As concern over supply chain issues during the COVID-19 pandemic grows, some companies are changing their procurement practices and sourcing domestically.
The majority of garlic consumed in the U.S. is imported from China, where the novel coronavirus originated. However, as the virus impacts more countries, CEO of Olam Spices Greg Estep told Food Dive that orders for U.S.-grown onion, garlic and chilies jumped 20% in March compared to last year.
"The main shift from China to U.S. garlic is due to customers addressing supply chain concerns. However, we are seeing a large number of businesses who were sourcing garlic primarily from China, who are now looking to move some portion of their purchases to the U.S. as a contingency," he said via email. "We believe that many customers will continue to stick with U.S. garlic in the longer term instead of relying on China as their single source."
The longer the outbreak lasts, the higher the chances that supply chain gaps could be exposed in different industries. When there is so much uncertainty, some companies are opting to get their ingredients closer to home.
"We believe that many customers will continue to stick with U.S. garlic in the longer term instead of relying on China as their single source."
CEO, Olam Spices
Estep said he has found that many retailers prefer domestic garlic over the Chinese alternative because of supply chain differences. While dried garlic from China is typically a byproduct of the fresh garlic industry and not traceable to the farm, Olam Spices' U.S.-grown garlic is dried at its facility in Gilroy, California with full traceability from seed to shelf.
In recent years, Olam has stepped up its traceability efforts as transparency becomes an increasingly important factor in consumer purchasing decisions. The company launched AtSource in 2018, a program to increase supply chain.
With more consumers cook at home and stock up their pantries, Olam has seen a "rather significant increase in demand," Estep said. The largest increase comes from retailers and food manufacturers trying to keep up with demand as sales of staple food products across the grocery store skyrocket.
Estep said Olam has been able to keep up because its operations have historically maintained some buffer of material for unanticipated demand as well as sizable inventories. He said that "gives them the flexibility to mill or create products to meet urgent customer requests."
The company has three onion processing facilities in the U.S. and two in Egypt. In dried garlic, it has operations in the U.S. and China, both major garlic origins. In black pepper operations, the company has farm-level sourcing in four of the major growing regions, as well as its own pepper estates in Vietnam and Brazil.
"Our global footprint in key spice-producing origins also allows us to adapt quickly and meet our customers’ growing needs," he said.
Although coronavirus has driven up garlic prices in some parts of the world, Estep said Olam has not seen any impact on prices. Since the company has a fully integrated supply chain, he said Olam knows the cost of production and is keeping prices steady as it works to meet the customer needs.
Overall, the coronavirus has reportedly had little impact on ingredient output across different suppliers and manufacturers. So far, Olam has not experienced any challenges importing spices into the U.S, but the situation is changing daily, said Estep.
Watching for international impact
While their Chinese suppliers are now fully operational, Estep said there is a 21-day shutdown in India that could impact supplies of red pepper and turmeric. He said the company is in a "good position heading into this announcement but further delays could negatively impact the situation." As a top supplier of black pepper and cassia from Vietnam, the company is also monitoring changing conditions there, but operations have not yet been impacted.
Some countries are already limiting certain exports because of food security concerns. Russia, Ukraine and Kazakhstan announced plans to limit wheat exports, and concerns over supply in Asia may threaten rice exports, Bloomberg reported.
Currently, Olam has not experienced challenges exporting its spice ingredients internationally. Similar to what Olam is experiencing in the U.S., the company is seeing stronger orders from food manufacturers around the world, who are trying to mitigate their risk. Over the last several weeks, Estep said Olam is constantly communicating with its customers.
"We strive for transparency with our customers. Which is why we have chosen to have an open dialogue with them during this uncertain time. As disruptions have arised, our team has worked closely with customers to maintain a supply of high quality spice ingredients for them and their consumers," he said.
Olam is far from the only company that sources products internationally and is hoping with bated breath that supply chains aren't interrupted by the pandemic.
Victoria Doggett, co-founder of Italian Harvest, a U.S.-based company importing artisanal foods and ingredients from Italy, told Food Dive that the company has not yet experienced any major issues getting products to the U.S. even though Italy has been hit hard by the virus.
She said there are a few suppliers who are closed, like a printing press that was supposed to make labels for one product, but most of them are still working since food producers are essential businesses. Doggett said demand has increased and they are hoping no supply chain issues arise.
"We still might have some terrible surprises around the corner in terms of availability of products. But so far, it just so happens that for us, we had ordered a lot a couple months ago and now that's just coming in," she said. "So there is still a huge unknown. It's new for all of us and we don't really know what to expect."