25th June 2022
Corporate Economy

Supply Chain Bottlenecks Are Affecting All Industries But What About Indoor Farming?

Since the start of the vaccination program, there have been rising concerns regarding shortages in crucial materials. Iron, microchips, food and even drivers are missing in all industries and, experts expect companies such as Whirlpool to increase their production cost by $1Bn for this fiscal year.

 

The worst part, thinking that the bottom of the crisis is behind us, would be overly optimistic. Well, that’s what Tim Uy of Moody’s Analytics thinks. In a recent report, he highlighted that “As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner of the world”. “Border controls and mobility restrictions, unavailability of a global vaccine pass, and pent-up demand from being stuck at home have combined for a perfect storm where global production will be hampered because deliveries are not in time, costs and prices will rise, and GDP growth worldwide will not be as robust as a result,” he said.

 

“Supply will likely play catch up for some time, particularly as there are bottlenecks in every link of the supply chain—labour certainly, as mentioned above, but also containers, shipping, ports, trucks, railroads, air and warehouses.” Despite the high demand for the products affected by the global supply chain bottlenecks, the costs of transportation from China to the U.S. or Europe have soared dramatically, reaching in some cases as much as $15,000 to transport goods from Europe to the United States.

 
So, in all of this, what about indoor farming? How badly is it hit?
  • Prices of Energy have exacerbated pressure on the sector.

In a recent article that we have shared on iGrow News, the Flemish info centre for agriculture and horticulture has reported how the energy prices have heavily affected the profitability of most of the Greenhouses in Northern Europe and perhaps in many countries using a similar energy source.

 

Horticulturalists, today, pay around 20 per cent more for natural gas, meaning their systems for converting gas into electricity aren’t giving them sufficient returns. Energy costs represent an important proportion of their operating costs, in some cases, it can take up to 30-35% of their operating costs hence proving the sheer importance such a price increase can have in the plant’s overall profit.

  • Shortages in LED lights

Even if it is still unclear as to if the LED grows lights used in all the indoor farming industry will face a shortage in the upcoming months, we can still suppose that the lack of certain raw materials used to build these lights will certainly affect the prices thus leading to further increasing the operating costs in the industry.

 

LED lights are manufactured thanks to chips, and these are facing tremendous shortages throughout the entire supply chain. In addition to these shortages, a growing trend in recent months has affected the industry as the demand for LED lighting has sparked globally, therefore, further affecting the supply of these products.

  • If products are imported there will be a shortage risk.

The supply chain did not recover from the pandemic’s shutdowns and other disruptions. Indeed, many policies were rightfully taken to contain the spread of the virus such as limiting worker interaction, but the consequence was an increase in shipping delays and the supply chain crisis that we are seeing now.

 

As Harry Broadman discusses in a recent article, “From an economic perspective, it’s sort of like a game of musical chairs […] The world economy is out of sync because parts of it were forced to go offline when the pandemic started and getting all the industry players back in line at the same time is near impossible.”

 

In addition, a major increase in traffic is overwhelming companies. Two of the largest US ports saw a 30% increase in the number of goods going through them while processing the cargo with 28% fewer workers.

 

Conclusion

 

Experts from Moody’s and other companies agree that these disruptions will continue well into 2023, despite efforts from the governments to mitigate the issue. The only near-term solution would be a cut back on consumer spending which seems unlikely.

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