Food and agricultural markets during a pandemic: Insights from economists
Dr. Ryan Cardwell, Department of Agribusiness and Agricultural Economics in the Faculty of Agricultural and Food Sciences, shared this op-ed on how COVID-19 has affected global food markets. It was originally published in the Manitoba Co-operator on May 1, 2020.
The global spread of the SARS-CoV-2 virus is an unprecedented event that will affect Canadians’ lives in many ways. The effects of the pandemic are difficult to predict, but there are serious concerns about the effects of the pandemic on Canada’s economy.
This has included concerns about food production, distribution, and food security (for example “Canada’s food supply at risk as pandemic tightens borders to farm workers”; The Globe and Mail; https://www.theglobeandmail.com/business/article-canadas-food-supply-at-risk-as-pandemic-tightens-borders-to-farm/).
The Canadian Journal of Agricultural Economics has published a special issue with several articles about how the COVID-19 pandemic could affect food and agricultural markets in Canada. The articles are written by economists from universities across Canada (including Derek Brewin, Ryan Cardwell, and Chad Lawley from the University of Manitoba) and the United States who have expertise in issues ranging from livestock markets to international trade agreements to agricultural land values. All articles are now available at no cost on the CJAE website (https://onlinelibrary.wiley.com/journal/17447976).
Beyond the human-health issues associated with the pandemic, there are several concerns that transcend Canadian food and agricultural markets. These include reduced incomes and vulnerable populations, reactionary trade restrictions in some countries, and the availability of labour.
Before discussing each of these, it is worth highlighting that Canada will not experience a shortage of food, and that food security for most Canadians is not threatened by current events. There will be market disruptions for some products (temporary stock outs and price fluctuations), but production continues, markets are operating, and borders remain relatively open to trade in food and agricultural products.
Concerns about widespread food shortages and food insecurity in Canada – concerns that are often stoked by irresponsible statements in the media – are unfounded. Most Canadian households spend a small share (approximately 10%) of their incomes on food, so even significant price increases or incomes declines will not trigger widespread food insecurity.
Income and vulnerable populations
The global recession that lays ahead will have significant negative effects on incomes. Layoffs due to business closures and due to new restrictions implemented to manage the spread of the SARS-CoV-2 virus are generating economic hardship and uncertainty for many families. Some government policies, such as the expanded Child Tax Benefit and emergency cash benefits for displaced workers, are already in place to temper the negative effects of these disruptions. Most Canadians spend small shares of their incomes on food, however, and should be able to manage temporary disruptions to incomes and food prices.
Some groups are more vulnerable, however, because they cannot access these programmes, or do not qualify. In addition, very low-income people spend large shares of their incomes on food, so higher food prices and lower incomes have disproportionately large effects on their access to food. These groups are also more reliant on public transit to access food stores, and have less in-home food storage (e.g. cupboard space and freezers) which necessitates more-frequent shopping trips. Access to food is also being affected by funding shortfalls at food banks and logistical problems in serving and delivering food to vulnerable populations.
Governments in some countries may introduce measures that impede international trade in food and agricultural products as a response to current events. There may be pressure in some food-exporting countries to restrict exports in efforts to keep domestic supplies high and domestic prices low. These types of policies were common during the 2008 world food crisis, and worsened conditions for consumers in food-importing countries.
There may also be pressure for governments to restrict food imports in an attempt to foster domestic production and become less dependent on foreign sources. New restrictions on food trade would have significant effects on closely-linked international food supply chains, particularly for countries like Canada that import and export a lot of food.
There are concerns that the health and availability of workers may be compromised by the COVID-19 pandemic. The production and distribution of food has been deemed essential by most governments, but requirements for social distancing has affected working conditions in food processing and distribution facilities. Workers have taken ill at some facilities, resulting in the closure of some processing plants. These disruptions are significant, but are expected to be temporary. Also, large segments of the food supply chain (e.g. farming, long-haul trucking, rail transportation) naturally facilitate social distancing, so are less affected than supply chains in other industries.
The availability of temporary foreign workers has been delayed by quarantine restrictions, but workers continue to arrive in Canada. It is possible that governments in some countries will introduce new restrictions international workers, but this has not been the Canadian experience.
The COVID-19 pandemic is an unprecedented event, and it is difficult to predict its effects with any confidence. However, Canadian food and agricultural markets are relatively well positioned to manage the storm. Canadian consumers have high incomes (relative to global averages), so temporary disruptions to food prices and incomes will be manageable for most people. There should be focused efforts to assist more vulnerable populations who are at higher risk of experiencing worsened food security.
Canadian producers are well positioned to manage current disruptions. Canadian farms are in strong financial positions (high incomes and high net worth) relative to average Canadian households. Also, government risk management and subsidy programmes provide insurance against declines in farm incomes. These programmes are solvent if farm incomes are significantly affected by current events.
The stages of supply chains between famers and consumers are likely to experience the most significant impacts of the pandemic. Food processing, distributing, foodservice (restaurants), and retailing are having to adjust rapidly to a number of factors. Food processors and distributors are trying to transition away from now-closed foodservice outlets and toward retailers; restaurants are either closed, or are trying to adapt to take-out and delivery options; and grocery stores are managing stock outs for some products, restricted access for consumers, and exploding demand for online purchasing. The long-term effects at these stages of the food supply chain are difficult to predict.
Impacts in Developing Countries
The situation may be different in developing countries. We have little information on the spread of the SARS-CoV-2 virus in many low-income countries – they have neither the capacity to monitor public health statistics, nor the capacity to deal with direct medical consequences of a large outbreak of COVID-19. Governments in many of these countries also lack the fiscal and administrative capacity to offset income losses for displaced workers.
Many of the concerns discussed in the context of Canadian markets also apply to developing-country markets, but the potential negative effects are more severe. People in low-income countries spend larger shares of their incomes on food (as high as 60% in some countries), so any disruptions to income or to food prices can have significant negative effects. Also, most farmers and consumers in developing countries now rely on formal markets for selling and buying food (as opposed to being self sufficient at the farm level). This means that farm families in developing countries are not insulated from supply chain disruptions caused by the pandemic.
The need for food aid among the most-vulnerable groups in developing countries could spike as economic opportunities are negatively affected by the pandemic and the associated global recession. The World Food Programme and Winnipeg’s Canadian Foodgrains Bank have appealed for increased funding to cope with increased needs, and are facing new logistical problems delivering food through disrupted supply chains. It is likely that there will be significant negative effects of the pandemic on food and agricultural markets in developing countries, with important impacts on incomes and food security.
For more information on these issues, please visit the website for the Canadian Journal of Agricultural Economics (https://onlinelibrary.wiley.com/journal/17447976) where this special issues can be accessed.