After the test of African swine fever and the East African locust plague, the ensuing new crown pneumonia epidemic is magnifying the global food price and supply crisis, and may promote permanent changes in the supply chain.
The increase in the incidence of workers caused by the new crown pneumonia, the interruption of the supply chain and the economic closure measures will have a negative impact on the global food supply. Some governments’ actions to restrict grain exports to meet domestic demand may make the situation worse.
In an online seminar organized by the Globalization Think Tank (CCG), Matthew Kovac, executive director of the Food Industry Association of Asia (FIA), told a reporter from China Business News that the short-term problem of the supply chain is consumer buying habits. The changes have impacted the traditional catering industry; in the long run, large food companies may carry out decentralized production.
The poorest countries are hit hardest
According to data recently released by the World Bank, the 50 countries most affected by the new crown pneumonia pandemic account for an average of 66% of the world’s food export supply. The share ranges from 38% for hobby crops such as tobacco to 75% for animal and vegetable oils, fresh fruits and meat. The export of staple foods such as corn, wheat and rice is also highly dependent on these countries.
Single-dominant crop producing countries are also facing a severe impact from the epidemic. For example, Belgium is one of the world’s major potato exporters. Due to the blockade, Belgium not only lost sales due to the closure of local restaurants, but sales to other European countries were also stopped due to the blockade. Ghana is one of the world’s largest cocoa exporters. When people focused on buying necessities instead of chocolate during the epidemic, the country lost the entire European and Asian markets.
World Bank senior economist Michele Ruta and others stated in the report that if the morbidity of workers and the demand during social distancing will proportionally affect the supply of labor-intensive agricultural products, then one after the outbreak During the quarter, the global food export supply may be reduced by 6% to 20%, and the export supply of many important staple foods, including rice, wheat and potatoes, may drop by more than 15%.
According to the monitoring of the European Union University Institute (EUI), Global Trade Alert (GTA) and the World Bank, as of the end of April, more than 20 countries and regions have imposed some form of restrictions on food exports. For example, Russia and Kazakhstan have imposed corresponding export restrictions on grains, and India and Vietnam have imposed corresponding export restrictions on rice. At the same time, some countries are accelerating imports to store food. For example, the Philippines is stocking rice and Egypt is stocking wheat.
As food prices rise due to the impact of the new crown pneumonia epidemic, the government may be inclined to use trade policies to stabilize domestic prices. This kind of food protectionism seems to be a good way to provide relief to the most vulnerable groups, but the simultaneous implementation of such interventions by many governments may cause global food prices to skyrocket, as was the case in 2010-2011. According to estimates by the World Bank, in the quarter following the full outbreak of the epidemic, the escalation of export restrictions will result in an average drop in world food export supply by 40.1%, while global food prices will rise by an average of 12.9%. Major prices of fish, oats, vegetables and wheat will rise by 25% or more.
These negative effects will be mainly borne by the poorest countries. According to data from the World Economic Forum, in the poorest countries, food accounts for 40%-60% of their consumption, which is about 5-6 times that of advanced economies. Nomura Securities’ Food Vulnerability Index ranks 110 countries and regions based on the risk of large fluctuations in food prices. The latest data shows that almost all of the 50 countries and regions most vulnerable to sustained increases in food prices A developing economy that accounts for nearly three-fifths of the world’s population. Among them, the most affected countries that rely on food imports include Tajikistan, Azerbaijan, Egypt, Yemen and Cuba. The average food price in these countries will rise by 15% to 25.9%. As far as cereals are concerned, the price increase rate in developing and least developed countries that depend on food imports will be as high as 35.7%.
“There are many factors that pose challenges to the global food system. In addition to the current epidemic, there are also climate change and other reasons. I think it is important to adopt a variety of policy combinations when dealing with this challenge.” International Food Policy Research Institute Director Johan Swinnen told CBN reporters that it is very important to reduce dependence on a single source of procurement. “This means that if you only source a large portion of the basic food from one country, this supply chain and delivery are vulnerable to threats. Therefore, it is a better strategy to build an investment portfolio to source from different places. “He said.
How to diversify the supply chain
In April, several slaughterhouses in the US where workers had confirmed cases were forced to close. In addition to the direct impact of a 25% reduction in pork supply, it also triggered indirect impacts such as concerns about corn feed demand. The latest “World Agricultural Supply and Demand Forecast Report” released by the US Department of Agriculture shows that the amount of feed used in 2019-2020 may account for nearly 46% of the domestic corn demand in the United States.
“The closure of the factory caused by the new crown pneumonia epidemic is a big challenge. If it is only closed for a few days, the factory can control its losses. However, the long-term suspension of production not only makes processors passive, but also makes their suppliers into chaos.” Said Christine McCracken, senior analyst in Rabobank’s animal protein industry.
The sudden outbreak of new crown pneumonia has had a series of complex effects on the global food supply chain. From the operation of meat factories in the United States to fruit and vegetable picking in India, cross-border travel restrictions have also disrupted the normal seasonal production cycle of farmers. According to The Economist, the United States and Europe need more than 1 million immigrant workers from Mexico, North Africa and Eastern Europe each year to handle the harvest, but now the problem of labor shortage is becoming more and more obvious.
As it becomes more difficult for agricultural products to be transported to processing plants and markets, a large number of farms have to dump or destroy milk and fresh food that cannot be sent to processing plants. The Agricultural Products Marketing Association (PMA), an industry trade group in the United States, said that more than $5 billion in fresh fruits and vegetables have been wasted, and some dairy factories dumped thousands of gallons of milk.
One of the world’s largest food and beverage companies, Unilever R&D executive vice president Carla Hilhorst, told CBN reporters that the supply chain must show greater abundance.
“We will have to promote greater abundance and diversification, because now our consumption and production are too dependent on limited choices.” Silhorst said, “Throughout all our raw materials, is there only one production base? , How many suppliers are there, where are the raw materials produced, and are those where the raw materials are produced at higher risk? Starting from these issues, we still need to do a lot of work.”
Kovac told CBN reporters that in the short term, the reshaping of the food supply chain by the new crown pneumonia epidemic is reflected in the accelerated shift to online food delivery, which has greatly affected the traditional food and beverage industry.
For example, the fast-food chain brand McDonald’s sales in Europe dropped by about 70%, major retailers have rewired distribution, Amazon’s grocery e-commerce supply capacity increased by 60%, and Wal-Mart increased its recruitment by 150,000.
In the long run, Kovac said: “Enterprises may seek more decentralized production in the future. A large enterprise with multiple factories may reduce its special dependence on a certain factory. If your production is concentrated in one Countries, you may consider diversification, such as richer suppliers or customers.”
“I believe that the pace of automation of food processing companies that are willing to invest will accelerate. Obviously, increased investment during this period will have an impact on performance, but I think if you look back at 2008 (the supply caused by restrictions on food exports in some countries) In the case of a crisis), those food and beverage companies that are willing to invest must have seen sales growth, or at least much better than companies that have not invested.” Kovac told the CBN reporter.
Post time: Mar-06-2021