Selling into 139 countries via 26 global offices, Atlanta-based AJC International is no stranger to standard business risks like currency fluctuation, customs regulations and cross-border payments.
But, as the U.S. exporter of frozen meat found out in February, an unprecedented pandemic requires an even more strategic approach to managing uncertainty.
AJC (no connection to the Atlanta newspaper) saw through its China office a bit of what was to come when shutdowns hit. CEO Brad Allison had been visiting in January, when the coronavirus was “percolating” but still was seen as little risk to the world.
“From that moment I was very attuned from what was going just from what I felt inside China,” Mr. Allison told World Affairs Council of Atlanta President Charles Shapiro in a May 14 program on interruptions to the meat supply chain.
The experienced exporter, whose sales total about $1.6 billion and fill 50,000 containers annually, started preparing contingency plans in early to mid-February, even buying personal protective equipment for warehouse workers and putting its own travel restrictions in place before the end of that month, Mr. Allison said. The company’s workforce went completely remote in mid-March.
In addition to its day-to-day risk, AJC formulated a COVID-specific docket to prepare for about 18 specific situations, from human risk inside the company —mainly protecting workers — to interruptions to the business.
“It was as tactical as, we have container congestion in Vietnam, we have a rapidly devaluing peso in Mexico, we have accounts asking for extended payment terms — what are we going to do? How are we going to manage through it?” Mr. Allison said told Mr. Shapiro in the 45-minute call.
The planning turned out to be prescient, as the company entered what Mr. Allison called the most extreme era of price volatility he’d seen for its products: mainly frozen meats, with chicken topping the list, followed by pork and then beef.
That’s due to buyer behavior and supply anomalies locally and globally. In February, weak China demand led to excess supply, while in March, Americans ran to the stores and cleared the shelves before lockdowns, Mr. Allison said. Then restaurants and schools closed, taking a huge bite out of demand. Finally, certain meat packing plants became COVID-19 hotspots, leading to even more disruptions. President Trump even went so far as to order meat plants to stay open as critical infrastructure, leading some to criticize him for failing to protect the health of workers.
“The long and the short of it is today what has happened is that there is a supply-and-demand imbalance,” said Mr. Allison.
While cows can be left to pasture for a little while longer, pigs get too big to be slaughtered, leaving some producers with the unenviable option of drastically culling their herds. Milk is also wasted if there is nowhere to store it, Mr. Allison said.
“We actually have more meat in the United States than we need. We just can’t get it slaughtered and processed, so a lot of it’s actually going to waste while there are people that are hungry, so it’s really a manifestation of this criss and how it can do the most unusual things,” Mr. Allison said.
He expressed optimism about the January trade deal between the U.S. and China, where the latter promised agricultural purchases as a key tenet of the agreement. But since then, China has reportedly begun ordering state-owned companies cancel major orders as bilateral tensions have flared up.
“There is massive disruption in our industry just like there is in the travel or the hospitality or the air industry,” Mr. Allison said.
But he reserved his gravest concern for other parts of the world. Some places where the incidence of COVID is rising lack the mechanized food chain of the U.S., and with supply chains truncated by stay-at-home orders, deliveries could be further mismatched with production. The global “food insecure” population could double to about 260 million, he estimated.
“I’m just so concerned for the global populations right now that are on the edge, because not only are we in an economic crisis which hurts the most vulnerable people in the world the most, but we’re really starting to see a food crisis,” Mr. Allison said.
Then there are places that face a crisis somewhat of their own making, as politicians ignored the threat of the pandemic until it was indisputably upon them.
Mr. Allison is particularly concerned about Mexico and Brazil, the latter being the source for about 20 percent of AJC’s global volume and a major global exporter of proteins. Brazil’s JBS owns many meat plants around the U.S., including the Pilgrim’s brand.
At the time of the event, Brazilian President Jair Bolsonaro had famously scoffed at those calling for shutdowns and social distancing. Now the country of 210 million people has more cases than any nation other than the U.S. — some 555,300, with more than 31,000 deaths.
Even in mid-May, a few plants had been shut down; a domino effect could threaten the worldwide supply and lead to price inflation, since Brazil “feeds the world” with an export-oriented industry that is even more geared toward selling abroad to get dollars now that the real is has fallen in value, Mr. Allison said.
“Our fear is, like in the United States, plants will start closing. Brazil’s logistics infrastructure is very weak, so any disruptions will impede (export). I think we’re going to have a hard time getting that food out of the country. They may make it happen. I hope they do, but we are preparing some level of decline there.”
Brazil had been added to the COVID-specific list of risk items for AJC on the morning of the call, Mr. Allison said.
While preparing for its own challenges and elevating communication among its 400 workers, Mr. Allison added AJC was also aiming to serve its 1,900-plus customers, helping them manage the crisis with hard-earned insights developed since its founding in 1972.
“We’re trying to be a beacon of strength for our global customer base — many of them are much less sophisticated than we are financially in being able to look forward. So we have been very proactive … and I think that has served us well.”