The COVID-19 pandemic has significantly altered the trajectory of nations around the world as measures put into effect to reduce the spread of the virus had an immense impact on economic activity, employment, food consumption and workplace environments, according to a new paper by the Council for Agricultural Science & Technology and the Agricultural & Applied Economics Assn. The paper, titled “Economic Impacts of COVID-19 on Food & Agricultural Markets,” contains insights from 29 experts on the impact of the pandemic and also what recovery could look like.
Many countries shut down large segments of their economies, with most employees working remotely if possible. Doing so “led to a sharp and significant loss in gross domestic product (GDP) and a rapid rise in unemployment and underemployment,” said Jeffrey Dorfman, an agricultural and applied economics professor at the University of Georgia. “The challenge is to restore as much economic activity as possible while maintaining some measure of control and mitigation of the novel coronavirus.”
The report relayed that the World Trade Organization is now forecasting significant declines in both the real value of global GDP and the volume of trade in 2020, with economic recovery in 2021 being dependent on the duration of the pandemic and measures used to contain it. WTO gives three scenarios for recovery -- V-shaped, U-shaped and L-shaped -- based on how long containment measures remain in place. In each scenario, real global GDP in 2020 could decline by 4.8%, 9.2% or 11.1%, respectively, while GDP recovery in 2021 could be 4.2%, 8.1% or 2.8%, respectively.
Still, trade impacts could exceed those recorded during the 2008-09 financial crisis, the report suggested. Exports in 2020 could decline by 8.1%, 16.5% or 20.4% under the three WTO scenarios. Also, although agricultural trade is not expected to be hit as hard as other sectors, WTO predicts a significant reduction of 6.5%, 11.2% or 12.7% across the scenarios.
In the U.S., unemployment has climbed to levels not seen since the Great Depression. As such, the report suggested that consumer behavior may change for years to come.
“It seems naïve to believe this is a short-run phenomenon,” economists Todd Hubbs and Scott Irwin noted in the paper. “While the recent opening of economies around the world holds some promise, the setbacks associated with the downturn combined with uncertainty related to the pandemic are likely to dominate into the 2020-21 marketing year and beyond.”
Ag supply chain troubles
Some of the greatest challenges resulting from COVID-19 emerged in the agriculture and food supply chains. From foodservice demand disappearing almost overnight to consumer panic buying, processing plant slowdowns or shutdowns, labor force sourcing issues, meat availability issues and extremely volatile markets, no part of the supply chain was unaffected.
As the virus continues to make its way around the world, many questions remain about a resurgence of COVID-19 outbreaks, how trade will be affected, what economic recovery will look like and how the world population will adjust to what many are calling a “new normal.”
Given the disruptions that occurred in the supply chain, particularly the processing plant sector, the exposed vulnerabilities have led to calls for change. Some changes, the report noted, may include a mix of additional automation within plants to reduce dependence on labor, perhaps adding cold storage capacity or possibly making adjustments in the number, size or design of facilities.
“The calculus involved in making such changes is complicated, and care should be taken to appreciate the economic forces driving the industry’s development to date,” economists Glynn Tonsor and Lee Schulz said in the report. “In each case, we encourage these and other possible adjustments to reflect sound, research-based information to guide final decisions.”
Ultimately, a careful balance must be struck between efficiency in desired protein production during “normal times,” with increased system resiliency during pandemics and other possible major disruptions, they recommended.
On the crop side, Hubbs and Irwin said increased bankruptcy filings and slower economic growth may hinder demand prospects in the upcoming marketing year. A resurgence of the pandemic hangs over economic prospects as well.
With ample supplies projected for feed grains and oilseeds, however, expanded consumption will be necessary to keep stocks in check. Additionally, the U.S. trade relationship with China appears to once again be under pressure.
“As the world emerges from lockdowns, the lasting economic effects may hurt trade relationships and, in turn, exports of U.S. crops,” the report said.
The report relayed that the University of Missouri Food & Agricultural Policy Research Institute estimates a decrease of $4.72 billion, $2.05 billion, $40 million, $61 million and $4.08 billion in receipts in 2020 for the corn, soybean, wheat, cotton and other crop sectors, respectively. For the livestock sector, receipts are expected to fall by $9.57 billion, $2.24 billion, $5 million, $3.97 billion and $40 million for the cattle, hog, poultry, milk and other livestock sectors, respectively.