Food supply challenged by COVID-19—what lies ahead?

The U.S. Food Supply Chains have experienced a rapid and bizarre transformation as a result of the pandemic. Global economies have affected both the supply and demand for food in the U.S. and the rest of the world—leading to short-term, localized shortages in the U.S., particularly in livestock products like meat, while farmers had to deal with, for example, excess milk supplies in other areas.1

As Americans continued to clear grocery store shelves, retail stores were forced to make supply chain adjustments and/or switch production lines to accommodate the increased demand. However, as grocery store retail sales rose sharply, food service and drinking place sales, during March and April, were $47.5 billion lower than during the same period in 2019.

On the other hand, suppliers have been challenged by new regulation requirements, employee sickness/labor shortage or a diversion from original contracts. What once shipped to schools, airlines, and restaurants, now needed to find new sales avenues, such as grocery stores.

Many food and beverage industry sectors tried desperately to reinvent themselves and created a means for some type of revenue stream. Restaurants that were closed to dine-in or at partial capacity, found new ways to offer meal deliveries or pick-up. Some even developed freezable products or new packaged food options.  Distilleries even switched gears and began producing hand sanitizer for consumer sale with bars closed or at limited capacity.

Challenges facing farmers

The pandemic not only triggered a new type of crisis for the farming sector, it also came at an already tough time for U.S. farmers. For the past few years, global commodity production has outpaced demand in most years and prices have been falling. Between 2014-2019, producer prices of corn, for example, fell 44 percent from $6.15 per bushel to $3.47, and prices of soybeans fell 35 percent‑almost 5 dollars per bushel (see table below). However, the cost of production for these commodities in 2019 was higher, or only marginally lower, than five years earlier.

The rapid proliferation of COVID-19 and subsequent shutdown of parts of the economy led to unprecedented and simultaneous supply and demand shocks to the food system. Crude oil prices, which began the year at $61.18 per barrel, briefly traded negative for the first time ever in April. Consequences for farmers and their families were immediately severe. As the public began to shelter in place, with no commuting and travel, the demand for grains used in biofuels, particularly corn, saw great reductions. In addition, the immediate and drastic decline in food demands by restaurants, hotels and schools eliminated some of farmers’ and food processors’ biggest buyers—especially for meat, dairy, and specialty crops. As a result, agricultural commodity prices declined significantly for several months. Although, in early September of this year, the USDA saw a reversal in some prices as global demand is recovering.

Unfortunately, as consumers were dealing with localized food shortages and rising retail food prices, producers were dealing with falling farm gate prices and a surplus of output that forced them to euthanize livestock, dump milk, and dispose of perishable products that could not be stored.

Unprecedented measures

The magnitude and speed of the COVID-19 outbreak affected the economy, particularly the food system, which resulted in Congress passing the Coronavirus Aid, Relief, and Economic Security (CARES) Act. While evidence at a national scale is not yet available, losses by Texas agriculture alone was estimated at $6-$8 billion, or 28-37 percent of the state’s cash receipts in 2019. USDA’s most recent forecast for farm income year-to-date through September 2, 2020, projected that producers would receive $31 billion less this year in cash receipts compared to pre-COVID income forecasts from February. 

Positive signs

The COVID-19 outbreak has severely damaged expectations for 2020 and 2021. However, while the economic recovery remains uncertain, the fundamentals of the U.S. agriculture are sufficiently strong to withstand the crisis. Smart policies, technology and innovation are helping farmers deal with the effects of adverse weather conditions. While the early August derecho in the Midwest, the severe fires in the West, and the more recent Hurricanes in the Gulf have caused localized losses, from a national perspective, weather conditions have improved relative to 2018 and 2019 to indicate a more bountiful harvest in the fall. Record levels of meat and dairy production are expected in 2020 and 2021.

Finally, U.S. agriculture is extremely competitive in global markets with a trade outlook looking more favorable due to expected global economic recovery in 2021. Overall, agricultural exports during the COVID-19 period appear to be holding up relatively well compared to overall U.S. exports. In the first seven months of 2020, U.S. ag exports were down 3.5 percent from last year compared to a decrease of 18 percent for non-ag exports. However, we have seen a major uptick in Chinese purchases. For instance, the soybean exports from China is now at 14 MMTs and China has indicated the intent to purchase corn at amounts exceeding its 7.2 MMT quota. Purchases are up across the board, with total accumulated sales for wheat, sorghum, cotton, pork and beef exceeding the pace of 2017 levels year-to-date.

COVID-19 expected to continue with farm income falling

Despite these positive signs, many U.S. farmers continue to battle significant challenges and the immediate outlook for the sector remains highly uncertain. In many cases, producers didn’t experience the full impacts of markets disrupted by COVID-19 until just recently.  With the impact of COVID-19 expected to continue into next year, the Food and Agricultural Policy Research Institute at the University of Missouri forecasts farm income to fall by $21.9 billion in 2021 compared to their pre-COVID-19 predictions.

Resources:

  1. America’s Farmers: Resilient Throughout the COVID Pandemic”, USDA, Oct. 13, 2020
  2. Dan Flynn, “Food Recalls during the COVID-10 Quarter Came with ‘Glaring Food Safety Headlines’”, Food Safety News, Sept. 3, 2020

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