Resiliency is a great idea, until you have to pay for it

Empty store shelves early on in the pandemic were one example of the lack of resiliency in the supply chain. The problem was eventually solved, but there are examples that would be more expensive to fix.  | File photo

Other than “unprecedented,” the term “resiliency” has been the biggest buzzword of the pandemic — at least in agriculture.

I doubt I’ve taken part in a webinar, Zoom call or online press conference since March without the term being used prominently repeatedly.

Resiliency is a hot concept right now, but what does it really mean? I think it’s a vague and fluffy term when used by most people, which means it doesn’t really mean much.

And that means this pandemic probably won’t create the resiliency everybody says they now want in every production system and value chain. That’s because it’s a concept that sounds great — until somebody is expected to pay for it.

Probably the best way I’ve found to define it in terms applicable to farming and agriculture is: “The ability of a system to survive shocks, remain in production and continue after the shock and its aftermath have passed.”

With grocery store shelves in the pandemic running out of flour, yeast, numerous dairy products and toilet paper, great concern was expressed throughout society about the vulnerability of the food system to shocks and the need to “build resiliency” into it.

So too was grave concern expressed about the ability of the slaughter and meat processing industries to survive shocks like COVID-19 as plant after plant went down to outbreaks.

Fortunately, both the overall food system and the meat processing industries proved to be tougher than many feared. The shortages at the grocery stores were mostly just a product of hoarding as people filled their pantries for the apocalypse, while the meat plants fixed most of their problems by adding simple separators and staff separations.

Farming itself went off without a hitch in most of Canada, the United States, and indeed most of the world. Dairy and hog producers in Canada faced horrifying shocks early in the pandemic, but were able to return to mostly normal production by mid-summer.

Other industries were less fortunate. Farmers benefitted from awesome, record railway performance, but that was because other industries were crippled, leaving the trains with nothing else to haul.

The health and hospital system has proven itself to lack resiliency. In the face of the pandemic shock, hospital capacities have been quickly overwhelmed. Hospitals don’t have enough beds, nurses and doctors to handle any bigger surge of pandemic cases than they have today, and they have already cancelled thousands of non-COVID-19 procedures, surgeries and diagnostics.

The long-term care home system is a disaster. It has quickly and catastrophically failed. There has been no resiliency there with many of the older facilities. When hit with COVID-19, huge numbers of the people they were meant to be caring for instead died, despite months of warnings of what was coming.

However, fixing these things isn’t so easy. When we talk of “building resiliency” into various systems, what do we really mean? It’s fine to use a vague definition, but if we’re actually going to re-engineer and re-build something, the cost matters.

For hospitals and long-term care homes, more resiliency could be created with bigger, better spaced facilities and significantly more staff.

Who’s going to be willing to pay for that? I’m imagining a lot of people pointing the finger at everybody, and refusing to accept any fingers pointed their direction.

In farming, agriculture and food, more resiliency could easily be built — at a price.

Farmers could build more bins, purchase more equipment than they would usually need, and have a bunch of money in the bank for a year like 2013-14, when western Canadian agriculture faced a nasty, extended shock like the rest of the economy is getting today.

Many farmers have already made those investments because they sit at the bottom of the supply pyramid and they can’t push down their costs onto anybody else.

But would farmers want everybody else in the food supply chain to build lots of extra resilience — meaning excess capacity — into their systems? As always, any inefficiency above the farmer ends up being pushed down on the farmer in terms of lower commodity prices and higher costs. Who’s going to sign up for that?

So too with the idea of simplifying value chains. That sounds great until it means you can’t use the cheapest or best suppliers or service providers, but instead rely upon a smaller group of often less-good players who happen to be closer. That’s not a great deal for non-crisis times, which is most of the time.

Of course, resiliency can be built through financial instruments. This column is about risk management and hedging. I’m always writing about ways of guarding against market risk with various instruments.

But that’s why I know that it’s easier to write about risk management than to practise it because there’s often a cost to actually undertaking it. That’s always the case with options contracts, which come with a premium the farmer has to pay. Some people can just never bring themselves to pay that premium, however much they know that contract could protect them.

Whether it’s with farming, business liabilities, personal possessions or ensuring our children won’t be impoverished if we die, paying a price for additional resilience isn’t something many of us are willing to do.

As Bruce Carnegie-Brown, chair of the Lloyd’s of London’s insurance market, said on the Oct. 28 edition of the Freakonomics podcast, “resilience is a quality that is much undervalued by our economic models, generally, around the world.”

He, as a guy that represents syndicates of insurers who would love to sell you extra resilience, thinks businesses should be including their level of coverage in their financial reports.

“I think we need to find a way to factor more value in to this issue of resilience,” he said.

I’m guessing that once the pandemic is over, most of our systems will return to the way they were. Obvious changes and improvements will be made where the most egregious failures have been, but beyond that, little will happen. Building excess capacity is just too expensive if nobody’s going to volunteer to carry the cost.

Resiliency sounds great until you have to pay for it.

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