Wednesday, May 4, 2011

Supply Chain Failure 2: Food

We have just finished a discussion on the current shortage of many prescription drugs within the United States.  Now we are being warned that there are potential problems with our food supply.
The culprit, in these separately derived stories, is not that there is a shortage of the materials, but that we have allowed such a tight concentration of some markets, that small changes in the external market (aka: politics, tsunami, etc.) can lead to major supply chain problems.  We have essentially chosen short term efficiency for long term sustainability.  With economies of scale, you may be able to make a food preservative more cheaply by getting it all from one source; But is it wise to do that?
China currently has a production stranglehold over a critical chemical compound that helps keep food fresh — ascorbic acid.  We use this to preserve almost all the food that is on the store shelves.  It’s essential to keep food on America’s tables, and we don’t have any control over its production or distribution.
“It was first synthesized by an American scientist, it was first mass produced by an American company.  100% of our ascorbic acid or vitamin C now comes from China,” says Barry.  “In terms of pricing,  just about to the day that the Chinese finished capture and control over our supply of Vitamin C, ascorbic acid, they jacked up the price by 400%,” says Barry.
Monopolistic supply chains, because of their single-source distribution system, can easily fail during a catastrophic event.  ”When that monopoly vendor decides to buy all of some good or import us some good from some place offshore, if there is any break in trade, then you don’t get “that thing” — and that thing might be really important. It might be an ingredient that goes in your food supply — a really vital ingredient. It might be semi-conductor chips that go into all of the products you use.  So if you allow a monopolist to concentrate all of your production of something really important far away like in northern Japan for instance, all of a sudden because an earthquake, or an uprising, or a little spat, a political spat that we might have with the Chinese, all of a sudden you don’t have that thing,” says Barry. Ht again to  NC.

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