Like players arranging falling blocks in the tile-matching puzzle game Tetris, agribusiness managers have had to manage numerous crises disrupting their supply chains. The US-China trade war tensions, an oil price war and the Covid-19 pandemic have impacted managers struggling to maintain and rearrange supply chains to deliver on customer demands and create business value.
As challenging as trade war tensions proved to be in 2019, no one could have predicted 2020’s Saudi-Russian oil price war and the pandemic – the mother of all crises – whose impact spread across the world altering healthcare systems, economic activity, and financial, human and corporate behaviour.
Even when over, the pandemic will still leave behind a lasting imprint on consumers, markets, financial systems, corporates, global trade and economies. It will usher in structural changes that will reset the way we live, learn, work and behave.
Overall, the agri-food business showed resilience to Covid-19 due to the essential nature of the commodity. However, there have been falling blocks that have caused sudden breakdowns or pockets of chaos, such as farmers unable to harvest or dumping food, disruption of supply chain, logistic challenges, temporary consumer shortages, and price hikes.
At Golden-Agri Resources, we too faced temporary disruption to supply chain, price volatility, US dollar liquidity squeeze, increased cost of funds, and stressed stakeholders.
Our initial experience of successfully handling Covid-19 in China revealed that we could mitigate the disruptive impact of the virus on our supply chain by playing to our strong product profile (essential food and plant-based oleo-chemicals for personal care, pharmaceuticals and biodiesel); de-leveraging, de-risking and decentralizing the supply chain; reducing expenses and capex; tightening performance and risk management practices; shielding reputation; focusing on market intel; and trusting our supply chain network and banking partners. As well, compliance with government guidelines and regulations helped minimize disruptions.
We also focused on responding to customer demands, doing profitable trades, maintaining a strong balance sheet and liquidity position, and drawing the best out of our employees who have adapted, remained engaged and focused on details and risks. In addition, we set up programmes for accessing bond markets in Asia, equity, alternative financing, and managing disruptions.
On the business front, the Covid-19 crisis reaffirmed the importance of engaged individuals – farmers, logistics providers, couriers, clerks – and their personal leadership on the ground, and the need for digitization and sustainability, virtual management skills, access to alternative sources of non-bank liquidity, and cash management systems.
The virus has heightened risk, reduced liquidity and increased risk premiums. Cost of funds increased due to the allocation of higher risk capital related to volatility and a liquidity squeeze, delinquencies and losses that reduced the allocation of risk capital, and fear of the unknown, uncertainty and ambiguity, which temporarily reduced new lending.
To retain credit ratings and remain solvent, banks and corporates are being forced to deleverage or de-risk businesses or seek alternative non-banking financing sources. Scrutiny and due diligence slowed approval processes across the industry and markets.
The virus also intensified large-scale delinquencies and country and company ratings downgrades, disrupted financial markets, and magnified the need for debt moratorium friendly regulations and changes in credit rating standards.
As a result of the crisis, we may also see a surge in litigation, consolidation, merges and acquisitions, forensic accounting activities, outsourcing services, sustainable financing, and health and safety infrastructure improvements.
The improved communications and connections with the various national and local authorities – governments, central banks, boards of trade – have become indispensable in addressing aid-related issues and challenges, and seeking relief.
Nonetheless, the crisis has presented us with a unique opportunity to reassess the global structure of supply chains and markets, and our fundamental value drivers, to reimagine how to best capitalise on those drivers, and to execute strategies to emerge stronger and more competitive.
Amid all of these falling Tetris-block-like random problems, supply chain managers, like top-notch Tetris players were able to fill in the gaps, adjust to the unexpected, try to anticipate what was coming next and how to fit it in, learn from non-critical mistakes, not repeat them, keep up with the changes, build strings of similar blocks, and score points by keeping the agribiz supply chains open and delivering.
Over the next 18 months the blocks will continue to fall, creating ambiguity, volatility and risks. They too will have to be rearranged and adjusted to.
Gopul Shah is a director, treasury and trade structured finance at Golden-Agri Resources. The views and experiences expressed in the text belong solely to the author.