The ongoing conflict in Ukraine has had a significant impact on almost all industries; and, with the crisis far from being resolved, it’s crucial for every business to consider its long-term impact as well as how they can survive and, if possible, grow in the face of adversity
The foodtech industry is no exception, reports Isabelle de Cremoux (pictured), CEO and Managing Partner at Seventure. A plethora of pressing issues, including supply chain disruptions, are affecting the sector’s small and medium-sized enterprises (SMEs).
Although major players are likely to have the option to restructure any affected operations within their international network — by relocating processes to other geographies, for example — SMEs generally only have one manufacturing site. As such, any uprooting of such operations would be expensive and time-consuming.
Imminent impacts are manifold
Technology is often at the very heart of smaller foodtech companies, with the majority of processes requiring some level of heating, cooling or both, which tend to be energy intensive. The recent exponential utility price increases have therefore had a detrimental effect on many of the sector’s businesses.
Even simply refrigerating raw products such as fruit has suddenly become an expensive cost consideration. Often, the value of the actual fruit, such as an apple slice, is now less than the price of keeping it in cold storage costs — an important issue for smaller businesses and their delicate finances.
In addition, energy prices have also significantly pushed up transportation costs, whether it’s by road, train or container shipping. Despite recent price consolidations, the cost per container is still about five times higher than before the conflict and there is no sign that prices will go down in the short-term.
In addition to energy price increases, another challenge for smaller businesses is the lack of access to certain raw materials.
Cereals, grains and cream, to name just a few examples, are now in short supply owing to the situation in the Ukraine … and larger companies with bulk orders are often prioritised
To exacerbate the situation, electronic components that are often essential by foodtechs, such as those focusing on personalised nutrition, are also scarce and, again, often only available to larger firms. All these issues are now significantly impacting the finances of smaller foodtechs.
Increasing energy and transportation costs inevitably lead to higher customer prices, whereas supplier companies have to accommodate lower margins. Supply chain disruptions that block access to raw materials drive increased stock levels that, as a result, require more working capital.
Once more, this significantly impacts the company’s financial situation. Meanwhile, investors are shining a brighter spotlight on energy and raw material details during due diligence processes, which will make fundraising — especially in terms of large investments — very difficult.
How foodtechs navigate the current environment
To address the situation, companies are now investigating a variety of tools. On one hand, alternative and green energy sourcing is high on the agenda as a way to manage energy prices, with the burning of food waste becoming increasingly popular in the industry.
This is a controversial solution, however, as “recycling” food waste as energy solves one problem … but creates another one in the form of higher carbon emissions. In addition, this doesn’t work as a short-term solution because such activities are regulated and obtaining licenses can be a lengthy process.
Other smaller companies are trying to leverage the advantage of being “agile” and build on the fact that by investing in R&D, alternative manufacturing processes can be developed to circumvent current issues.
For example, Polaris, a French foodtech producing high-quality omega-3 oils from fish and microalgae, is streamlining its manufacturing chain to require fewer steps and less heat to decrease its energy use and overheads.
Moving operations closer to raw materials, markets or energy sources offers certain benefits by making a wider range of choices available. Having decided to introduce dates as a second raw material for its products, MycoTechnology, is already building a manufacturing plant as part of a joint venture in Oman.
This increases the company’s proximity to the new ingredient, which is abundant in the region but less readily available in the US. Given that the Middle East is also an important consumer market, transportation costs will be significantly reduced or even eliminated.
It is clear that, with the unexpected disruption of the world economy and supply chains, bundled with the threats caused by the changing climate, foodtechs are and will be facing multiple challenges for some time. Business strategies will need to be reconsidered and novel approaches will have to be adopted.
Optimistically, though, the agility of SMEs will also be an advantage in such circumstances, enabling them to pivot quickly when necessary and, potentially, even present growth opportunities.