Covid and the factory floor — how Portugal’s cork industry is adapting

Portugal’s cork industry is worth €1.064Bn a year in exports with 95% sold to 130 countries around the world, 72% of that going to European countries. But how far has the industry been affected by the Covid-19 pandemic and what are the prospects for the future?

Text: Chris Graeme

There is no doubt that Portugal’s cork industry is an important agricultural sector which employs around 8,310 employees in 685 companies nationwide.
Of that, 72% goes into making wine, port and champagne corks – 40 million a year in fact — while the industry is responsible for approximately 1% of Portugal’s total exports having grown on average by 4.5% annually for the past 10 years.
Collectively, Portugal’s cork industry, like most others, is facing an unprecedented challenge caused by the Covid-19 pandemic, although through March and April production remained stable.
However, with restaurants and hotels closed around the world, and tourism at a standstill, the expectation is that output will decline in line with orders as wine sales serving the hospitality and catering sectors plummet.
In a webcast organised by AON Portugal, its CEO Pedro Penalva talks to João Rui Ferreira, President of APCOR (The Portuguese Cork Association) and CEO of cork manufacturer Waldemar Fernandes da Silva SA on how the production and supply chain has been affected by the downturn caused by the Covid-19 pandemic.

The Impact

The impact of the Novel Coronavirus has been felt by Portugal’s industries in various ways and to different degrees of intensity. Based mostly in Portugal, the local cork processing industry has managed to instigate various contingency and risk management measures to deal with the eventuality of any supply chains having to shut down. However, so far, there has been no disruption in the client supply and delivery chain to date.
João Rui Ferreira says that the cork industry operates within a panorama of global competition, but has contingency plans in place if there should be a problem in supplying its clients, and in particular to those within the wine sector.
However, supply chain problems might not come from other wine sector competitors, but rather other types of competitors in other sectors, many overseas. Problems from the supply of packaging and wrapping, tapes, logistics and, ultimately, the final hospitality clients such as the hotels, restaurants, bars and events that represent an overwhelming slice of customers catering to consumers which now aren’t there.
“We have always tried to keep our supply lines open and we’ve achieved that despite knowing that at any moment there could be a disruption in the supply chain logistics. However, in some of the countries worst affected by the crisis, like the United States, France, Spain and Italy, the wine production chain has been maintained and prioritised because it is seen as part of an essential agricultural sector and so has not seen its activities suspended” says the AOPCOR president.

Health and hygiene effects

In terms of the raw material, cork has to be harvested during a season which runs from mid-May to mid-August depending on weather factors and while cork oak growers don’t have a problem in terms of its forthcoming ‘extraction’ campaign going forward, estate visits will go ahead as normal albeit with some social distancing contingencies while “trying to keep things as normal as possible”.
And although reps and sales agents have been restricted by lockdown and travel constraints, most of Waldemar Fernandes da Silva’s 8,000 employees have continued working since for most of these factory workers teleworking from home is simply not an option and the only physical measure that had been adopted is the use of protective face masks.
“The difficulties most felt within the industrial factory environment were the coffee breaks, going to the bathroom and social interaction moments, so regulating social distancing has not been easy in terms of limiting who and how many could go for lunch at a time” he says.
In fact, Ferreira believes that these social distancing rules, if they become a regular feature or the new normal, could call into question “the very concept of team spirit philosophy”.
“We’ve had to change the rules governing morning meetings and the staff adapted very quickly” he says while admitting there had been “some difficulties initially accessing PPEs (Personal Protective Clothing), masks, visors, gloves and disinfectant items such as gels.
Other measures that have been put into practice include voluntary lockdown for staff who had been recently overseas, and the cancellation of overseas business trips by reps and sales managers — but hardly surprising given the airlines situation.
The APCOR president also mentions that he has closely studied the measures that had been announced by the Government in March and believes that some of them need to be more detailed and specific in terms of how they will be employed and adapted over time.
“Journeys weren’t a particular problem since most staff live fairly close to the factory” he says, adding that in the first phase it was left to the individual company to decide the degree of intensity while having to deal with the mixed messages of “stay at home” but the “machines cannot stop” and which reflects the Government’s dilemma of balancing people’s health and the health of the economy which sustains their livelihoods.
Ferreira says that obviously there will be a new contingency framework in general for dealing with pandemics in the first instance, since before pandemics were low down on the scale of risk assessments to business.
“On the whole, industries were not prepared for a pandemic before February, but now all industries, including ours, will now have to be prepared in terms of risk management and having the capital and financial structure to withstand a temporary crisis such as this one will be decisive in future” says the APCOR president.

Dealing with falls in orders and production

João Rui Ferreira says that in terms of demand — and clearly this will vary from sector to sector — orders have not yet been cancelled for his company and those of his association members.
There have not be big disruptions and both wineries and cork manufacturers are continuing as normal. The bottling lines have not stopped, despite some operational and logistical changes.
However, a reduction in demand, and consequent production, may well, he says, be inevitable since 60% of the world’s wines are sold though the restaurant and catering wholesale channel Horeca which serves hotels, restaurants and bars whose activity had fallen to almost zero.
And the increase in off-licence and supermarket wine sales, as people are stuck at home, has not compensated the sales to the hospitality sector, with reductions of around 50% in Europe and the US. The traditional retail outlets simply cannot absorb all this loss.
“Up until to a few weeks ago, we really didn’t feel any effects but, and this is speculative, we could eventually feel the fallout from a falloff in demand going forward, although in terms of the open-border policy between Spain and Portugal for the circulation of goods and raw materials, apart from some temporary situations, supply and production capacity looks unlikely to be affected” he says.
As for packaging, since this is done locally as subsidiaries are spread around the world, the issue of packaging and wrapping is managed on the ground by the client, and so far cork producers have not encountered specific feedback on problems.
“Providing there is not a second wave of the pandemic in the winter affecting Spain, Italy and France, and economies start to open, I do not anticipate problems in terms of components and packaging supplies” he says, stressing that risk and contingency management in terms of stock will have to be reassessed and redesigned.

Opportunities for modernisation

With a huge change in industrial paradigms worldwide, the cork processing industry is no exception when it comes to technological and innovative manufacturing processes involving AI and digitalisation.
Cork is a national, but also a global patrimonial asset, with a huge impact socially, culturally and economically for the communities it sustains and therefore a territorial responsibility.
“It is one of the few activities in certain areas of southern Europe and North Africa which creates the economic security vital for social cohesion, as well as an important sustainable ecological and environmental heritage, one which APCOR has, in its role as a facilitator, driver and guardian of this rich agricultural heritage, worked hard to maintain and preserve” Ferreira explains.
This includes factors such a protecting bio-diversity, maintaining a barrier between forest and desert, preventing the latter encroaching on the former, as well as water management and all the other responsibilities these factors bring.
Repetitive processes have been automated and digitalised, business models and production processes are being modernised, and the industry was already working within this mindset well before the Covid-19 crisis which, he believes, will only serve to strengthen and act as a catalyst to speed up the technological changes to the sector.
In terms of business innovation too, the association has launched programmes in the recent past aimed at creating and supporting startups in areas as diverse as fashion, architecture and the foodstuffs industry, as well as promoting business models that are more geared towards technological and internationalisation processes.
“In terms of progress and APCOR’S role as facilitator, there needs to be more education, transparency, knowledge sharing and showcase success stories” he says.
“One of the lessons Portugal needs to take away from this crisis is capitalising on the great image we now have in the world because of the way we have tackled the Covid-19 pandemic and add that to the fact that we had already experienced and successfully overcome an economic crisis and harness this experience to further make our economy more specialised and niche” he concluded.

*This article is based on a webinar organised by AON Portugal – a large global professional services company that sells financial risk mitigation products — in conjunction with the American Chamber of Commerce in Portugal (AmCham).