Why distribution is fuelling the food inflation crisis

Every day, at his stall in Kisumu, western Kenya, trader Walter Otieno fries dough balls or mandazi for sale. But his customers will have noticed recently that they aren’t as full as they used to be. That’s because he has had to reduce his portion sizes due to the rising cost of supplies, with the cost of a 10-litre jug of cooking oil up 50% and flour two-thirds more expensive than a few months ago. In total, the International Monetary Fund has reported that staple food prices in sub-Saharan Africa have soared by an average of 23.9% between 2020 and 2022, the highest since the 2008 financial crisis.

The food inflation crisis has touched almost every corner of the globe. Its effect continues to be felt by millions. In March, grocery inflation in the UK reached a staggering 17.5%, resulting in an £837 increase in average annual bills for shoppers, as reported by Kantar. Some of the steepest global rises were for everyday household products such as cheese, milk and eggs, resulting in three billion people being unable to afford to eat healthily – a number which could climb even higher by the end of this year.

Reports from the World Bank also show that over 90% of all lower-middle-income countries are experiencing high inflation rates. The costs of essential consumer goods are skyrocketing, with the most affected regions being Africa, Latin America, and South & Central Asia.

While many believe that rising production costs are primarily responsible for sky-high prices, the real culprit is far more fundamental. It's the outdated and inefficient trading and distribution methods that are truly to blame. Did you know that, for example, in today’s world of increased online connectivity, most essential consumer goods trading is still done offline?

Poor supply chain management, fractured relationships across distribution networks, outdated manual processes and reliance on outdated legacy tech across the industry has significantly driven up the costs of goods. Recent research from Lloyd’s found that 25 - 30% of all global food is lost between farms and retail stores. This is especially alarming, considering that up to 205 million people are expected to face acute food insecurity across 45 countries.

The global food supply chain and distribution industry needs a transformative overhaul, but it’s hard to implement wholesale changes overnight.  Businesses across the global food production and distribution network need to leverage both technology and the power of the web as solutions to reduce inefficiency and, with that, food prices.

The current crisis isn’t a one-off

The current food crisis has been brewing for some time. According to the Food and Agriculture Organization (FAO), global food prices have been on an upward trajectory for over a decade and are in the midst of the third international price spike in 15 years. Another report from the International Monetary Fund shows that food inflation alone has eroded global living standards at the same rate as inflation of all consumption did in the five years immediately before the COVID-19 pandemic (2016-2020).

One striking example that highlights the significant role that distribution failures play in exacerbating the food crisis is the case of perishable goods in developing countries. A World Bank report estimates that, in Sub-Saharan Africa, post-harvest losses for fruits and vegetables can be as high as 30% due to poor handling, storage and transportation practices. This waste contributes to higher food prices and severely impacts food security in the region. Too often, food sits rotting in the back of a warehouse whilst suppliers and purchasers haggle over delivery schedules and prices over the phone. This waste could be easily reduced if the supply chain was better connected, and the products were bought and sold on a clear online marketplace.

Another problem is that the large corporates and established brands such as Amazon are stifling the growth of small businesses and even sending some to the wall due to their control of the market and the supply chain. As Amazon has grown, independent businesses have receded, with small retailer numbers declining by 65,000 between 2007 and 2017.

Lack of finance and technology compounds the distribution problem

Distribution and supply chain issues (the main culprits behind the perennial food crisis) are further compounded by the lack of access to finance and technology amongst both farmers and small businesses across the supply chain.

According to the World Bank, approximately 70% of all smallholder farmers in developing nations(where much of the world’s food is produced)lack access to adequate financial services, which hinders their ability to invest and expand their businesses, eliminate food waste, and help mitigate the food crisis.

According to the World Bank, approximately 70% of all smallholder farmers in developing nations

(where much of the world’s food is produced)

lack access to adequate financial services, which hinders their ability to invest and expand their businesses, eliminate food waste, and help mitigate the food crisis.

For example, many farmers are forced to rely on cash payments for their produce, meaning they have no bank accounts and are excluded from the formal financial system. Without access to financial tools like insurance required to protect their farms when things go wrong, they are extremely vulnerable and are prevented from reaching their full potential.

Adopting technology across the entire supply chain to improve how food products are distributed and paid for could help make food available to those who need it. Many viable solutions like smart process automation,  remote monitoring, supply chain planning, and digital payments can help farmers. However, these technologies are inaccessible, unaffordable and unusable by those that need them the most. Many also become redundant as soon as they’re launched. According to research by McKinsey, many digital solutions struggle to scale and fail to improve the lives of farmers and other end users, with most applications having less than 30% active users.

What are the potential solutions?

All of these issues have collectively created a perfect storm, preventing millions of consumers from accessing the goods that they need at affordable prices. And this dire situation will only worsen if something isn’t done to address the problem.

While there is no silver bullet solution, it’s clear food producers and sellers need access to innovative and easy-to-use technology. Open Commerce technology is one solution that can help; it is designed to connect buyers and sellers of essential consumer goods directly so that they can trade fairly and equitably. At RedCloud, we’ve built a platform that is currently helping over 200,000 merchants buy essential consumer goods directly from thousands of brands. Our Open Commerce platform has the potential to unlock a new way of trading for the next billion retailers and ensure that essential food products are always available on every retailer’s shelf.