The Institute for Integrated Economic Research – Australia has just released a report looking at Australia’s medical supply chain.
The report notes that “Australia imports over 90% of medicines and is at the end of a very long global supply chain making the nation vulnerable to supply chain disruptions.
Recently, I had a chance to talk with the founders of the Institute, Air Vice-Marshal (Retired) John Blackburn and Anne Borzycki.
It is very appropriate that we are publishing their interview and highlighting their report, for the launch point of their focus on this subject was our own work with Rosemary Gibson, who has done the pioneer work on the critical question of supply chain vulnerabilities for the United States.
Question: How did you get interested in this subject?
Answer: Having read on your website about Rosemary Gibson and then had the opportunity to speak with her about her book, we decided to examine the Australian medical supply chain. Rosemary has highlighted the key dependencies which the United States has upon China in terms of the medicine supply chain and the impacts on national security.
We examined the Australian case and found we have a similar problem but very few people have focused on it. An exception was Dr Simon Quilty who wrote an article in 2012 where he focused on the need for the Australian Regulator, the Therapeutic Goods Administration, to make it mandatory to have companies report medicine shortages.
We reached out to Simon regarding his article whilst he was visiting the UK studying their National Health system. Following our discussions, he subsequently met with Rosemary Gibson in the United States to discuss her book and and he is now a Fellow of our Institute as well as a co-author of our report.
Question: What have you discovered in your research?
Answer: We found that Australia imports over 90% of the medicines Australians consume and that we are at the end of a very long global supply chain that makes us vulnerable to supply chain disruptions. The Australian Therapeutic Goods Administration has itself acknowledged these supply chain risks when they reported that, at times, there may not be enough of a specific medicine in the Australian marketplace, leading to potential weaknesses in supply.
We concluded that Australia is particularly vulnerable to medicine shortages arising from factors outside our control. These factors can include manufacturing problems, difficulties in procurement, political instability, pandemics, another global economic crisis and a range of natural disasters. The current Coronavirus emergency is an example of this.
In effect we have incrementally outsourced almost all of our medicine supply chain to the global market. We import a significant proportion of our medicines from the United States but, as Rosemary Gibson has underscored, a significant component of US medicine supplies come from China.
So, we suffer from the same problem described by Rosemary, i.e. we import from the United States which has itself ignored the vulnerability of its supply chain arising from its significant dependence on China for the manufacturing of medicines.
This dependence has been described in US Congressional Commission hearings as a risk to US national security.
Whilst Australians embrace free trade, it does not look like we have a level playing field.
We could see from Rosemary’s investigation that the Chinese Government, by using its financial power, has shaped the market by undercutting the US pharmaceutical industry. We were surprised to learn that China is fast becoming one of the leading manufacturers of pharmaceuticals and the Active Pharmaceutical Ingredients (commonly referred to as APIs) that go into medicines.
The next challenge we found was to try to understand the medicine supply chain. It has been difficult to analyse Australia’s medicine supply chain risks given the limited information available to the public.
Clearly this is not a problem confined just to Australia.
As was noted in 2019 by the US Government’s US-China Economic and Security Review Commission, supply chains are not understood, vulnerabilities are not fully understood and no one agency seems to have responsibility or accountability.
Question: What can be done?
Answer: Let us return to the efforts of Dr. Quilty. He has argued for the need for mandatory reporting on drug labelling and accurate information on critical medicine supplies.
This is a great first step.
However, whilst such reporting is now occurring in Australia, we cannot see much, if any, action being taken by the Government to address the medicine supply chain vulnerabilities.
Scandinavian countries seem to be better organized that we are. There is a good example from Finland discussed in our report. Like most nations, Finland has strategic stockpiles of key drugs and hospital supplies for what their Ministry of Defence calls ‘disruptive situations’ and ‘exceptional circumstances’.
However, the Finnish government has also recognized that these stockpiles are becoming increasingly reliant on imports and they see this as a risk to national security. Furthermore, they recognize that the restructuring of the pharmaceutical industry may have a detrimental effect on Finland’s security of supplies in the future, especially as Finland is ceasing production of infusion fluids and vaccinations. Finland recognizes this risk and acknowledges that options need to be explored to mitigate future vulnerabilities.
What we are trying to do with our report is to get the Australian people, and in turn our Government, to recognize the risks to our medicine supply chain and to acknowledge that options need to be explored to mitigate future vulnerabilities.
Question: You noted in your report that the Australian Therapeutic Goods Administration has mandated new medicine labelling requirements, but they do not require labelling of country of origin.
Isn’t your earlier point that country of origin is not enough if the exporting country is not clearly indicating the SOURCE of their supply rather than being simply a transit point for re-export?
Answer: That is clearly a key part of the challenge.
We need to focus on building an approach which ensures security of supply.
To do that the supply chain must be transparent, all the way from ingredient supply through medicine manufacturing to the consumer.
Apart from not knowing where the APIs or specific medicines have been sourced, we in Australia have not done a comprehensive risk analysis of our Maritime Trade supply chains; that in a country that depends on maritime trade for 98% of its imports (by volume.)
Australia has almost no capacity to manufacture any active pharmaceutical products or most of the products listed on the World Health Organization list of essential medicines. We simply do not understand the risk to our national security by focusing primarily on lowest cost.
The lowest cost can come at a high price …
Question: What are the next steps to deal with the situation?
Answer: The US Congress has raised some fundamental questions about the current Chinese dominance situation.
We would like our Parliament to join in this effort, and to sort through practical steps to ensure medical supply security.
Question: Perhaps the Gibson focus on building national capacity for core ingredients which allows for ramp up of medicines to ensure supply of essential medicines in a crisis might make sense for Australia?
Answer: It does.
But any case, we need to build out national production capabilities and to build resilient reliable supply chains with partners.
This can only be done with a clear policy of transparency about countries of origin for medicines, as well as ensuring that we can produce essential drugs in a crisis, whether due to natural disaster or political manipulation by authoritarian powers.
Editor’s Note: We recently interviewed Rosemary Gibson with regard to her recommendations about how to launch a proper response.
According to Gibson: “We’d have to see how much capability there is organizationally there is in the United States to ensure essential medical supply production and otherwise to actually do the work because we’re talking about thousands of medicines and many different kinds of active ingredients. It’s not going to happen overnight.
“That’s why we should start with those essential medicines that are core to any national health security and national security.”
She concluded: “We need a system just like we do for energy supplies and good commodities.
“We need an entity within the Federal government that does this tracking and projection of those vulnerabilities of global supply and demand current production levels for certain medicinal products so we can be prepared and know if this is shutting down what’s our alternative?”
See also the following:
And for recent stories which highlight the challenge facing the European Union as well as India, see the following: