New FDA report on the impact of Y2K on food supplies : LUSENET : TimeBomb 2000 (Y2000) : One Thread

17 February 1999


USDA study shows some countries may not be ready for Y2K

Washington -- An agricultural report indicates only small risks to U.S. agriculture exports from year 2000 computer disruptions in foreign markets, according to the U.S. Department of Agriculture (USDA).

Some countries' domestic food supply industries have not shown significant progress in dealing with the year 2000 (Y2K) computer problems, the USDA study shows, and pose some risk. Large food production companies overseas are generally better prepared for the new millennium, it finds.

Of the top 10 U.S. export markets, those showing the lowest to medium vulnerability to Y2K disruptions include Canada, Japan, South Korea, Taiwan, the Netherlands, Germany, and the Hong Kong Special Autonomous Region. Mexico, Spain and Russia are included in the range of medium to high vulnerability, but that varies from one agricultural sector to another, the report said.

The study also indicated that there may be some risk of Y2K disruptions to U.S. imports of foreign food -- especially perishable commodities. Of the top U.S. import markets, Canada, Thailand, France, and Italy are those showing the lowest to medium vulnerability to Y2K disruptions. Mexico, Chile, Ecuador, and Brazil are rated as medium vulnerability, but that again depends on one agricultural sector or another, the report said.

USDA's Foreign Agricultural Service (FAS) prepared the study, which was released February 12. Food exports are critical to the U.S. economy, because one third of the food produced in the United States goes into export markets, FAS said.

"Because of this, American agriculture is very sensitive to trade, and any significant disruption in exports could adversely affect producers in this country through lower prices," the study said.

The Y2K computer problem -- or "millennium bug" -- could cause malfunctions in unprepared computer systems that are unable to distinguish "00" as the year 2000 instead of 1900.

report text to follow

-- <> (, February 18, 1999


Following is the text of the USDA report:

(Note: Billion in the text is equal to 1,000 million.)

(begin text)

The Food Supply Working Group

Assessment of Year 2000 Readiness of the International Food Industry as it Affects the United States


At the request of the Food Supply Working Group, the Department of Agriculture's Foreign Agricultural Service (FAS) prepared the following assessment of the potential for disruptions to the international food industry, which might affect U.S. food exports and imports.

Food exports play a vital role in the U.S. agricultural and national economy. Much of the food that is produced in this country is eventually consumed overseas-after all, 98 percent of the world's population lives outside our borders. One of every three acres produced goes into export markets. Because of this, American agriculture is very sensitive to trade and any significant disruption in exports could adversely affect producers in this country through lower prices.

At the same time, Americans today are consuming imported food products at a record pace. Imports provide variety to the diet of American consumers, especially during the winter months when year 2000 problems are most likely to occur.

The food supply sectors in foreign countries vary significantly in their reliance on computerized systems and date sensitive embedded chips and therefore their vulnerability to mission critical year 2000 problems. These nations and, especially their food supply sectors, also vary greatly in their awareness and actions on the year 2000 problem.


FAS overseas offices assessed the food supply sector in 81 countries, typically accounting for 97 percent of U.S. food imports and 95 percent of U.S. food exports during the January to March time period.

Overall, the assessments show that the key markets for U.S. food products will likely have a relatively low risk of year 2000 disruptions to their import, processing, distribution, and retail chains. However, some countries and their domestic food supply industries have not yet shown significant progress.

As appears to be the case in the United States, large companies overseas, especially profitable multinationals, are usually the best prepared for the millennium. They have the awareness, the resources and the technical wherewithal to deal with the problem. This is significant because these companies generally control a very large percentage of trade.

The continuing Asian Financial Crisis is draining resources from certain market sectors, prompting them to not fully engage in year 2000 conversion, despite apparent vulnerability. Small- and medium-sized companies in Hong Kong are an example of this situation. In Western Europe, the Euro (European Monetary Unit) conversion has diverted resources from Y2K preparedness, although some companies took the opportunity to address both issues. Some European countries, despite the use of automated systems in the food supply chain, have a low level of awareness or interest in year 2000 conversion.

There appears to be some risk of year 2000 disruptions to U.S. imports of foreign food, especially perishable commodities. However, should there be a disruption, fresh fruit and vegetables are likely to continue to be available, with less variety and at higher prices, due to domestic production. This situation may be ameliorated, as Mexico (which supplies a significant share of the fresh tomato market in winter) is now undertaking a major Y2K conversion effort. The highly automated fresh produce growers are already in the assessment and remediation stages of conversion. Transportation of fresh produce from Mexico relies largely on trucks, which generally have been found Y2K compliant.


The Food Supply Working Group (FSWG) of the President's Council on Year 2000 Conversion has identified the well-being of the American consumer and the U.S. food industry as the main areas of it's concern. The international aspect of the FSWG mission is the Year 2000 (Y2K) readiness assessment of foreign countries as markets for U.S. agricultural products and as suppliers of food products to the United States. Through this analysis, the FSWG can identify potential disruptions to supply and markets. The export market plays a vital role in the health of the U.S. agricultural economy, while food imports fill important needs of U.S. consumers and add variety, especially during the winter months.

USDA's Foreign Agricultural Service (FAS) tasked FAS overseas offices in over 70 countries to assess the Y2K preparedness of the local food supply sector as a market for U.S. food products and as a supplier of food to the United States. The study concentrated on five broad subsectors: Grains; Oilseeds and Products; Dairy; Meat, Poultry and Eggs; Fruits and Vegetables; and Consumer Ready Products. Agricultural Attaches were instructed to provide both readiness and vulnerability ratings of the supply chain for each applicable subsector and market relationship with the U.S.

For export markets for U.S. agricultural products, the assessment took into account foreign port facilities, inspection agencies, discharge, transportation, processing, distribution and retail. For suppliers to the U.S. market, the analysis included production, transportation, processing, and port facilities. The USDA Agricultural Marketing Service provided a separate Y2K assessment of international transportation and distribution of agricultural products. The Farm Service Agency provided vital technical assistance in database management for the international assessment.

As background information, FAS provided to our Agricultural Attaches the Gartner Group's October 7, 1998, Testimony to the Senate Special Subcommittee on the Year 2000 Technology Problem and the USDA Cooperative Research, Education and Extension Service material on Y2K problems. Detailed instructions and an assessment worksheet were also provided.

FAS overseas offices provided reports to the FSWG on the Year 2000 readiness of the food supply sector in 78 countries, accounting for over 90 percent of U.S. food imports and exports in January to March. FAS also provided a separate preliminary assessment on these countries for the International Working Group's Y2K Database.

While the assessment instructions originally included a dollar value "potential magnitude" of Y2K failures based on the average dollar value of trade in affected commodities, it quickly became apparent that there was a great deal of inconsistency in the data. Instead, a proxy value of the three-year average (1996-1998) of January/March U.S. exports (for market relationships) and U.S. imports (for supplier relationships) was used. Readers should note that the average dollar value of trade from January to March most likely vastly overstates the potential affect of Y2K disruptions. The Gartner Group specifies that even in the least prepared countries, shortages of certain foods are likely to be "isolated and severe" while interruptions to imports/exports are likely to be "moderate and severe." For the majority of countries in their database, Gartner Group forecasts that interruptions to imports/exports are likely to be "isolated and severe."

The food supply sectors of many developing and even middle income countries have a very limited dependence on mission critical computerized or automated systems which might be dependent on year dates. Where these systems exist, they are often owned by multinational companies which have taken an active approach to Y2K issues. Therefore, analysis of the combination of vulnerability and readiness ratings is used in this report to determine a relatively high or relatively low risk of significant Y2K problems for a commodity subsector. Low risk subsectors are those with low vulnerability or medium vulnerability which have at least begun remediation (a readiness rating of 3.5 or above), or high vulnerability with mission critical systems in remediation (a readiness rating of 4 or above). By contrast, a relatively high risk of significant Y2K disruptions exists in those subsectors with high vulnerability which are not yet fully engaged in remediation (a readiness rating of less than 4) or medium vulnerability which have not yet begun remediation (a readiness rating of 3 or less). This methodology contrasts with that utilized by the Gartner Group which relies mainly on the readiness status of a sector.

In the following sections, we report on the findings of the Agricultural Attaches and other research on major markets and suppliers during January to March. We also include a brief summary on the Y2K status of ocean shipping, a key to moving food products worldwide.

Top-Ten U.S. Export Markets

Japan (Average January/March Exports $3.0 billion): Overall, it is our assessment that Japan will make the necessary adjustments and be prepared for year 2000. Even in sectors where Japan may be slow in completing Y2K realignments, Japan is expected to make necessary adjustments in order to continue its steady importation of food items. The response received from industry was mixed with most indicating that they have already prepared/modified their systems, or that they are currently assessing and preparing their systems. The Grain, Oilseeds and Products ($1.4 billion) and Meat, Poultry and Egg ($660 million) sectors are in the remediation stage of addressing the Y2K problem. More worrisome is the Fruit and Vegetables sector ($470 million) which is only in the awareness stage. Consumer Ready Products ($1.2 billion which includes items also counted in the other sectors) is in the assessment stage. Distribution and transportation have been identified as the weakest link in Japan's vulnerability for importing U.S. products. All sectors are judged as moderately vulnerable to year 2000 problems. Japanese companies indicate that the use of the indigenous "year reign" system for specifying dates will help to isolate some systems from Y2K problems.

Canada ($1.5 billion): Canada is widely acknowledged to be among the most advanced countries in their preparations for the year 2000. While all of the commodity subsectors are rated either medium or high vulnerability, private industry and government institutions are either fully engaged in remediation or testing of their systems, including embedded chips, and interfaces with other parts of the supply chain. In the key Fruits and Vegetables market ($660 million), industry is working with the Canadian Customs Service to introduce new Y2K compliant customs forms for imports. Feed millers and oilseed processors, reliant on U.S. corn, soybeans and products, are implementing Y2K embedded systems remediation. Grains, Oilseeds and Products are a $400 million market.

Mexico ($1.2 billion): Mexico has launched an aggressive year 2000 conversion program which is positively impacting the readiness of the food supply sector. The key Grains, Oilseeds and Products ($720 million, corn, sorghum and soybeans) and Meat, Poultry and Eggs sectors ($210 million, mainly red meat and poultry) are rated as medium vulnerability, but are in the assessment and remediation stages. Consumer Ready Products ($407 million, which includes items in the other sectors) is judged as the most advanced of all sectors in recognizing and resolving the Y2K problem. The National Association of Self-Service Stores (ANTAD), Proctor and Gamble Latin America, and the Food Marketing Institute (FMI) jointly published and distributed a FMI study which includes detailed strategies and solutions which businesses may use to deal with Y2K. While the vulnerability of this sector is rated medium to high, active remediation efforts should limit the risk of serious disruptions.

Republic of Korea ($650 million): The Government of the Republic of Korea (ROKG) and trade associations are actively engaged in outreach efforts to bring companies into Y2K compliance. The Grains, Oilseeds and Products sector ($450 million) is judged to have medium vulnerability, but active remediation and testing programs. Port operations are on target to be Y2K compliant by early spring. Main commercial storage facilities will be Y2K compliant by the end of 1998. Port facilities, flour mills and oilseed crushing facilities are rated at in testing or implementation. Feed mills are rated between assessment and testing. Consumer Ready Products ($140 million), which includes some Meat and Poultry imports ($75 million), is rated as highly vulnerable, but the major companies are in remediation and testing and most small companies use post-1996 PCs. The ROKG is actively assisting trade associations to bring their members into Y2K compliance. The domestic distribution system is the weak link, being made up of many small companies. Some are still using the ultimate Y2K contingency tool, paper ledgers. The majority are managing with post-1996 PCs which, given aggressive outreach, should be relatively easy to bring into compliance.

Taiwan ($570 million): The Taiwan Y2K Crisis Committee, established in September 1997, has instructed agencies involved in the clearance of imported food, including customs, health, and plant and animal quarantine agencies, to complete remediation by January 1999 and testing by June 1999. Grains, Oilseeds and Products ($449 million), consisting mainly of wheat, corn, soybeans and vegetable oil is the main market for the United States. Y2K readiness of port facilities, customs operations, and finance systems is at testing level. About 50 percent of the flour/feed consumed is processed in large, computerized wheat/feed mills. They have completed assessment and are initiating remediation and intend to replace hardware/revise software as necessary. The other 50 percent are not computerized and should not be significantly inconvenienced by the Y2K problem. The Consumer Ready Products sector ($110 million), which includes imports of U.S. fresh and processed fruits, tree nuts, and confectionery items, is well on its way to compliance. About 85 percent of the 30-plus major food wholesalers and the 50-plus retail chains with 500 outlets are computerized. Most of these wholesale/retailers are currently reprogramming and will begin testing by 6/99. The 20-30 largest food import companies are computerized and will be Y2K compatible by the year 2000. Port facilities, customs, and finance systems are at the testing level of readiness. Taiwan is an important market for Fruits and Vegetables ($68 million, which is also reflected in Consumer Ready Products). The Agricultural Produce Marketing Corporation, which manages daily fresh produce auctions, product distribution, and product pricing, will change hardware and revise software. Most fresh produce cold storage and transportation equipment is not computerized. Overall, Taiwan is rated with a medium vulnerability to Y2K problems, but companies and government institutions appear well on their way to remediation and testing.

The Netherlands ($610 million): According to a recent report issued by the Millennium Platform, less than 50 percent of all Dutch companies and local governments in the Netherlands will completely solve the Y2K problem before January 1st, 2000. The Dutch Government made this a high profile issue since it started working on the problem in 1997. Multinational companies in the food supply sector are spending significant amounts of money to resolve the Y2K bug, not only in the Netherlands, but also in countries where they have subsidiary companies. Cross border issues are also being addressed as trade is so important to the Netherlands. According to the Millennium Platform, countries like Germany and Belgium, which are major trading partners, lag behind in resolving this problem as compared to the Netherlands and hence trade could be distorted. In order to assess cross border issues, the Ministry of Foreign Affairs is coordinating with other countries to help resolve Y2K problems. In spite of the Ministry's efforts, Dutch industry is still concerned that adequate coordination does not exist within the European Union on this critical issue.

The Netherlands is an important importer of U.S. Grains, Oilseeds and Products ($490 million), mainly soybeans and corn gluten meal and has the largest crushing industry in Western Europe. According to the Product Board for Margarine, Fats and Oils (MVO), the majority of the companies dealing with soybean imports from the U.S. are aware of the Y2K problem. The Product Board does not foresee a distortion of soybean exports from the U.S. to the Netherlands. Large multinationals dominate both the oilseed crushing and feed industries and have active Y2K programs. This sector is rated as medium vulnerability and is in remediation and testing. Fruits and Vegetables ($77 million) are also an important sector. The Rotterdam Fruit Pier, which receives a large share of U.S. perishable exports, claims that they are ready with the Y2K problem. Their major concern is the proper functioning of cooling equipment. However, during winter, it might not be a problem if a short-term malfunction occurs. This sector is rated as medium vulnerability and in remediation. Albert Heijn, the leading supermarket chain, expects to be ready by April 1 of 1999. As Albert Heijn depends heavily on suppliers of foods and beverages, they contracted accountants to audit the computer systems of 20 of their most important domestic and foreign suppliers. The Port of Rotterdam plays a vital role in the importation of U.S. agricultural products. The Port has an active program of Y2K remediation, testing, and contingency planning.

Spain ($400 million): Government agencies, traders, and food processors have begun to adapt their systems to minimize the Y2K problem. Problems with trading and transportation firms are expected to be negligible. Spain is predominately a market for U.S. Grain, Oilseeds and Products ($348 million). This sector is dominated by multinational firms, who have made significant progress in Y2K preparedness. Vulnerability to Y2K problems is rated as high, but firms are already in the testing stage, thereby minimizing potential disruptions.

Hong Kong Special Autonomous Region ($330 million): There appears to be cause for concern on the year 2000 preparedness of Hong Kong, a major market for U.S. Fruits and Vegetables ($120 million), Meat, Poultry, and Eggs ($120 million), and Consumer Ready Products ($250 million, which includes the other two sectors). The Asian Financial Crisis is negatively impacting the private sector's attention to the problem and ability to deal with it. Many businesses are preoccupied with survival before tackling problems such as Y2K. With that said, many larger companies are on top of the issue and continue to make good progress. The general food distribution system should be able to meet compliance. Vulnerability of these key sectors is rated as medium while readiness is in the range of awareness and assessment. The situation in Hong Kong will bear watching and reassessment.

Germany ($320 million): German companies are addressing the Y2K problem in concert with the adjustment to the Euro. This may address software problems, but will not necessarily solve embedded chip issues. However, major multinational companies which dominate the Grains, Oilseeds and Products import sector ($190 million) will be in the testing and implementation stages by mid-1999. This sector is rated as medium vulnerability and in the assessment stage, although remediation may be a more accurate assessment, based on the typical Y2K status of large multinationals. Fruits and Vegetables ($100) and Consumer Ready Products ($110, which includes products in the other categories) are regarded as highly vulnerable, but well into remediation. The main retailers are convinced that they have solved the software problems and will start testing next year. Major retailers and producers seem to exercise sufficient pressure on suppliers and importers to ensure that the Y2K problem is properly addressed.

Russia ($300 million): The Russian Food Supply Sector presents a dichotomy between firms having non-digital technology or having high levels of new Y2K compliant systems. Some of the larger and more efficient flour and feed mills use computer equipment that is vulnerable to a Y2K-based disruption. At the port of St. Petersburg, many of the cargo and container handling facilities are either pre-digital or very new systems. Many customs facilities still use pencil and paper. Y2K failures in food importing will be more the exception than the rule. However, any place where there is Y2K-vulnerable technology still extant will get hit very hard because awareness in such places is very low. Most of the transportation and distribution system is not computerized and there is almost no use of embedded chips. Meat and Poultry ($260 million) is the key U.S. export and is judged to have low vulnerability. Some processors and cold storage facilities may use computer equipment vulnerable to a Y2K-based disruption. Y2K problems occurring in winter could cause losses from freezing.

Top-Ten U.S. Import Markets

Canada ($1.7 billion): As noted above, Canada is widely acknowledged to be among the most advanced countries in their preparations for the year 2000. All of the commodity subsectors are rated either medium or high vulnerability. Canada is an important supplier of food to the U.S. for virtually all sectors, except dairy. All sectors, except Meat, Poultry, and Eggs, are rated in the testing phase of readiness. The Meat sector is in the implementation stage. Food transport between Canada and the U.S. is mainly by truck, which is rated as low vulnerability. We therefore conclude there is little risk of Y2K-based interruptions of food supplies from Canada.

Mexico ($1.4 billion): As noted above, Mexico has launched an aggressive year 2000 conversion program which is positively impacting the readiness of the food supply sector. Mexico is primarily a supplier of Fruits and Vegetables ($1.0 billion) during this period. The vulnerability of the sector is rated medium to high and readiness as between awareness and remediation. This sector is highly aware of the Y2K issue. Highly mechanized processors in northern Mexico, as well in some regions of Southern and Central Mexico, export significant quantities of fruits and vegetables to the United States. Transportation relies largely on trucks which are less vulnerable to Y2K problems.

Thailand ($400 million): Generally, the situation is marked by a high level of awareness, but a low level of readiness except among multinational firms. The Asian Financial Crisis will likely impact remediation efforts. Vulnerability is rated at low or medium depending upon the sector. The Stock Exchange of Thailand reports that 19 of 25 agribusiness companies and 17 of 25 food and beverage companies had informed the Exchange of their plans to inspect and upgrade computer systems. Thailand mainly supplies processed Fruits and Vegetables ($60 million) and rice (Grain, Oilseeds and Products -- $50 million) to the United States.

Chile ($380 million): Chile is a key supplier of fresh fruit to the United States during the winter (Fruits and Vegetables -- $290 million). This is the heart of the fresh fruit harvesting, packing and exporting season. Irrigation systems have manual back up so production should not be affected. During the past two months, Chile has been experiencing daily electric power interruptions because the drought has cut availability of hydroelectric power. These unexpected interruptions are causing all kinds of problems for farmers and processors. In essence, Chile's business community is getting valuable experience in learning how to cope with potential Y2K problems. In addition, some fruit exporters are just beginning to investigate the use of bar code technology (electronic data interfaces) to manage their shipments.

France ($330 million): The structure of the French food industry, with many small firms and a few large ones, may lower the overall risk of Y2K disruptions as large companies tend to be most advanced in readiness while the smaller companies, especially in France, tend to be less automated and better able to fall back on manual operations. Those that are, have usually only recently computerized. Information technology efforts are mainly directed toward Euro conversion and there is a marked lack of concern about Y2K. The Fruits and Vegetables ($180 million) industry is rated as low vulnerability, but only in the awareness to assessment stages of readiness. Dairy ($200 million) is moderately vulnerable, but readiness ranges from assessment through implementation.

Italy ($280 million): An estimated 70 percent of the public sector is Y2K compliant. Many small to medium businesses, however, are just now becoming aware of the problem, but no major problems are expected because their computer equipment is fairly new and they are not as dependent on computers as other countries. Despite the low level of awareness, problems should be limited to individual companies with no major disruptions in food trade expected. Italy is mainly a supplier of Consumer Ready Products ($190 million) and while many companies are just in the awareness stage, vulnerability is rated as low.

Ecuador ($270 million): The banana industry (Fruits and Vegetables - $110 million) is viewed as having medium vulnerability, but a high level of readiness. Internally, the industry, dominated by multinationals, has implemented Y2K solutions. The main concern appears to be the ports where readiness is at a low level. This may create some shipment delays.

Brazil ($270 million): The Brazilian food industry appears to have a significant risk of Y2K disruptions due to a lack of active remediation efforts. Brazil supplies Fruits and Vegetables ($90 million) and Consumer Ready Products ($120 million to the United States. Frozen Concentrate Orange Juice is the key food commodity which is rated as medium vulnerability to Y2K problems. Failures in the export/import infrastructure appear possible, including problems in ports, refrigerated storage, and inspection agencies. While such disruptions might also affect coffee and sugar supplies to the U.S., these are nonperishable commodities and adequate stocks would protect against short-term disruptions.

Ocean Transportation

U.S. food exports and imports, except those to/from Canada and Mexico, generally move by ocean transport. Container ships and grain ships, both US-flag and foreign flag, are vulnerable to Y2K problems because of the more sophisticated computer systems that assist in navigation, propulsion, stabilization, and other necessary functions that are totally apart from the cargo they carry. One estimate puts automated or semi-automated functions of a ship at more than 1,000 per ship. Ship owners, lessors, insurance companies, parts suppliers, and other groups are actively cooperating on identifying Y2K-suspect systems. But, of the 80,000 merchant vessels in service today, one "loose" estimate is that only 80 percent of vessels will be compliant by January 1, 2000. In addition, the Global Positioning System's time cycle is due to "roll over" on August 21, 1999, and ship navigation systems will be affected. Some shipping companies are considering keeping even Y2K-compliant vessels in open seas or laid up during critical dates. The Coast Guard has also initiated an "outreach" program to all ships entering U.S. ports and in mid-1999 will not allow ships which are not Y2K compliant to enter U.S. waters. Grain and container shipping rates are at their lowest levels given the excess supply of ships and the dearth of grain and other agricultural products being traded globally. Ship availability should not be a problem even if some vessels are not Y2K ready in time.

(end text)

-- <> (, February 18, 1999.

This is very encouraging news--providing cheap oil for transportation holds out, that is. Trucks, ships, trains and planes may be Y2K-compliant, but oil refineries may not be.

-- Old Git (, February 18, 1999.


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-- Drew Parkhill/CBN News (, February 18, 1999.

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