How decentralized supply chains can reign in food prices

The western world is facing a once-in-a-generation squeeze on the cost of living, with Britain seeing food prices sharply rise over the past months

The reasons for surging food prices are varied, with some of the most commonly-named culprits being fertilizer costs and driver shortages.

However, one of the major structural reasons our food supply is so fragile is because of the way we organize our supply chains – they’re highly centralized and highly brittle. Owing to how retailers procure their food we often don’t have access to local produce on supermarket shelves, with produce having to proceed through giant global and national logistics networks before ending up in our shopping trolleys. When these networks and supply chains face problems, our food prices go up.

There’s an obvious solution to this – the decentralization of food supply chains. This is hardly a new solution, since we’ve heard many times about the need to encourage local produce in the media. But now, with technology, we can move to realize this vision.

How supply chains currently work

Food production is currently highly fragmented. Producers do not deliver directly to retailers, but rather sell their produce to centralized wholesalers and distribution networks who warehouse and ship food to retailers.

The degree of scale enjoyed by wholesalers has encouraged them to adopt “just-in-time” logistics, which sees them pay for transport capacity at short notice and, above all, at low cost. As a result, bottlenecks can occur frequently. This is a story we see all across Europe, where millions of growers are forced to follow inconvenient delivery schedules to help wholesalers boost their profit margins.

These just-in-time logistics mean that wholesalers purposefully run with minimal inventory. Combined with a lack of permanent haulage capacity, sudden economic or social shocks can suddenly bring food supplies rapidly to a halt. The current system makes us all incredibly vulnerable to shifts in circumstances, while also being inefficient in many regards: it’s a poor deal for farmers, and also a poor deal for the environment as centralized warehousing means lots of unnecessary transport back-and-forth for produces.

How tech can connect local producers with retailers

The ideal alternative to this system is the decentralized and direct supply chain model: one where producers sell straight to retailers located near them. But, as you might be able to imagine this is a difficult challenge, since wholesalers do an important job of quality control, dispute resolution, and shipping. If we decentralize supply chains, we need to find a way to replicate all these functions without wholesalers.

This is where tech comes into play, with software serving the role of intermediary when it comes to quality control, dispute handling, and securing logistical support. A new generation of startups are creating digital solutions that connect farmers and retailers, streamline communications and invoicing and provide retailers with convenient access to affordable local produce. Some of these emerging solutions include Forto, a supply chain optimization, freight forwarding, and strategic procurement platform, and Hier (of which our team is an investor), which provides a platform to connect local producers directly with retailers.

Such software enables both producers and retailers to not only lower transportation costs but also reduce emissions and waste and at the same time increase the share of local products in supermarkets. Once embedded in local food sourcing, these short supply chains can help prevent supply bottlenecks and stabilize the price of food.

The pandemic has highlighted that even temporary disruptions to food production or transportation can have a major impact on the livelihoods of producers, retailers, and consumers. One of the great lessons we’ve collectively learned over the past several years is that our global logistics network is too fragile and ecologically unsustainable. If we want to help keep food prices resilient, reduce waste, and cut fuel consumption, we need a new solution.

Technology is offering this option by giving us the chance to disrupt business as usual in logistics and food distribution. The potential of the new generation of software startups to handle the traditional roles of wholesalers while allowing local producers to connect with local retailers represents a huge opportunity for food security, the planet, and our wallets.


About the Author

Frederik Hagenauer is Principal at Speedinvest, one of Europe’s largest seed-stage investors. A former founder and venture builder, Frederick now works in Speedinvest’s Saas & Infra team where he aims to support the world’s most ambitious founders early on in their journey of creating world-changing companies. Frederik studied in Maastricht and Singapore and holds a Master of Science in International Political Economy from the London School of Economics.


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