COVID-19: Impact on Key Players in the Food & Beverage Supply Chain
03 April 2020
The COVID-19 pandemic is causing global disruption to all types of supply chains, but this is particularly evident in the food and beverage industry. The Irish Minister for Agriculture, Food and the Marine has said it is imperative that food supply chains are kept intact during the COVID-19 crisis, and the efforts of retailers to keep feeding the country has received widespread praise.
Force majeure and commercial contracts
COVID-19 and the related restrictions have impacted on the food and hospitality industries. Hotels have had to cancel weddings, restaurants are looking to stop purchases as they have to shut their doors, and certain suppliers may have difficulty fulfilling supply obligations. Any business that is unable or finding it difficult to fulfil contractual obligations may be hoping to rely on “force majeure”. What many don’t realise is that a force majeure clause must be expressly included in a contract, as it will not be implied into the contract by general law.
If there is an express force majeure clause, it will typically excuse delay in or failure to deliver or to perform the contract for the duration of an external extraordinary event. Whether or not the COVID-19 outbreak constitutes a force majeure event is a matter of contractual interpretation, and also whether the pandemic itself, or the related legally binding restrictions and government orders actually make it impossible for the business to perform its contractual obligations. It may not be enough that the pandemic makes it more difficult to perform, or more expensive to perform. Parties should also carefully review their force majeure clause to check how it defines or describes the events that will be considered as a force majeure, and that will excuse performance under the contract. It may not need to call out a pandemic, as a reference to “government orders and restrictions” may in fact be the reason why a business cannot perform a contract.
If there is no force majeure clause, a business may find it more difficult to avoid liability for failing to carry out its contractual obligations. In the first instance, parties should discuss the situation they find themselves in and look for a practical and reasonable solution. With the global and extreme nature of the crisis, most businesses are in similar circumstances and may be willing to reach a compromise. Also, as government restrictions have tightened, there may be more scope for businesses to claim that it would be illegal for them to proceed with certain activities and contractual obligations.
Food business restrictions and closures
The Health (Preservation and Protection and other Emergency Measures in the Public Interest) Act 2020 adopted recently empowers the Minister for Health to make regulations that will temporarily close “all non-essential services” in order to prevent, limit, minimise or slow the spread of the virus. However, food and beverage producers, wholesalers and retailers are permitted to stay open but must put safeguards in place for employees and customers. Cafés and restaurants may provide only a delivery or takeaway service and there is currently no need for the business to apply to the Department of the Environment, Community and Local Government for planning consent for a change of use of the premises. Members of An Garda Siochána are enforcing the restrictions and a person or business that fails to comply with the restrictions will be guilty of an offence. This will be punishable on conviction by a fine of up to €2,500 and/or 6 months imprisonment.
Government support for employees
The Government have also introduced a Temporary Wage Subsidy Scheme that allows an employer to claim up to 70% of an employee’s take home income subject to certain weekly caps if the employer can show at least a 25% reduction either in the turnover of the employer’s business or in customer orders being received by the employer. This may be a very helpful support for food business employers with reduced operations.
We have outlined some of the issues and measures taken in the food supply chain:
Food and drink supply: the Department of Agriculture, Food and the Marine is keen to reassure consumers about continuity of supply, and avoid panic buying. In the short term, retailers may limit product lines/offerings to core lines or sizes, so that they can meet increased demand for core products. Food processors are implementing business continuity plans (many of them drawn up in preparation for Brexit) to deal with possible disruption. There are no food safety implications arising from Covid-19, and there is no evidence that the virus can be spread through food products.
Manufacture of food: Producers of food to the restaurant and hotel trade have found demand reducing or disappearing, while suppliers to the retail trade are finding that some of their products are in high demand. Imports of some products are more difficult, depending on the region or country the imports are coming from, and restrictions on trade. Farmers are finding it increasingly difficult to sell some produce, particularly with the closure of marts around the country.
Protection of employees: employers still in operation have both a common law duty and a statutory duty of care under the Safety, Health and Welfare at Work Act 2005 to protect the safety, health and welfare of employees. The Health and Safety Authority has advised that businesses still operating should carry out risk assessments. Some of the strategies implemented by our clients to minimise risk in their food production operations involve:
Creating separate production teams that operate in different parts of the premises;
Keeping two or three separate shifts for the production line completely isolated from each other;
Separating staff into small groups or pairs and segregating staff breaks, as well as increasing physical barriers in parts of the factory; and
Improving cleaning regimes and employing extra cleaners.
The health and safety of employees and customers is paramount during this pandemic. Keeping the supply of food for citizens is challenging in the midst of the social distancing and other government restrictions.
Food operators must keep themselves fully informed on the new regulations, as well as managing risks from cashflow and inability to fulfil contractual obligations. There are daily challenges for the food sector, with unprecedented demands being placed on it. For advice on any aspect of the above, or for more detailed and up to date information please contact our Food, Agriculture & Beverage team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.