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COVID-19, A Balancing Act: Agriculture Sector

              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.

Market Oscillation

              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.

Sample of weekly futures market

Source: Finviz

Sample of futures market

Source: Finviz

              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.

Labour

              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.

  1. Matching the unemployed with farmers: As the number of unemployed skyrockets and the economy takes time to recover, agricultural jobs may serve as a stopgap to counterbalance its effects. Some governments may benefit from building or using a platform to match farmers with unemployed individuals eager to work. In places where states, provinces or territories have seen a decline in agricultural work in the past and where this career is deemed essential for the economy, the government may benefit from selling a plot of land at a discounted price for those who have begun working during the COVID-19 crisis and have decided to remain even after the issue has subsided. This can serve as an incentive for long-term commitment to an agricultural career.
  2. Job opportunity to low-risk incarcerated population: The incarcerated population can often find it challenging to find a job once they have left the prison system. During a crisis, it can be doubly challenging to do so. This increases the risk of recidivism and may pose further challenges and costs to society and the prison system. According to a GlobalNews article on the Canadian Parliamentary Budget Officer, it is estimated that an inmate costs on average around $81,000 USD ($114,587 CAD) per year while in the US, the Bureau of Prisons estimates that federal inmates cost $36,299 USD (roughly $51,300 CAD) in the fiscal year of 2017. To diminish such costs, the government should look to build profiles of individuals who could benefit from taking part in an agricultural career track. This can also mean that some prisoners would get education in this area to help facilitate the transition. Not all inmates would be given the option to follow this track due to a variety of concerns. Another aspect is to build partnerships with agricultural coops and other groups to facilitate connection and transition of inmates to society.
  3. Enhanced Foreign Worker’s Program: Foreign labour in the agricultural sector is not a novel idea, it is estimated that the US employed over 258,000 foreign workers in farms in 2019 (USDA) while Canada employed 54,734 workers in 2018 (StatCan). However, in light of the novel COVID-19 full or partial border closure will likely remain in many countries for the foreseeable future. Despite such policies, there are procedures that can and should be taken to not cause additional strain in the agricultural sector by halting such labour practices. To ensure foreign workers are ready and able to work, governments will need to partner with agriculture employers, cooperators and other countries to ensure the availability and viability of transporting, housing and providing other basic care for the workers. Considerations regarding testing accessibility, 2-week quarantine, supply chain provider’s impact (e.g. airlines), cost and other factors will need to be taken into account.
  4. Technology Innovation: Technology innovation can be a major driver in enhancing efficiency in the agricultural sector. Governments may benefit from creating an agricultural supercluster to connect farmers with innovators to build technological solutions that will support the efficacy of farming. There may also be cases where grant is provided to the purchase of equipment that allow for increase crop yields.

Caveat

              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.

Conclusion

              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.

Exchange rates data provided by Morningstar on May 6, 2020 (3:10 pm UTC).

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