Supply Shocks Causing More Innovation from Food Companies in Face of Conflict and Climate Change

Supply Shocks Causing More Innovation from Food Companies in Face of Conflict and Climate Change

USA News Group – An important takeaway from US President Joe Biden’s consecutive meetings with NATO, the EU, and the G7, was the alarming statistic that Russia and Ukraine account for around 25% of world wheat exports and 16% of world corn exports. These facts have caused a very real concern over a coming global food shortage. “It’s going to be real,” said Biden. “Because both Russia and Ukraine have been the breadbasket of Europe in terms of wheat, for example.” According to the UN Food and Agriculture Organization, almost 50 nations depend on these two countries for more than 30% of their wheat needs. Multiple companies who’ve massively invested into Ukraine and Russia have been impacted, including Bunge Limited (NYSE:BG) and Archer-Daniels-Midland Company (NYSE:ADM). In combination with the threat of climate change, many experts are predicting a food crisis on the horizon. Looking to meet these challenges, other companies are working to provide plant-based options, including Nepra Foods (CSE:NPRA) (OTC:NPRFF), Mondelez International, Inc. (NASDAQ:MDLZ), and Lamb Weston Holdings, Inc. (NYSE:LW).

Not impacted by the Ukraine/Russia conflict, and better suited to weather potential climate change impacts due to its choice to focus on hemp rather than other plant-based proteins such as soy or peas, food innovators Nepra Foods (CSE:NPRA) (OTC:NPRFF) have developed a flagship asset known as Textured Hemp ProteinTM (THP), designed to provide ingredients to food giants with hemp-based products.

"While most everyone in this space is using pea, soy, gluten, and faba bean, our texturized hemp protein has superior flavor, texture, and, most importantly, nutrition,” said Nepra CEO David Wood. “It will be the first like it on the market."

During what was dubbed the “worst drought in over a century”, supply shocks in both North and South America hit pea protein suppliers, as well as impacting 50% of the world’s soybean supply. Whereas, there’s another type of plant-protein that’s less likely to be hit as hard because it’s a hearty, drought-resistant crop, is hemp. Anecdotal reports from late 2021 had American hemp farmers seeing a 12.5% drop in production.

Nepra strategically chose hemp as an excellent source of plant-based protein to manufacture nutritious plant-based and allergen-free products that are lean, rich in amino acids, a good source of iron, magnesium and manganese, and may even prevent cardiovascular disease and cancer.

The company produces its THP at a proprietary Colorado facility, equipped with a dedicated extrusion line. This specialized equipment can produce 800,000 lbs/year of THP that is used in plant-based meat analogues such as vegan meatballs and chunk chicken, used in Nepra’s product lines with additional capacity sold wholesale to other food producers.

Nepra’s wholesale THP™ sales alone are expected to boost company revenue by up to US$3.5 million annually.

Prior to the outbreak of the war, Bunge Limited (NYSE:BG) had combined with Cargill, and Glencore for a massive investment in grain-handling infrastructure and oilseed crush plants in Black Sea ports.

By the end of February, Bunge had to shut its offices and suspend crushing at two of its Ukraine oilseed plants. According to a report from Reuters, Bunge says that sanctions may have an ‘adverse effect’ on its Russian operations.

“The continuation of the conflict may trigger a series of additional economic and other sanctions,” said Bunge in a filing with the U.S. Securities and Exchange Commission. “Any such sanctions may also result in an adverse effect on our Russian operations.”

In recent years, Bunge has been scaling back its Russian grain trading activities, including the sale of its Rostov grain export terminal in early 2021 that according to the SEC filing left the company with just $121 million in Russia-based assets.

Archer-Daniels-Midland Company (NYSE:ADM) didn’t immediately have a comment on its Russian operations, despite having an arm of its WILD flavorings business in Russia, while also owning a 50% stake in Aston Foods and Food Ingredients, a sweeteners and starches business.

Though Reuters reported that ADM was ‘evaluating’ its Russian operations after the invasion of Ukraine at the beginning of March, by late March the company still remained in Russia in the face of pressure to sever its ties.

Despite not cutting ties entirely, the company has announced its intentions to expand its support of Ukrainian people by committing more than $5 million in financial and other support, including wheat for the Ukrainian flour milling industry, while also scaling down its Russia operations that are not related to the production and transport of essential food commodities and ingredients.

“ADM is a pillar of the entire global food system,” said the company in a statement.

“We believe it is important to stand for what is right, which includes preventing further suffering by continuing to play our critical role in ensuring all people have access to the fundamental nutrition they need,”

North America’s top seller of frozen potato products, Lamb Weston Holdings, Inc. (NYSE:LW) expressed back in January that expected labor challenges would continue to impact production rates and throughput in its plants, especially where staffing shortages have already disrupted operations.

In January, the potato giant predicted sales growth to “be above our long-term target of low- to mid-single digits”. However, operations are burdened by higher raw materials prices, including a doubling of canola oil prices over the previous year, while wheat and packaging costs are also higher.

“We expect these price increases across our business segments will, in aggregate, mitigate much but not all of our cost inflation pressures,” said Tom Werner, CEO of Lamb Weston. “We will continue to assess the pace and scope of further cost inflation and we may take further price actions as the year progresses.”

In late 2021, US snack giant Mondelez International, Inc. (NASDAQ:MDLZ) was already warning that 2022 would be ‘bleak for supply’.

"Quite honestly I believe 2022 is going to be a tough situation for global supply chains," said Luca Zaramella, CFO of Mondelez." When we look at supply chains across the world, there are inflationary pressures that are mostly due to several bottlenecks in supply chains that are globally interlinked."

The Russia/Ukraine conflict is also impacting Mondelez, as per a statement in early March, “We are scaling back all non-essential activities in Russia while helping maintain continuity of the food supply during the challenging times ahead. 

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