April 7, 2020 | By Sara Menker

Guest Commentary - COVID-19 is Causing Short-Term Disruptions with Long-Term Consequences to the Global Food Supply Chain

The COVID-19 outbreak is causing widespread disruptions to global shipping and consumer demand that will have long-term consequences for the world’s food supply chain. 

This supply chain, which transfers soybeans and meat from the Americas to China, and wheat from the Black Sea region to North Africa, for example, hasn’t been this fragile for most of our lifetimes. Shipping flows are being shaken as a result of COVID-19, and supply constraints are starting to emerge as consumer-demand patterns change (the average home is purchasing lots more food than it does at more typical times). Managing to meet demand right now, not to mention for the next six to eight weeks, has become incredibly complicated. Even in what used to be the most transparent market in the world—the United States—demand planning has become nearly as complex as in any other country. 

Amid the uncertainty created by the pandemic, U.S. farmers are being forced to make planting decisions at a very difficult time. A recent plunge in energy prices and gasoline usage has added to this challenge, as ethanol processing margins are squeezed. Lower demand for ethanol means less demand for corn, the U.S.’s biggest crop, since 40% of U.S. corn goes to making the fuel additive.   

Besides the COVID-19 impact, the agricultural economy is already facing a series of major supply shocks. Early indicators for the U.S. Midwest are pointing to a rocky 2020 growing season, with floods expected to set back planting for a second year in a row. Meanwhile, East Africa and parts of South Asia are being ravaged by locusts, and in China fall armyworms are spreading again, threatening corn, rice, wheat, and sugarcane production. Shocks caused by African swine fever are still being felt around the world, as the disease has spread from China to other parts of Asia and recently to within a few kilometers of Germany, the second-largest pork exporter. 

For decades, trade has played an increasing role in delivering food to consumers worldwide and in reducing food insecurity. Now, COVID-19 is causing massive distortions to global trade flows. Shipments into China and other Asian countries are down sharply, and ships have been backlogged as departures from major exporting countries such as the U.S., Brazil, and Argentina are delayed. In China, a shortage of soybean imports has forced some crushing mills to close—Gro Intelligence estimates that China has its lowest inventory of soybeans in five years. With shipping from Brazil to China taking approximately 40 days, there is no room for further logistical difficulties. 

As imports slow, many countries are tapping into inventories to meet domestic demand. That might work for grains and other products that can be stored, but it’s not feasible for other, perishable agricultural products such as protein, dairy, and fresh produce. In addition, the strong U.S. dollar is making imports more expensive for many countries whose currency has fallen in value as COVID-19 spreads. If fears of a global pandemic continue to disrupt shipping, causing further instability in agricultural export markets, countries with low foreign-exchange reserves may start to experience currency shocks and inflation.

Some countries are moving to reduce the risk to their supply chains that COVID-19 has exposed. Russia, the world’s biggest wheat exporter, along with Ukraine is considering restricting exports of wheat and other grains. Kazakhstan has banned a number of exports, including some fresh vegetables. And Vietnam temporarily suspended new rice export contracts. Even after the immediate threat of COVID-19 has passed, government policymakers around the world can be expected to take a more cautious approach to ensure adequate domestic supplies. 

Gro Intelligence has launched two new agricultural price indices focused on China and the U.S. that allow near-real-time monitoring of inflation and demand. The indices include high-frequency local cash price data and are modeled based on consumer spending on food (grains, vegetable oils, fresh produce, proteins, etc.).

Gro Intelligence has responded to the crisis by assembling a COVID-19 Monitoring Kit, because tracking what’s going on in agriculture is especially important right now for industry CEOs, government officials, and NGOs. By exploiting the full breadth and depth of the vast amounts of data on Gro’s platform, the kit provides our users with near-real-time insights into the dynamic situation created by COVID-19. The kit includes Gro’s newly built China and U.S. Agriculture Price Indices which allow near-real-time monitoring of inflation and demand.

The COVID-19 outbreak is posing enormously complex challenges for global agriculture. The fact that food is a necessity rather than a luxury means disruptions in agricultural markets related to the rapid, global spread of the new disease will have long term implications for industry and for food security around the world.

 

About

The Global Food and Agriculture Program aims to inform the development of US policy on global agricultural development and food security by raising awareness and providing resources, information, and policy analysis to the US Administration, Congress, and interested experts and organizations.

The Global Food and Agriculture Program is housed within the Chicago Council on Global Affairs, an independent, nonpartisan organization that provides insight – and influences the public discourse – on critical global issues. The Council on Global Affairs convenes leading global voices and conducts independent research to bring clarity and offer solutions to challenges and opportunities across the globe. The Council is committed to engaging the public and raising global awareness of issues that transcend borders and transform how people, business, and governments engage the world.

Support for the Global Food and Agriculture Program is generously provided by the Bill & Melinda Gates Foundation.

Blogroll

1,000 Days Blog, 1,000 Days

Africa Can End Poverty, World Bank

Agrilinks Blog

Bread Blog, Bread for the World

Can We Feed the World Blog, Agriculture for Impact

Concern Blogs, Concern Worldwide

Institute Insights, Bread for the World Institute

End Poverty in South Asia, World Bank

Global Development Blog, Center for Global Development

The Global Food Banking Network

Harvest 2050, Global Harvest Initiative

The Hunger and Undernutrition Blog, Humanitas Global Development

International Food Policy Research Institute News, IFPRI

International Maize and Wheat Improvement Center Blog, CIMMYT

ONE Blog, ONE Campaign

One Acre Fund Blog, One Acre Fund

Overseas Development Institute Blog, Overseas Development Institute

Oxfam America Blog, Oxfam America

Preventing Postharvest Loss, ADM Institute

Sense & Sustainability Blog, Sense & Sustainability

WFP USA Blog, World Food Program USA

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