridden, and alternative inventory management systems introduced too, at least for the duration of any crisis.”