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What the coronarvirus crisis has taught us about supply chains and sovereign capability

By Anthony Bergin

The supply chain vulnerabilities exposed by the pandemic have important lessons for other types of emergencies.

Strengthening collaboration across all levels of government and like-minded nations is a key theme of last week’s parliamentary report on the implications of the COVID-19 pandemic for national and international security.

The bipartisan report by the federal parliament’s Joint Committee on Foreign Affairs, Defence and Trade has many useful things to say on our import dependence of pharmaceuticals and personal protective equipment (PPE). The committee’s report is passionate about securing our critical supply chains and developing a greater degree of sovereign capability.

‘The extent of the vulnerability laid bare by a health emergency also raised the prospect that Australia’s critical national systems as a whole — the key assets and industries that underpin our national sovereignty — could be exposed to risk in other types of emergencies, such as a threat to national security,’ the report concluded.

Former Air-Vice Marshal John Blackburn, chairman of the Institute of Integrated Economic Research Australia, informed the committee (submission 13) that there was a limited understanding of the nation’s supply chain vulnerabilities, with identified medical supplies, farm inputs, defence industries, critical minerals, fuel production and shipping as key at-risk sectors.

Two years ago, the Department of Home Affairs National Resilience Taskforce, led by former Director-General of Emergency Management Australia Mark Crosweller, and now a member of the ANU National Security College Futures Hub, profiled Australia’s vulnerability to disaster risk.

The National Resilience Taskforce, whilst examining only natural disasters, provided threat assessments that echoed parts of last week’s parliamentary committee report in terms of our resilience. It noted that our biggest vulnerabilities are the intersections and interdependencies in the systems that support us from local to global levels.

The Taskforce observed that we value and rely on the systems and processes that sustain us in our everyday lives. But it stressed that what affects the nation’s resilience is the array of decisions that have been made over generations that sometimes result in building in more vulnerability for us.

The parliamentary joint committee in its investigation found that the pandemic had led to a breakdown in trust in the global rules-based order, and unexpected behaviour by some nation states. It sparked questions over the effectiveness of key international bodies, including the World Health Organization. The committee recommended the government use a Department of Foreign Affairs audit of Australia’s engagement with international bodies to prioritise which organisations are in need of reform.

To deliver a more resilient Australia, the committee recommends that within a year the Morrison government define which critical national systems are essential to our ability to function as a secure and prosperous nation. Critical to achieving that goal, the report argues, is developing a national resilience framework to assess which elements of our critical national systems are vulnerable to high-consequence supply chain disruptions.

In consultation with industry, the committee recommends developing plans and a timeframe to move ‘at risk’ supply chains for critical systems to sovereign Australian suppliers. If that’s not possible then, where appropriate, the committee recommends establishing other trusted, transparent arrangements with companies in states having a strong record of adherence to the rule of law.

In this context, the report recommends that federal government support for Australian industry sectors in identified critical national systems be moved from purely grant-based assistance to using procurement to build and sustain sovereign capability.

The committee noted that it was struck by a non-sequitur around government procurement and the notion of value for money. The report cited PPE as its example and found that despite chasing marginal cost savings during normal times, the ‘structural weaknesses in the supply chain for surgical masks and P2 respirators led to large amounts of taxpayer funds being outlaid to rapidly establish sovereign capability in the middle of the pandemic and the willingness to pay well above ‘business as usual’ prices for what product was still available in the global market.’

In net terms, the committee argued that Australian taxpayers simply didn’t get value for money and that ‘the nation’s health workforce were unnecessarily placed at risk for periods due to shortages of respirators that were correctly sized for the workforce’.

This lack of capital productivity the committee found ‘will continue if Commonwealth and state procurement of surgical masks and respirators reverts to international suppliers when circumstances return to a pre-pandemic normal. It is therefore important that the Australian Government adopt whole-of-government measures to assist the establishment or sustainment of critical sovereign capability’.

The committee’s report judged that risks to Australia’s security go beyond pandemics, and include a growing range of economic, military, climate threats. A key committee finding was that if an adversary disrupted key supply chains some of our critical national systems could fail.

The decisions being made now on national resilience will affect future generations. Getting the balance right on the trade-offs needed is complex. As committee chairman David Fawcett pointed out his concern is that we have ‘in the interests of efficiency and driving down price, sometimes not understood where our supply chains reach back to’.

In the end you get what you pay for.

Originally published by: Policy Forum on 15 Dec 2020