Why the U.S. Needs to Act Fast to Prevent Russia from Weaponizing Food Supply Chains

“it is actually the agricultural aspects of the pact with China about which the world should be most concerned.

The importance of Ukraine’s remarkably fertile soil for global grain supply has gained some attention, amid concerns the conflict will lead to sharp price increases. But the reality is Russia’s control of Ukrainian grain shipments will likely have far greater consequences.

After just one day of the invasion, Russia effectively controlled nearly a third of the world’s wheat exports, three quarters of the world’s sunflower oil exports, and substantial amounts of barley, soy and other grain supply chains. Furthermore, Ukraine alone accounts for 16 percent of the world’s corn exports and has been one of the fastest growing corn producers — a dynamic particularly critical to meeting China’s rapidly growing demand for corn. Importantly, while hydrocarbon production can be immediately surged in different places to meet shifts in requirements, grain production cannot be surged in the same way, and even a major expansion cannot make up for the sheer volume of agricultural output that Russia now controls either directly or indirectly.

Most of the focus has rightly been on the invasion’s impact on people in Ukraine’s most populous cities — but in the background, Russia is completing a hostile takeover of the country’s grain-rich regions and their associated transportation infrastructure. Critically, however, Russia does not even need to fully control Ukraine’s agricultural lands to weaponize the food supply chains they anchor.

As the following map shows, there are only two points of maritime access that Russia needs to dominate in order to be in control of Ukrainian grain shipments: the Kerch Strait that connects the Black Sea with the Sea of Azov, and the 17 ports in and around Odessa.”

Inflation is surging. Joe Biden is still optimistic.

“Some of the causes are fairly self-evident: Entering the third year of the Covid-19 pandemic, the US — and much of the rest of the world — is grappling with a supply chain crisis. That means most goods, from game consoles to oranges, are more difficult to get to store shelves for one reason or another, whether it’s a lack of critical tech components or a backup at ports due to labor shortages. But US consumers simply haven’t stopped buying, and that demand-supply disjunction has caused record inflation.

Some economists, as well as President Joe Biden, take the view that the pandemic — and the pandemic-snarled supply chain — are the primary culprits, and inflation will ease as the US keeps combating the pandemic and implements supply-chain fixes. On Friday, according to CNN’s Kaitlan Collins, Biden told reporters that “the reason for inflation is that we have a supply chain problem that is really severe.”

Others, though, are concerned the problem is bigger than that. Former Treasury Secretary Larry Summers, for example, has also pointed to government spending as a reason for increased inflation, and believes it’s far from a bump in the road.”

“lockdowns and being stuck at home — unable to travel or go to restaurants, bars, and live events — have shifted what Americans are spending their money on. Less money spent on travel or experiences, combined with stimulus funds, has driven many Americans to buy more consumer goods. That, combined with supply chain problems decades in the making and exacerbated by the pandemic, has led to the current, precipitous rise in inflation.”

“While the US has spent trillions in pandemic relief, however, inflation is also occurring elsewhere in the world, where governments have taken different approaches to dealing with the fallout from the pandemic — suggesting that government spending doesn’t tell the whole story.”

“While the Biden administration is doing what it can to fix supply chain issues and drive down rising gas prices, most of the tools to address inflation are in the hands of the Federal Reserve.”

“One way the Fed plans to cool the economy is “tapering” — gradually decreasing the $120 billion it spends per month on government-backed bonds, which has injected money into the financial markets during the pandemic. In November, Fed Chair Jerome Powell announced the central bank would reduce that amount by $15 billion each month. The purchasing program is supposed to end halfway through 2022, but as the New York Times reported in early December, it could finish more quickly as the Fed attempts to reduce inflation.

“At this point, the economy is very strong, and inflationary pressures are high,” Powell said in late November. “It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at our November meeting, perhaps a few months sooner.”

Along with that could also come interest rate hikes, although the Fed has not announced specific plans to do so.”

“Beyond monetary policy, though, the other massive piece of the puzzle is the supply chain — and that’s something politicians and policymakers have much less control over. Biden has attempted to ease supply chain woes by running the Port of Los Angeles 24 hours a day, clearing the docks so goods don’t wait for days on cargo ships stranded in the water. And the release of 50 million barrels of oil from the US Strategic Petroleum Reserve last month was geared toward reducing gas prices, which have already begun to fall.

Most likely, however, the supply chain will remain snarled for the foreseeable future — keeping inflation higher than we’re used to — and policymakers will have to react to that reality.”

The chip shortage has a silver lining

“Manufacturers haven’t overcome the worldwide semiconductor shortage. Gaming consoles like the PlayStation 5 are still scarce, automakers are delivering cars with missing features, and Apple may end up producing 10 million fewer iPhones in 2021. For a few companies, however, these supply chain woes may have an unexpected upside.

The manufacturing delays abroad and relentless demand for consumer electronics have turned into a windfall for some chipmakers in the United States. Even lesser-known American manufacturers with aging or secondhand equipment have seen a surge in sales for the legacy chips, or microcontrollers, they produce. These parts are inexpensive to make but are a critical component for many devices, and as supply chain troubles have affected larger companies that focus on more advanced technologies, demand for the more basic chips has grown. Flush with customers, the companies that make these microcontrollers are now on a spending spree to boost their overall manufacturing capacity.”

Josh Hawley Wants to Make the Supply Chain Crisis Permanent

“In an op-ed for The New York Times published Friday, Hawley uses the temporary supply chain problems as an excuse to push for a permanent expansion of federal power over the affairs of private businesses. We must “fundamentally restructure our country’s trade policy,” Hawley demands, and that means injecting both the Pentagon and Commerce Department bureaucrats into companies’ purchasing decisions. Under the terms of a bill that Hawley is proposing, any product determined to be “critical for our national security and essential for the protection of our industrial base” would have to have at least 50 percent of its value made in the United States.

Why is it necessary for the government to get significantly more involved in the system of global trade that’s allowed Americans to enjoy unparalleled prosperity in recent years? Because “the global pandemic has exposed this system for what it is—a failure,” Hawley writes.

One must assume that if the lights in his home went out due to a storm, Hawley would respond by declaring electricity to be a mistake and demanding that the government require homes to be lit with candles and gas lamps. After all, what is the electrical grid but a complicated supply chain that leaves Americans woefully dependent on production and distribution systems (power plants, substations, and lines) that they do not fully control? Better to produce your own lighting, right? If that means you have to live without television or the internet, well, those are just the trade-offs required to achieve self-sufficiency.

A storm—or a pandemic—can create temporary problems in the highly complex systems that run so much of the modern world. That’s hardly a reason to abandon them. If Hawley is imagining a world in which the United States is wholly self-sufficient, then he’s asking you to accept a scenario in which the United States is significantly poorer than it is today.”

“Hawley says the supply chain crisis is the result of “a crisis of production.” Wrong again. American manufacturing is stronger than it has ever been, in part because outsourcing low-level production has allowed companies here to focus on higher-value goods (which means higher wages for the people who make and sell them). The true cause of the current mess is a disconnect between supply and demand—supplies have been constrained by a number of pandemic-related issues like temporarily closed factories and worker shortages, while demand has shifted in unexpected ways.”

“If his thesis is correct, then items that are already mostly produced domestically should be exempt from the problems with foreign supply chains, right? Except, no, that’s not true. As Scott Lincicome, a senior fellow with the Cato Institute, points out, the vast majority of food consumed in the United States is grown, raised, and otherwise produced here. And yet Americans are seeing higher prices and supply issues at the grocery store too.

“That a mostly‐domestic U.S. food supply chain hasn’t protected American consumers from recent shortages and price increases is unsurprising,” Lincicome writes. “For starters, many of the same things that stress global supply chains—COVID-19 outbreaks; supply‐demand imbalances; labor shortages in the trucking and warehousing industries; misguided trade, transportation, and immigration policies; etc.—stress domestic ones too.””

Supply chain havoc is getting worse — just in time for holiday shopping

“Gadgets are particularly vulnerable to shortages because they include many different components. Consider all the parts that go into a PlayStation 5 or a new laptop, including their chips, outer shells, and screens. Many of these components require their own specialized manufacturing facilities, which are typically in different factories and often in different countries. For a device to be delivered on time, all of these parts need to be made in sync. Right now, that’s not happening.”

“Demand for these components has run up against efforts to contain Covid-19 in the countries where the production and assembly of many goods actually take place. Amid a recent delta variant outbreak and nationwide lockdown in Malaysia, the government designated electronics manufacturers critical businesses so that production could continue. In May, Vietnam directed vaccines directly to factory workers, while urging smartphone manufacturers working in the country, like Samsung, to do the same. (Vietnam’s Covid-19 challenges haven’t gone away: This past weekend, tens of thousands of workers fled the country’s commercial center after the government, which is still struggling to access vaccines, lifted pandemic lockdown restrictions.)”

““What will happen is that a phone will be delayed because they’re waiting on their plastic supplier, and the plastic supplier is waiting on the ingredient,” Penfield, the Syracuse professor, said. “It just takes one supplier — and it could be the base ingredient supplier — to fully screw up your supply chain.””

“All these problems mean that consumers are seeing rising prices and shipping delays for a wide range of products. So those looking ahead to the holiday shopping season might want to get an early start, and not just on consumer electronics.”

No, the supply chain mess is not a war on Christmas

“these shortages and delays are the product of many cross-cutting problems that have existed for years, including the Covid-19 pandemic, rising consumer demand, and a global and highly optimized manufacturing network that doesn’t adapt to change quickly.”

“What the pandemic did do was cause factories to shut down, usually because there weren’t enough workers, and that created shortages of products and components. Those shortages led to bottlenecks and delays in product manufacturing (if factories don’t have the parts to build something, it doesn’t get made and doesn’t get shipped).

As more shortages lead to more bottlenecks, the disruption causes problems in other parts of the supply chain, creating even more shortages, new delays, and higher prices. For example, automotive manufacturers haven’t been able to make cars and trucks, because they can’t get their hands on enough computer chips. Ikea can’t ship furniture parts from its warehouses to its stores thanks to the trucker shortage. A supply crunch for petrochemicals has driven up the cost of making anything that includes plastic, including children’s toys.”

“US companies have been moving more and more manufacturing abroad for decades, which means a growing amount of the stuff American consumers want to buy needs to be imported. Meanwhile, worsening conditions for truck drivers in the US have made the job incredibly unpopular in recent years, even though the demand for drivers has gone up as e-commerce has become more popular. That means that as Americans relied more on online shopping during the pandemic, getting goods from ports to doorsteps has been challenging.”

“Covid-19 has also affected consumer demand — namely, which products they want to buy and how much — creating constant changes that the supply chain just hasn’t been able to keep up with, especially lately.”

“This record number of imports is slowing down product deliveries. Cargo ships carrying holiday merchandise are waiting to unload their stock along the California coast, but there aren’t enough port workers to do the job. Those delays mean there are fewer containers available for manufacturers trying to send more products to the US, which only sets the supply chain back even more.”

“Pushing the Port of Los Angeles to operate 24/7 is Biden’s most direct action to date, and it’s supposed to ensure that an additional 3,500 cargo ships are unloaded each week. The Port of Los Angeles and the Port of Long Beach, which expanded its operations last month, are responsible for 40 percent of the containers brought into the US, so expanding their operations is supposed to speed up shipping nationwide, the White House says.”

“it’s not clear what Biden can do to fix the bottlenecks occurring higher up in the supply chain, like manufacturers running low on components and factories getting shut down abroad. While the White House has convened task forces to address these underlying problems, those efforts probably won’t bear fruit in time for the holidays.”

“In the long run, it’s possible that the US government can change policies that contributed to this situation in the first place. Politicians could shift their approach to trade, which has historically encouraged US companies to manufacture products abroad. Improving labor standards might boost working conditions for truckers and factory workers to make those jobs more appealing — boost global vaccine manufacturing and ensure that workers in other countries are safer from Covid-19 outbreaks. Admitting more people into the US could address a shortage of delivery and port workers.”

With Ports Clogged, Some Retailers Are Looking for Alternative Supply Chains

“The Wall Street Journal reports that Walmart, Target, Costco, and Home Depot are among the major retailers to adopt the “if you want something done right, do it yourself” approach to importing goods. Worker shortages and COVID-19 protocols have slowed trans-Pacific shipping considerably—it now takes about 80 days to transport items from Asia to the U.S., about twice as long as it did before the pandemic, the Journal reports.”

“many of the bottlenecks are domestic issues. For example, major ports in Europe and Asia operate around the clock, but American ports run at about 60 percent capacity because they close at night and on Sundays. Even when dozens of ships are waiting to be unloaded, inflexible union rules that govern dockworkers’ and truckers’ hours make it difficult to meet swelling demand.

By chartering smaller, private ships to carry their goods, retailers like Walmart are hoping to bypass the backlogs by landing at smaller ports up and down the east coast. That will cost more money—and those costs will be passed onto consumers—but that’s better than running out of inventory during the Christmas rush. Home Depot, for example, is relying on chartered ships to deliver only a small percentage of its overall inventory with a focus on high-demand items like plumbing supplies, power tools, holiday decor, and heaters, the Journal reports.

Getting goods onshore is only half the battle. There are plenty of other bottlenecks to be navigated, like a 25-mile freight train backup that occurred at a major shipping facility outside Chicago earlier this year. At the port in Savannah, Georgia, The New York Times reports that workers are “running out of places to put things” as they unload ships, snarling both ground- and sea-based transportation.”

“”The coronavirus pandemic has snarled global supply chains in several ways. Pandemic checks sent hundreds of billions of dollars to cabin-fevered Americans during a fallow period in the service sector. A lot of that cash has flowed to hard goods, especially home goods such as furniture and home-improvement materials. Many of these materials have to be imported from or travel through East Asia. But that region is dealing with the Delta variant, which has been considerably more deadly than previous iterations of the virus. Delta has caused several shutdowns at semiconductor factories across Asia just as demand for cars and electronics has started to pick up. As a result, these stops along the supply chain are slowing down at the very moment when Americans are demanding that they work in overdrive.””

Restrictive Zoning Laws Worsened the Supply Chain Crisis

“The major backlog at one of America’s busiest ports has been worsened by strict zoning laws that limit where empty shipping containers can be stacked after being unloaded.

Until officials in Long Beach, California, issued an emergency order this weekend to temporarily relax those rules, it was illegal for trucking companies to store more than two shipping containers on top of one another in their yards. That’s contributed to a massive bottleneck at the terminal yards of trucking companies serving both the Port of Los Angeles and the Port of Long Beach—a bottleneck that’s being felt in supply chain shortages across the whole country.”

“There doesn’t seem to be any safety-based reason for such a policy, as shipping containers are routinely stacked higher at other ports and while being carried across the open sea. Long Beach’s prohibition on stacking more than two-high is “an aesthetic measure intended to preserve visual sightlines in the neighborhood,” according to The Maritime Executive, a trade publication.

Those rules won’t be enforced for the next three months under an emergency order issued this weekend. Now, trucking companies and warehouses will be allowed to stack up to four containers vertically—effectively doubling their capacity. “The city will work during the next 90-day period to assess the situation and effectiveness of this solution and any impacts on the surrounding areas,” Long Beach officials said in a statement.”

The Coronavirus Butterfly Effect

“When you think of the U.S. manufacturing sector, you likely think of General Motors and U.S. Steel, faceless megaliths with armies of disciplined workers. But it’s more like Yellowstone National Park, an intricate ecosystem of small and specialized players, their fates closely intertwined. “If you look at anyone who is a node in a supply chain—a manufacturer, or sub-manufacturer, or raw materials extractor—each of those entities may be partnering with many different customers, as well as many different sub-suppliers beneath them,” says Karen Donohue, an expert on supply chains at the University of Minnesota’s Carlson School of Management. “Their solvency is potentially dependent on the weakest link in both of those networks. And that’s what makes prediction difficult.” A 2018 survey by the consultancy Deloitte found that 65 percent of more than 500 procurement leaders from 39 countries had a hazy view, at best, of their supply chains beyond their most important suppliers.”

“Professional Instruments’ primary customer is a small company in New Hampshire whose ultraprecision machine tools are crucial for manufacturing in the medical device, defense, consumer electronics, and automotive fields. “It’s almost impossible for someone to anticipate the knock-on effects of some businesses being closed down because they’re deemed nonessential, because they’re suppliers for companies that are deemed essential,” says the company’s recently retired former CEO, who requested anonymity to discuss sensitive business matters. “You build a quarter-million-dollar machine, but if you can’t get one $150 component off the shelf, you can’t put it into production.””

“Zoom out further, and the pandemic’s global nature becomes palpable. The future of the New Hampshire company is also uncertain, thanks in part to closures abroad. It has representatives in several countries (including South Korea, Japan, and Taiwan, all of which have implemented lockdown measures) and customers in many more. “Representatives might need to come from the U.S. to help install the machines,” says the former CEO. “But with global travel being affected, how are you going to get that equipment installed? You still need those people to travel. These machines don’t install themselves.” In March the company opened a training center in China, but “whether that center will be utilized for some time remains to be seen.””