The Covid-19 Pandemic Draws Attention to Vulnerabilities in the Global Food System

16 June 2020 Mervyn Piesse, Research Manager, Global Food and Water Crises Research Programme Download PDF

Key Points

  • In the early stages of the Covid-19 pandemic, some of the largest food exporting countries considered placing barriers on the international trade of food. They have generally refrained from doing so, however, which has helped to maintain the global food supply.
  • Disruptions to global logistics networks, agricultural labour markets and food processing plants could make it difficult to distribute that food to where it is needed.
  • Every region of the world has seen a significant increase in food insecurity, mainly as a result of the sharp economic shock and rapid rise in unemployment associated with the pandemic.
  • Global food insecurity is unlikely to rise significantly as a result of the Covid-19 pandemic. The pandemic has, however, presented a perfect time for countries to evaluate the vulnerability of their food supply chain and devise policies to strengthen it.

Summary

Several months into the Covid-19 pandemic, the global food system has performed better than first anticipated. While some large food producing countries threatened to curtail exports in the early stages of the pandemic, they have largely refrained from doing so. Rising food insecurity is mainly due to the rapid and severe economic shock that has affected every region of the world. The pandemic has drawn attention to some major weaknesses in aspects of the modern food system, however, such as: working conditions, labour laws and the consolidation and lessening of competition in some segments of the food supply chain. Addressing those weaknesses would help to create a fairer, more resilient and ultimately more secure food supply system.

Analysis

In the early months of the Covid-19 pandemic, there were fears that there would be considerable disruptions to the global trade system. It was predicted that supply chains would disintegrate as factories, warehouses and transport systems shut down. There were concerns that even the international trade of food and agricultural goods could be disrupted.

Any significant disruption to the global food system would have been catastrophic. According to The Economist, the global food system accounts for ten per cent of global GDP and employs 1.5 billion people. Food exports have increased six-fold in the last 30 years and four-fifths of the world’s population now obtain some of their daily calories from food produced in another country. The trade of food is therefore an essential part of ensuring global food security.

Some of the world’s largest grain exporters threatened to reduce their exports in response to the Covid-19 pandemic. Vietnam, which is the world’s third-largest rice exporter, banned new rice export contracts on 25 March. Russia suspended the export of rice and buckwheat on 20 March, and began weekly assessments of domestic food supplies. It is the largest wheat exporter and is in a position to dramatically influence the price of one of the world’s most important agricultural commodities. Moscow later announced that it will export seven million tonnes of grain between March and June, which is roughly in line with market expectations. Other minor food exporters, such as Cambodia, also threatened to implement grain export bans. As those exports account for such a small portion of the world’s food trade, however, they are unlikely to affect the global food supply.

Increased barriers in the global food trade are not in the best interests of exporters or importers. A major lesson from the global food price crises of 2007/08 and 2010/12 was that restrictive trade policies increase food prices and volatility in international markets. The implementation of trade bans in food exporting countries made prices in import-dependent countries soar higher than they otherwise would have. In a joint statement, the Directors-General of the Food and Agriculture Organization (FAO), the World Health Organization and the World Trade Organization reminded states to keep trade networks open, to protect low-income, food-deficit countries from higher prices and rising levels of hunger and malnutrition.

Food production shocks have contributed to political unrest in the past and could do so again. Production shocks are usually caused by geopolitical disruption or extreme weather events and can be followed by the imposition of trade barriers. Those barriers do more harm than good, however, and are best avoided. Russia banned grain exports in 2010, for instance, after drought and wildfires reduced cultivable land by more than a third. At the time, Russia was the fourth-largest grain exporter and the announcement of the ban rapidly pushed wheat prices to a 23-month high on global commodity markets. The sudden ban on Russian grain exports and the associated rise in food prices was one of the factors that contributed to the Arab Spring that spread across the Middle East and North Africa a few months after the ban was imposed.

There is enough food globally to more than meet demand, however, and a food production shock is unlikely to occur. The FAO notes that:

At the beginning of the 2020 COVID-19 crisis, cereal stocks hovered around a multi-year high of about 850 million tonnes. In absolute terms, they were nearly twice as high as at the beginning of the 2007/08 crisis (472 million tonnes) … These high stocks should provide a solid buffer against adverse shocks such as, for instance, a bad weather event in the 2020/21 growing season.

Global rice inventories are close to a record high and wheat production in 2020 is expected to be comparable to the record-breaking 763 million tonnes that were harvested in 2019. The Australian Department of Agriculture stated that:

In general there are currently ample supplies of food worldwide. The world’s staple cereal crops – wheat, rice, soybeans and corn – are in ample supply. The Agricultural Market Information System (AMIS), set up by the G20 during the food price crisis that occurred after the Global Financial Crisis, noted in April that “[d]espite much uncertainty caused by the rapid spread of COVID-19, global food markets remain well balanced: cereal stocks are expected to reach their third highest level on record this season and export availabilities for all AMIS crops are more than adequate to meet the anticipated demand”.

An analysis published by the FAO also states, however, that ‘absolute levels of stocks are not all that matters for buffer capacity. Equally significant is the distribution of stocks over countries, over exporters and importers, and notably, their concentration over major storers.’ Most of the global cereal stockpile is held by a small number of countries, with China, the US and India holding about two-thirds of those stocks. If one or more of those countries were to restrict those supplies during a food supply crisis, then it is likely that the world would experience a rapid increase in food insecurity. There more exporters and importers participating in international trade than in 2007/08, according to the FAO analysis, however, which should make global food security more resilient to shocks.

As in 2010, the MENA region is at greatest risk of food insecurity as a result of any disruption to the global food trade. The Australian Government announced that it would fund emergency freight flights to the Middle East and other key export markets to keep the agricultural export industry operational. In April, for instance, 135 tonnes of lamb meat was sent to the Middle East on three Boeing 787 Dreamliners. As one of the world’s major food producers, Australia is well placed to ensure that the world’s food supply remains robust.

The FAO suggests that a Covid-19-induced global food crisis is unlikely to occur, because food production prospects are strong, food stockpiles are high, international food prices are low, trade is largely unencumbered, bulk transportation costs are low, fertiliser and other input costs remain stable and the cost of energy (especially oil) has collapsed.

The Covid-19 pandemic has drawn renewed attention to the issue of food wastage, especially in highly regulated, developed economies. Farmers in the US, for example, ploughed vegetables back into fields and dumped excess milk, as they were unable to sell the millions of tonnes of fresh food that would normally be bought by the food service industry. As Michael Pollan has recently noted:

the US actually has two separate food chains, each supplying roughly half the market. The retail food chain links one set of farmers to grocery stores, a second chain links a different set of farmers to institutional purchasers of food, such as restaurants, schools, and corporate offices. With the shutting down of much of the economy, as Americans stay home, this second food chain has essentially collapsed. But because of the way the industry has developed over the past several decades, it’s virtually impossible to reroute food normally sold in bulk to institutions to the retail outlets now clamoring for it. There’s still plenty of food coming from American farms, but no easy way to get it where it’s needed.

That bifurcated food chain is not unique to the US and operates to various degrees in virtually every developed economy. While it is not a major weakness, the pandemic has exposed the ridiculous inefficiencies of the modern food supply system. When supermarket shelves were being stripped of essential items, some farmers were destroying the very commodities used to produce those goods because they lacked a market to sell them in.

Working conditions and labour laws were also exposed as a major weakness in food supply chains. Agricultural labour became scarce in some parts of the world, due to travel restrictions. Migrant labourers from Eastern Europe, who would normally work on farms in Western Europe, were banned from entering the region to reduce the spread of the virus. France alone was believed to require as many as 200,000 farm workers between April and July. The United Kingdom was in a similar situation, with a shortage of at least 80,000 agricultural workers. As Europe begins to relax restrictions, however, it is likely that labour shortages will be avoided. Efforts will need to be made to ensure that, wherever possible, workers adhere to social distancing requirements and limit the further spread of the virus.

In the US, farm workers were deemed essential workers by the Trump Administration. Labour conditions on US farms are generally poorly regulated and, while stricter hygiene practices have been implemented in the wake of Covid-19, thousands of farm workers have contracted the disease and continued working.

Large Covid-19 clusters also appeared in meat processing plants in the US, Canada, Spain, Ireland, Brazil and Australia. It is impossible for workers to follow social distancing guidelines in modern meat processing plants, as they are expected to work in close physical proximity over several hours. Many of those workers do not have sick pay entitlements in their contracts and feared that they could become unemployed or face severe economic hardship if they were absent from work. The pandemic has indicated that food and agriculture workers need to be more highly valued in modern society, commensurate with the vital role that they serve.

The meat supply is particularly concentrated in the US, with four companies processing more than 80 per cent of beef cattle, almost 70 per cent of the pork supply and up to 50 per cent of the chicken produced in the US. A single processing plant in South Dakota, which processes five per cent of the pork consumed in America, shut down after hundreds of staff members contracted Covid-19. The farmers that supplied it were left with no option but to euthanise animals, resulting in not only considerable financial loss, but also significant food wastage.

Small, independent meat processors have experienced a large increase in demand. Most of them are not in a position to be able to increase production, with some experiencing a backlog three times greater than usual. Republican representatives called for a lessening of regulations on small meat processors in a letter to Agriculture Secretary Sonny Perdue. They stated: ‘The high cost of complying with meat processing laws has made it hard for smaller processors to compete and has led to significant consolidation in the industry.’ The consolidation of key segments of the US food industry has exposed that country’s food supply to significant risk during crises. Increased competition and diversification of market operators would build redundancies into the system, which would help to increase resilience during crisis periods. The US experience provides an excellent opportunity for other countries to consider the level of consolidation within their own food system and consider policy options that could help to avoid a similar situation from arising.

Demand for food security programmes has increased in every region of the world. A survey from the Global FoodBanking Network indicates that the rise in demand is related more to economic hardship and a sharp increase in unemployment than a physical shortage of food.

The FAO recognises that the world has entered a sudden and deep economic recession. It echoes the sentiment of the International Monetary Fund, which forecast an economic contraction of three per cent of global GDP in 2020, compared to a contraction of 0.1% at the height of the Global Financial Crisis in 2009.

Even in wealthy countries, such as the US, there has been a significant increase in demand for food assistance programmes. About 11 per cent of US households reported food insecurity at some point in 2018. The most recent estimates suggest that between 22 and 38 per cent of US households experienced food insecurity at some point in 2020. Over the last three months, more than 40 million Americans (about a quarter of the workforce) filed for unemployment benefits. In a country where nearly 40 per cent of the population has no more than US$400 in savings, it is hardly surprising that many families are turning to food banks. The situation is probably even more dire in the less economically robust parts of the world.

There is enough food available globally to meet demand, even with the shock of the Covid-19 pandemic. Whether that food can get to where it is most needed, however, remains to be seen. Global food trade networks have performed better than first anticipated, but could weaken if major food exporters impose trade restrictions or if global shipping networks are disrupted. The pandemic has exposed several weaknesses in the modern, industrial food supply chain. The largest vulnerabilities exist in the growing and processing of food, mainly in relation to labour conditions and the lack of competition in key industries. The pandemic offers a perfect opportunity for countries to consider the state of their food supply chain and devise policies that would make it fairer and more resilient to shocks.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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