Agriculture is an essential industry around the world, responsible for feeding over 7.8 billion people. It has grown in size and scope throughout the years as population grew and demand for a broader offering followed suit. Yet, when COVID-19 came to fruition, lockdowns followed by a drastic change in consumer demand and labour availability deeply impacted the sector. As many individuals began transitioning their food purchasing habits out of the hospitality industry (e.g. restaurants, entertainment, and cruises) into their home and consumer income dropped, some agricultural industries have seen supply and demand for their products oscillate. As society aims to recover from this pandemic as soon as possible, supporting the agricultural supply chain is critical to ensure its continuous success and capabilities post COVID-19. In this article GPetrium will look at key areas to consider within the agricultural sector, followed by challenges and opportunities.
Prices of agricultural goods have the tendency to change on a day-to-day and week-to-week basis. This is mostly due to supply and demand variations caused by different factors such as the price of oil (which impact supply chain costs), elasticity (change in demand or supply in response to price or income changes), cyclical changes, major crop failure and government intervention. Under the COVID-19 environment, a sudden global drop in the economy and changes in society has led to a variety of agricultural goods to perform erratically in the future’s market.
To counter-act imbalances in supply and demand during a crisis such as COVID-19, some governments have and will intervene with stabilization policies aimed at providing support to producers and consumers. Government intervention can often occur via the subsidy of gas or electricity, loan restructuring, and growth in social safety net. Canada has, for example, unveiled an early-stage package of roughly $178 million USD ($252 million CAD) to support farmers and food processors while the US Department of Agriculture launched a package worth $19 billion USD (roughly $26 million CAD) to support farmers and ranchers. Governments will need to ensure clear processes and systems are in place to limit abuse while ensuring incentives are aligned with short, medium and long-term goals. Considerations on how some of these programs will be phased-out in the future should be a key part of the planning to minimize market shock.
From a labour standpoint, individuals and organizations face threats from multiple fronts. Ranging from having operations disrupted due to an internal COVID-19 outbreak, to limited labour access or downsized crop size with a smaller operational team to limit exposure and combat supply glut. These are all key issues that have to be taken into consideration while having a limited degree of operational sophistication or access to capital.
Farmers in some countries such as Canada, United States and Australia are often dependent on foreign labour to plant, maintain and harvest crop. In light of COVID-19, yield levels and lower demand may cause some farmers to go out of business. To support the labour-side of the equation, four areas should be considered: 1) Hiring of the unemployed to support farmers; 2) Hiring of low-risk incarcerated population; 3) Hiring of foreign workers through government supported processes; 4) Technology acquisition to increase farming efficiency.
It is important to consider the potential for a supply glut if investment in the areas above are greater than the demand for the goods in the foreseeable future. If that were to happen, there will be an uptick in producers destroying their own goods while prices may oscillate even further.
Governments continue to be bound by some of their international agreements, which may hinder the efficacy and ability to implement some of the mechanisms listed above. Additionally, concerns over the treatment of workers by the broader population should also be taken into account. A spike in COVID-19 cases in a region that has seen an increase in foreign workers may lead some locals to conclude that it is their fault, potentially leading to a spike in mistreatment and conflict between parties.
In some cases, if there was a supply glut in local agricultural goods, government and industry may benefit from raising societal interest in the purchase of oversupplied goods to support local farmers similarly to Belgium’s Potato farmers. Reminder that governmental involvement may cause other producers to request similar supports or go to court if they feel slighted.
Some societies may benefit from building or strengthening relationships between the agricultural sector and social worker institutions to sell or gift some of the produce for a cause such as poverty reduction. In some countries, this process is incentivized by the government through tax reduction mechanisms.
Countries may benefit from doing small-scale exercises on some of the proposed areas. These exercises should involve early crops with short-turn arounds, allowing for at least some of the results to be found prior to major crop-seasons in their respective countries. Other countries may benefit from watching the successes and failures of others to help drive their own decisions. Not all programs scale well or work in all environments, so policy makers need to account for the challenges at hand. In the end, the reality is that to ensure a quicker recovery, societies will need to take calculated risks, some will pay-off and will serve as a basis for future operations while others will tumble due to procedural, bureaucratical, technical failures. It is up to us as society to drive the changes needed to tackle the challenges of the 21st century.
The opinions in this is of the authors and do not reflect clients or other’s views.