Vital deliveries: The global distribution of medical goods and foodstuffs has become the primary focus of efforts to keep essential supply chains open during the Covid-19 pandemic


As globalisation has increased, the world’s supply chains have become substantially more interconnected. Moreover, as emerging market economies have steadily come to account for a greater proportion of global GDP, goods often have more stages to pass through before reaching the end consumer. From national lockdowns to closed airspace and borders, the spread of Covid-19 in the first half of 2020 resulted in unprecedented disruption to the mechanics of most economies, regardless of their size or stage of development. In particular, the erection of these barriers placed a major strain on the world’s supply chains, including essential linkages related to food and medicines.

Pharmaceutical Pressures

While multiple commercial airlines temporarily repurposed their civilian aircraft to deliver personal protective equipment (PPE) to the most severely affected countries, the dynamics of pharmaceutical supply chains remain more complex than those recently established to deliver medical supplies. China – the world’s largest producer of active pharmaceutical ingredients (API) – all but shut down industrial production to limit the spread of Covid-19, causing a shock along the entire chain. While India is a global leader in the production of generics, 70% of its raw materials come from China. Of this, one-third comes from Hubei, where the outbreak originated. Crucially, India is a top global producer of paracetamol, used by those who experience milder symptoms of Covid-19, and hydroxychloroquine, which is typically used to treat malaria and some auto-immune diseases but has also been involved in trials to treat the virus.

These short-term disruptions in the pharmaceutical industry could potentially result in a significant realignment of supply chains away from China and India. However, this could lead to long-term benefits for local industries in other emerging markets. This is especially relevant for those markets that make up the so-called yellow slice of the global economic pie: the 30+ economies that form part of OBG’s emerging market portfolio. In particular, the realignment of pharmaceutical supply chains could stand to benefit countries with large internal markets relative to others in their region, such as Egypt, Indonesia, Saudi Arabia and Mexico.

“We have noticed interruptions in the supply of both pharma and medical supplies related to Covid-19; however, the latter has been impacted more. If the crisis persists for a longer period, accompanied by longer lockdowns, further interruptions to global supply and delays in deliveries may occur,” Ayman Tamer, chairman and managing partner of Gulf-focused health care company Tamer Group, told OBG. “Logistics services are the primary reason for this delay. As such, Saudi Arabia is looking to foster localisation and encourage local production, and continue sourcing products from various countries to reduce the impact of any disruptions.”

However, given China and India’s API production dominance in global markets, an immediate reorientation of supply chains will prove challenging for some countries. For example, Mexico relies on India and China for 90-95% of its APIs. “This reliance is compounded by the lack of international air connections,” Gurulinga Konanur, CEO of Hetero Drugs Mé xico, told OBG. “While countries with direct flights to India and China can maintain supply chains relatively well, Mexico – and Latin America as a whole – will likely suffer shortages of certain key pharmaceutical products due to the lack of direct air connections with the world’s largest producers.”

Medical Imports

Although there may be delays in certain parts of the supply chain due to reduced transport options, some border authorities have implemented measures to ensure that essential medical goods reach the end consumer as rapidly as possible. Dubai Customs, for instance, has implemented new practices that enable the swift clearance of both pharmaceutical products and medical supplies. By equipping its inspection centres with new technologies and specialised equipment, Dubai Customs hopes to be able to handle higher volumes of essential supplies. Similarly, in March 2020 Dubai International Airport reported a 49.4% (12,500-tonne) year-on-year (y-o-y) increase in pharmaceutical cargo handled.

Ensuring Food Supplies

As well as ensuring continued activity along medical supply chains, the sufficient provision of foodstuffs is a priority for governments globally. However, as with pharmaceuticals, a combination of complex value chains and variations in produce makes for challenging supply chain management. There are essentially two commodity types for foodstuffs: staple crops, such as wheat and maize; and high-value crops, such as fishery products, fruit and vegetables.

While staple crop production can be capital intensive, high-value commodity production is labour intensive. Therefore, agriculture-heavy markets are faced with a two-fold dilemma. Supply chain challenges for staple crops centre around logistics, whereas the challenge of maintaining high-value agricultural commodity value chains requires stakeholders to address potential labour shortages as well as the logistical challenges, given that these products have high levels of perishability.

On April 21, 2020 following a meeting of G20 agriculture ministers, the UN Food and Agriculture Organisation (FAO), the International Fund for Agricultural Development, the World Bank and the UN World Food Programme issued a joint statement on the impact of Covid-19 on food security and nutrition: “Agriculture and its food-related logistics services should be considered as essential. Increased efforts are needed to ensure that food value chains function well and promote the production and availability of diversified, safe and nutritious food for all.” Complicating matters is the fact that the pandemic’s emergence has coincided with autumn in the Southern Hemisphere, which is the main harvest time for two of the most prominent producers of staple crops, most notably Brazil and Argentina. The latter is the world’s largest producer of soymeal livestock feed and the third-largest soybean producer after the US and Brazil. Grain-importing nations globally will be dependent on that supply before the US releases its autumn harvest onto global markets in the second half of 2020.

Despite its importance, maintaining undisrupted food-related logistic services has proved challenging in Argentina. In particular, there have been difficulties transporting goods from the agricultural heartlands to ships. Local municipalities near Rosario, the country’s grain production centre, defied the central government’s orders to permit the passage of cargo vehicles to large soymeal factories along the Paraná River. Other local authorities doubled the fee charged to vehicles moving through their jurisdictions, while some port towns along the Paraná River blocked cargo from entering altogether. Moreover, there have been disputes with labour unions representing port workers, who have requested a two-week quarantine period for ships entering the country. During the same season of 2019, there were typically 6000 daily truck shipments connecting agricultural producers with up-river ports; however, during the low point in March 2020, the figure was reduced to just 1500. Although the issues have since been resolved, the bottlenecks created a sharp reduction in the grain available for export, creating a supply shock to global grain markets.

New Opportunities

According to agricultural industry website AgriCensus, in April 2020 Argentina’s soybean exports were estimated to total 7m tonnes for the 2019/20 season, some 2.2m tonnes lower than earlier expectations. However, given that food demand is expected to remain strong, prices for staple crops have not experienced the same decline felt by some commodities – such as oil – as a result of the economic fallout of the pandemic. In fact, some agriculture-focused emerging economies could stand to benefit from the spikes in demand experienced across certain global food value chains. Africa – a net food importer – has seen a slight rise in agricultural trade as countries across the world have moved to maintain their food stockpiles. More broadly, as the value of currencies in many emerging markets – including those in Africa – falls, countries across the continent may introduce import substitution for some products, including chicken.

Covid-19 therefore has the potential to realign and regionalise Africa’s food value chains. However, this will likely depend on maintaining strong supply chains across the continent through international cooperation and strong logistics capabilities. On April 16, 2020 the African Union (AU) and the FAO released a joint declaration that committed all member states to minimise “disruptions to the safe movement and transport of essential people, and to the transport and marketing of goods and services”. It also committed them to keeping borders open on the continent for food and agriculture trade. On the same day, Kenya’s government launched a landmark reform for the tea industry, having identified key gaps in the value chain. The country is the world’s largest exporter of black tea, and the commodity is one of the economy’s top foreign exchange earners, with exports totalling KSh117bn ($1.1bn) in 2019.

To further tighten its supply chains in the sector, the country will ban direct tea sales and introduce an electronic trading auction system to improve transparency. This is expected to result in significant benefits for both small-scale producers and other stakeholders in the marketplace. The success of such a strategy will also depend on countries bolstering logistics capacity and simultaneously agreeing to adopt more permissive border policies for essential agricultural goods. In line with the joint AU and FAO statement, some countries on the continent have adopted border policies that prioritise movement of goods over that of people. However, should the continent embrace more intra-regional trade, technology may be needed to avoid logistics bottlenecks.

Start-Up Solutions

One company that has been a key player in improving logistics linkages is Nigerian start-up Kobo360. Established in 2017, the firm uses an electronic platform to connect drivers with cargo companies that are able to transport goods across the country. The business model has made supply chains more efficient and transparent, and company officials claim that their system can reduce the travel time for the 1000-km journey between Lagos, the country’s largest city, and Kano, in the country’s north, from one week to three days.

Given the current supply chain challenges across the African continent, the aim to scale up the company’s operations could catalyse broader logistics efficiency. Kobo360 already operates in Nigeria, Togo, Ghana, Kenya and Uganda. After securing $20m in funding from Goldman Sachs in August 2019, the company announced that it was looking to expand to Egypt, Tanzania, Côte d’Ivoire and the Middle East in the near term, with an aim of reaching 1.2m active drivers by end-2023.

A similar start-up in Indonesia is Kargo Technologies, founded by former regional Uber executive Tiger Fang. The company received $31m in funding in the early months of 2020 to expand logistics capacity across South-east Asia, and it aims to ensure that regional supply chains remain intact. Kargo has a network of more than 6000 active shippers and 50,000 goods vehicles, which represents around 1% of Indonesia’s $250bn road logistics industry. In total, the logistics sector accounts for around 25% of the country’s GDP. As part of its Covid-19 response, the firm implemented mechanisms to protect workers in its logistics chain. It ensured that pit stops along all routes are disinfected. In addition, it has implemented an electronic mechanism that minimises person-to-person contact in the chain.

Shifting Supply Chains

While shocks may indeed result in short-term changes to supply chains, some evidence points to the likelihood that the current pandemic may lead to more long-lasting structural shifts. According to some predictions, China could lose its central position in many global supply networks to Brazil, Mexico and certain emerging markets in South-east Asia. The reasons for this are two-fold: the initial shock to China-centric supply chains, caused by the wide-scale industrial shutdown across the country in February and March 2020; as well as the US-China trade war, which had already pushed some companies to look elsewhere for sourcing and production.

Covid-19 has accelerated the trend of US companies looking to realign supply chains closer to home in countries such as Mexico, while also diversifying them to reduce future exposure risk by relocating to ASEAN states like Vietnam, Indonesia, Thailand and Malaysia. Companies in the electronics, textiles and renewable energy sectors are the most likely to consider relocating part of their operations to the South-east Asia trade bloc, according to an analysis by Citibank. In addition, some businesses from Taiwan are expected to relocate parts of their supply chains to ASEAN in line with the government’s New Southbound Policy. This could also signify a wider trend of countries from other Asia-Pacific nations looking to relocate facilities. Even before the onset of Covid-19, foreign bank lending to China was falling while ASEAN experienced 6.9% y-o-y credit expansion in the first nine months of 2019. A February 2020 report from equities and derivatives brokerage Maybank Kim Eng suggested that companies in Asia’s larger economies had already started to adopt a “China +1” strategy, signalling their intent to diversify their supply chains regionally to avoid risk.