Business
Food Supply Is the Next Virus Headache
Measures to slow the spread are disrupting processing, transport and farm labor. A global crisis can still be averted.
It’s not just manufacturing that’s struggling with disrupted logistics. As more countries bring down the shutters to limit the spread of the coronavirus, risks are rising for the world's complex food supply networks. Snarl-ups in processing and transport could result in painful price spikes for many fresh goods, even if farms in developed markets can keep working through the outbreak.
The picture isn’t all gloomy. On a global scale, stocks of corn, wheat, soybeans and rice are healthier than before previous periods of food inflation. While some prices have been heading higher, increases aren’t across the board. Sugar and corn have been held back by reduced demand from biofuels producers as oil plummets. Low fertilizer and crude prices, meanwhile, will help offset other rising costs for farmers.
Food, Glorious Food
World food prices are still well below 2011's peak
Source: Food and Agriculture Organization of the United Nations
Yet with infection rates rising there are worrying signs of fraying nerves, as countries engage in their own version of the toilet paper panic. Kazakhstan has banned exports of buckwheat and wheat flour to preserve domestic supplies. Russia, the world’s top wheat shipper, could limit some sales overseas, a threat that has already pushed up prices. Vietnam, meanwhile, is stockpiling rice and has suspended new export contracts. During the 2006-08 spike, such behavior accounted for 45% of the increase in rice prices, and almost a third for wheat, according to a study published by the World Bank.
For now, such protectionism isn’t the norm. Kazakhstan, after all, accounts for less than 5% of wheat exports. And cereal harvests are looking decent. The U.S. Department of Agriculture expects global wheat production to rise almost 5% this year, while rice is seen as stable. Still, supply of key products is concentrated. With restrictions dragging on and more countries scrambling to contain the virus, the resilience of the world’s shopping basket will face further tests.
After years of low food inflation, several factors were already pushing up bills before the coronavirus pandemic: severe droughts in Southeast Asia and Australia; an African swine fever outbreak in China that decimated the world’s largest pork producer; and, more recently, swarms of locusts in Kenya, Pakistan, India and beyond. The United Nations’ Food and Agriculture Organization said in January that, left unchecked, the number of crop-munching insects could increase 500 times by June. One desert locust can eat its own weight in a day — about 2 grams — and swarms contain hundreds of millions.
While prices are still well below 2008 or 2011, there are glimpses of how quickly the situation could change. Chinese food prices surged more than a fifth in January from a year earlier as the epidemic took hold, and pork prices more than doubled. Rice is already feeling the combined impact of drought, rising demand from stockpiling households and export restrictions. Prices for standard Thai white rice have risen for six straight weeks, to more than $500 a metric ton, the highest level since 2013. Such gains encourage more beggar-my-neighbor economic policies, to the detriment of all.
Vitamin C
Orange juice futures have outperformed other soft commodities
Source: Bloomberg
Rebased to 12/31/2019
Then there are bottlenecks caused by virus restrictions. Deliveries and logistics have caused trouble since the outbreak began. Transpacific shipping troubles hampered exports to China from the U.S.; in China, livestock producers struggled even within the country, finding themselves unable to get feed, and then blocked from sending poultry and eggs to market. It’s a problem that could easily repeat itself elsewhere. Coffee traders are already warning of disruptions: Closures in Brazil, El Salvador and Colombia, and missing stevedores, are driving the volatility.
Labor is an additional concern. Virus restrictions prevent workers such as distributors and pickers from moving across borders. Laborers migrating to farms in France, or heading to pick fruit in Australia, may find it harder unless they are already in place. France’s agriculture minister last week encouraged unemployed people to go to work on farms; it’s unclear how many can or will heed his call, and at what price.
Workers also face the risk of getting ill. That particularly threatens more labor-intensive corners of the industry, such as palm oil plantations or meat processing plants, as Aurelia Britsch, head of commodities research at Fitch Solutions, points out. In both, contaminated workers have already proved disruptive. Malaysia’s biggest palm-producing state, Sabah, has closed down operations in several districts until mid-April after some workers fell sick.
Labor is an additional concern. Virus restrictions prevent workers such as distributors and pickers from moving across borders. Laborers migrating to farms in France, or heading to pick fruit in Australia, may find it harder unless they are already in place. France’s agriculture minister last week encouraged unemployed people to go to work on farms; it’s unclear how many can or will heed his call, and at what price.
In much of the world, preemptive policies can keep things moving. China’s Ministry of Agriculture and Rural Affairs, for example, brought in incentives for sowing and mechanization in early February, as well as support for livestock farming, and “green channels” to help the movement of feed, breeding animals and produce. Governments can encourage trade, rather than nation-level hoarding. As the virus spreads, wealthier countries may also need to support developing ones, especially those hit by elevated import bills and weakened currencies.
Disruptions will be inevitable. A global food crisis doesn’t have to be.
No comments:
Post a Comment