BusinessDay
Nigeria's leading finance and market intelligence news report.

Food security and agricultural value chains in the COVID-19 pandemic

Introduction

The global impact of coronavirus disease (COVID-19) has been unprecedented. It continues to pose a challenge to every sector of the economy ranging from primary (mining, fishing and agriculture), secondary (finished goods) to service (health, education etc.) sectors. We are currently adapting to different ways of living, greeting and even eating. Restaurants worldwide have either closed or transformed into a carry-out, drive-through or delivery service. Restaurants are just the tip of the iceberg, the visible part of the food supply chain that most people see in their daily lives. But does the COVID-19 pandemic affect the other parts of our food supply chains?

This article explores how the COVID-19 outbreak has affected different stages of our food chains and the different factors that influence food security.

Food production

According to the FAO, food production is determined by how farmers interact with the following factors (assuming a stable policy): natural resources; farm practices; public opinion and concerns; and environmental fluctuations. Now, all of these factors are central to food production. Since COVID-19 pandemic, countries around the world have taken different measures to contain the spread of the virus ranging from movement restrictions, social distancing to partial or complete closure of borders among others. Most of these measures have a significant impact on the availability of farmworkers, hence, global food production. It will also obstruct farmers’ access to input and output markets. For example, migrant seasonal workers are affected because they are unable to move from one part of the country or other neighbouring countries to another during the peak farming season (planting and harvesting).

What does this mean for food production? It means a shortage of labour for production and processing of food, and inability of farmers to access farm inputs. The negative impact on food production will be particularly felt by smallholder farmers and labour-intensive crops such as Vanilla Beans, Saffron, Chocolate (Cacao), among others. Furthermore, in developing countries like Nigeria that are in their planting season (May/June), agricultural experts are emphasising that any form of obstruction in the distribution of quality seeds, fertilizers, herbicides and other agrochemicals would adversely impact farming activities and by extension, food production.

On the commodity pricing, as the spread of coronavirus continues around the world, the demand for the commodities such as cocoa, cashew, hibiscus, fruits and other crops continues to flatten which has resulted in losses being incurred daily by farmers while the agro commodity exporters have been constrained to sell at discounted prices that are below the farm gate costs. For example, cocoa production in Nigeria currently lacks enough patronage and adversely affects stored cocoa beans which have already been cultivated and this has caused the continuous loss of weight over time, resulting in farmers’ losses despite quality assurance, as cocoa price is often determined by its weight. Also, in the US, from mid-January, the prices of many agricultural commodities have destabilized as COVID-19 and its economic impact continues to spread. It was reported that between January 14 and April 23, the price of corn nosedived by 19 percent, live cattle by 30 percent, and lean hogs by 45 percent in the US. Under normal commodity market circumstances these fluctuations would have been around single digits.

As the pandemic unfolds

So far, outbreaks of coronavirus have occurred mainly in urban centres. But most farmers live in rural areas and only as the pandemic reaches the hinterland will larger numbers of farmers fall ill. Should outbreaks in rural areas coincide with the labour intensive planting or harvesting seasons, reduced food production may be the consequence, as the Mastercard Foundation Rural and Agricultural Finance Learning Lab underscores. The report further explains how rural households in developing countries will not only feel the impact of the virus as it affects farming activities. It may also deprive rural households of their other sources of income, such as remittances from relatives in cities who are also affected by the virus, migrant work or other non-farming businesses that are slowing or stopping. Depending on the timing and severity of outbreaks, entire rural communities could slip into crisis. This scenario may not be limited to countries where a large part of the population work in agriculture. Farming is the backbone of many rural economies even in industrialized and emerging countries like the US, Brazil, France, South Africa or Thailand. When agriculture suffers, ripples run across related sectors that employ many of the non-farming population in rural communities: agricultural input providers, machinery sales and maintenance, advisory and veterinary services, mills, dairies, abattoirs and other food processing.

While a downturn in rural economies caused by the corona pandemic is still hypothetical, experiences from other epidemics show that it is not speculation: A 2015 study conducted by PLoS Neglected Tropical Diseases in Liberia on “the impact of EVD epidemic (Ebola Virus Disease) on food production and livelihoods”, showed that the community-level incidence of EVD negatively affected crop production of farm households, which may have worsened the problem of food insecurity throughout the country. Also, it was discovered that it might not only have been limited to communities directly affected by the epidemic but also may have indirectly affected communities in areas where EVD was not reported. Similarly, experiences from China show that epidemics can have socio-economic repercussions on people’s livelihoods that go beyond the direct impact on health. They last many years beyond the outbreak and may disproportionately affect the most vulnerable groups, among them smallholder farmers who manage 80 percent of the farmlands in Sub-Saharan Africa and Asia.

Government support for food production

As the world is faced with the COVID-19 pandemic, agricultural experts are speculating that it might unleash a food security crisis not seen since the 2008-09 Great Recession. As learnt then, governments, with the support of financial institutions, the United Nations and others, can help mitigate the pending risk of global food shortages and high prices. A number of countries such as the US, Germany, Nigeria, China, Italy, among others have introduced general economic stimulus packages to sustain their economies but some of these packages lack clear incentives for smallholder farmers in some countries like the US, Germany and Nigeria. Reports from the Institute for Agriculture and Trade Policy have emphasized the growing concerns that many family farmers and food system workers will be left out in the US $2 trillion stimulus package. Similarly, the German government established the Economy Stabilization Fund of €600 billion. The purpose of the fund is to stabilize those businesses of the real economy whose existence would have a significant impact on the economy, technological sovereignty, supply security, critical infrastructure and labour market in Germany. In Nigeria, the CBN N50 billion Targeted Credit Facility (TCF) stimulus package is to support households and Small and Medium Enterprises that are badly hit by the pandemic. These stimulus packages across these countries do not have a clear incentive specifically directed towards enhancing smallholder farmers’ productivity. However, during this period of the COVID-19 outbreak, farmers need safety net programs that can enhance their productivity and help to prevent global food shortages.

Coronavirus is not the first novel virus outbreak to threaten global food security

Further, governments of different countries are setting aside stimulus packages for their agricultural sector in order to prevent a food crisis during and after the COVID-19 pandemic. On March 17 2020, a new decree was introduced by the Italian government, namely “Cura Italia” to allocate funds and provide incentives for agriculture, among other sectors. The decree allocates 100 million euro to support agricultural enterprises related to farming, fishery and aquaculture to cover the interests of loans and mortgages. Similarly, the Chinese government introduced a series of “vegetable basket” policies to stabilise production and supply to reduce the impact of the epidemic on the purchase and sale of agricultural products to smallholder farmers.

In South Africa, the government has announced a $67 million stimulus package to support smallholder farmers growing vegetables, fruits, poultry and other significant crops, with priority given to women and persons with disabilities. The government has also set up an end-to-end value chain tracker to monitor food availability across the country so that supply can be redirected to areas with extreme cases of food insecurity. Also, in Nigeria, as part of palliative measures for farmers nationwide in response to the COVID-19 impacts, the government has reduced the price for fertilizer sold under the Presidential Fertilizer Initiative by 10 percent.

In many EU countries, fresh produce growers feared over bringing in their harvests as the usual seasonal migrant workers from Eastern Europe and Northern Africa had to stay at home. To save crops, Germany’s government decided to allow 80,000 seasonal food harvesters to enter the country, most from Romania and Bulgaria which have imposed strict lockdowns and were therefore considered relatively safe origins. When they arrive in Germany, labourers must live and work separate from others for 14 days, and none are allowed to leave the farms to which they are assigned. Employers had to take additional measures to ensure social distance and hygiene.

Food processing

In March, the Baltimore Sun reported that farms in the US states of Maryland and Delaware had to kill nearly 2 million chickens without being able to process them for human consumption. Corona-related staffing shortages meant that the processing plants were unable to keep pace with the number of birds that were ready for harvest.

In the US, the UK, Germany and New Zealand milk prices collapsed: As coffee shops, restaurants, canteens and offices closed, the demand for fresh milk slumped. But cows continue to give milk and because milk is perishable (and because drying capacities for milk powder are limited) the excess supply causes prices to slip. In some cases, these had led to milk being poured away.

But these examples may be extremes while the food industry adjusts to new patterns of demand. Overall, the corona pandemic seems to have had little effect on the food processing sector so far.

Food retail

The impact of the corona pandemic on food retail differs between countries: In countries that have formal modern retail sectors, not much changed, except for temporarily empty shelves for some products. In countries with more traditional informal retail sectors, changes are often more profuse. In Nigeria, for instance, wet markets were closed or relocated to schools and other official buildings with controllable access. Also, a multitude of home delivery services sprung up. A few of them provide app-based online orders, most work over the telephone.

But also in other parts of the world, the corona crisis has triggered innovation which may be beyond the crisis: In the UK, volunteers with technical skills in machine learning and supply chain set out help food security stakeholders improve the flow of food using machine learning. They aim to build and deploy algorithms that optimize food distribution to reduce waste and delivery times to increase the availability of food on-shelf.

Food services

In many countries, restaurants and caterers were among the first businesses shut down in response to the pandemic. Equally, many were among the first to adapt, by offering home deliveries or curb-side pick-up. The International Foodservice Manufacturers Association expects that these changes will remain after the corona crisis, along with changes in behaviour and attitude, e.g. a “food-safety-first mentality”.

International trade

The World Trade Organization expects total world trade to fall by up to one third agricultural trade between 6 percent to 13 percent in 2020 as the corona pandemic disrupts normal economic activity around the world. Several factors contribute to the reduction in food trade:

● Border closures. While only temporal until protocols for the transborder transport of essential goods are established and implemented, disruption for instance affected Kenyan millers who reported difficulties in obtaining maize from regional suppliers in Uganda and Tanzania, thus affecting the production of ugali, the national staple.

● Export restrictions. Some countries restrict trade in agricultural products over concerns for their own food security: At least 21 countries have suspended or reduced the export of food, among them rice exporters India, Vietnam, Philippines and Myanmar; and the major grain exporters Russia and Ukraine.

The current interruptions to food transfers are minimal which has made food supply to be relatively stable; although observing China’s experience in this pandemic, there is a greater impact on the livestock sector due to difficulties in accessing animal feed and, on the other hand, the shortage of labour.

Experts from WHO, FAO and WTO are suggesting that while countries are trying to protect the health and well-being of their citizens, they should ensure that any trade-related measures will not disrupt the food supply chain. As such the disruptions in the international trade will hinder the movement of agricultural and food industry workers while the extension of border delays for food containers will result in the spoilage of perishables and increase food waste. Also, food trade restrictions could be linked to unjustified concerns on food safety. If the food trade restrictions linger for a long time, it would disrupt the food supply chain, with main consequences for the most vulnerable and food insecure populations in developing countries like Nigeria.

In the meantime, the FAO Food Price Index, which tracks monthly changes in the international prices of commonly traded food commodities, averaged 172.2 points in March 20202, down 4.3 percent from February and the price drops were largely driven by demand factors, not supply. Although it depends on the country and the measures that each one has adopted, globally the commodity prices have remained fairly stable. However, some African countries such as Nigeria, Rwanda, Ghana, and Kenya are experiencing retail price spikes over 100 percent for some food products. The reasons include sellers trying to profit from the crisis, disrupted logistics and panic-buying.

Consumer behaviour

Since COVID-19 was officially declared a pandemic by the World Health Organization, people around the world responded by stocking up essential products. They bought out medical supplies like hand sanitizer and masks and household essentials like toilet paper and bread with toilet paper being a common example in the US, Australia, Germany, Japan, Hong Kong, among other countries. Consumers’ panic buying has the potential to disrupt food supply chains where high demand will lead to substantial stock-outs, price increase and possible quota buying imposition. For example Woolworths, an Australia’s supermarket chain, decided to limit the sale of toilet paper to 4 packs per transaction to make sure everyone has access to essential items. Despite toilet paper hoarding and panic buying, overall consumer spending has sharply declined since COVID-19 pandemic, with retail sales dropping by 8.7 percent in March in the US. Also, stay-at-home orders have made many people change their shopping pattern by prioritizing the things they need during the pandemic.

What can we learn from other epidemics?

Coronavirus is not the first novel virus outbreak to threaten global food security. Learning from the past and similar public health emergencies, restrictions on the movement of goods and people can have significant socio-economic repercussions on people’s livelihoods that go beyond the direct impact on health. That is, affecting the most vulnerable groups and lasting many years beyond the epidemic. A 2015 study conducted by PLoS Neglected Tropical Diseases in Liberia on “the impact of EVD epidemic (Ebola Virus Disease) on food production and livelihoods”, showed that the community-level incidence of EVD negatively affected crop production of farm households, which may have worsened the problem of food insecurity throughout the country. Also, it was discovered that it might not only have been limited to communities directly affected by the epidemic but also may have indirectly affected communities in areas where EVD was not reported.

Food security

From the FAO’s definition of food security, the indicators of food security are:

Availability of food
Economic and physical ability to access food
Food utilization and
Stability of these factors over time.
While coronavirus may negatively affect all four of these, we concentrate on the first two.

Availability of food: As we saw, the corona pandemic already affects food supply chains: crops not being planted or harvested because workers are not allowed to migrate to where there is agricultural work; goods not arriving because of restricted movement across borders; prices for agricultural goods randomly plunge or hike. However, so far none of these seem to pose a serious threat to food security as demand slows and prices remain, overall, stable.

But there is a bigger picture and it will emerge more clearly only as the pandemic continues: Firstly, COVID-19 seems to accentuate existing problems in the food system. Farms and rural businesses that had already been struggling economically before the outbreak, could be pushed over the edge by the ripples of the coronavirus-related disruptions, as temporary as they may be. Fresh produce growers are especially vulnerable as the example of the dairy farmers in the US, the UK, Germany and New Zealand shows: Beleaguered by years of low milk prices, the additional drop in demand and prices leaves many of these farmers fearing for their economic existence. Many smallholder farmers around the world suffer similar challenges, though less noticed by the media.

But there is a bigger picture which could be even more daunting: Farming is only one source of income for many rural households, especially in developing countries. Seasonal waged labour, remittances and petty trade are other sources. Yet all these income sources become insecure as the corona pandemic lingers. Seasonal waged labour may not be possible as local businesses are barely functioning or migration to the cities is restricted. Remittances from relatives in the cities are likely to drop as they themselves struggle to make ends meet in the lockdown economy. And many rural shops and trades are shut down or suffer from slow business as people stay at home. It may be safe to assume that less cash will go around in many rural communities, not to mention those families where a main income earner has fallen ill with the virus and not bringing home money for weeks. As poorer rural families slip into financial distress, they stop spending in those areas that are most critical for securing a better future: education, health care — and investments in their farming, like buying high quality seeds, fertilizers, crop protection and veterinary products. They may stop applying good practices that require hired labour or services or overall cultivate less land because they cannot afford the land preparation or inputs.

We can only speculate about the duration and magnitude of these impacts. But their mere possibility is reason for concern because reduced food production in smallholder communities is a likely consequence. And smallholders farm 80 percent of the farmlands in sub-Saharan Africa and Asia.

Physical ability to access food: When consumers panic-buy because of fear of running out of food, it can induce a food shortage-like situation while in technical terms, there’s no food shortage; It is just consumers stock-piling food. This is a problem because it has an influencing effect on other consumers. When a consumer’s neighbour stockpiles, the other neighbour also feels the need to do the same for fear of missing out on the opportunity to do so. As Food Navigator reported, Some grocery stores have put ‘ration mechanisms’ in place for popular food items to prevent consumers from buying in excess. But even without the mechanisms, head of the Centre for Supply Chain Improvement at the University of Derby, Garza-Reyes thinks “there will be a point where customers have enough products like pasta in their storerooms that no more stockpiling will be needed.” That is the law of diminishing marginal returns playing out.

Physical ability to access food is, of course, limited during lockdowns. But as this pandemic has changed everything (the way we do meetings, classes, work), so has our shopping life changed. In a survey by Search Engine Land, “online spend is also on the rise, growing 10-30 percent across grocery and non-grocery purchases.’’ But, how has the coronavirus affected the physical ability to access food? Well, ‘‘…only carry-out, drive-through or delivery services are allowed in restaurants,’’ reported Bon Appétit. On the flip side, there’s the convenience of getting food delivered to your doorsteps. In some homes, perhaps, cooking as a family could temporarily replace eating out.

Economic ability to access food: The economic ability of people to access food depends on how much money consumers have and how much goods their money can purchase. So, how has the coronavirus affected consumers’ economic ability to access food? In the second edition of the ILO monitor (COVID-19 and the world of work), it estimated that “working hours will decline by 6.7 percent in the second quarter of 2020, which is equivalent to 195 million full-time workers.” When working hours drop, salaries and wages reduce, which then affects consumer spending on food and other items. Also, a high-income household would have the ability to absorb the effect of the crisis more than a low-income household. For example, in Libya, as reported by the Libya Cash Working Group, the prices of food and pharmaceutical items initially spiked then later fell but it is still 20-30 percent higher than before. So, these consumers will spend 1.3 times more money on the same quantity of food pre-coronavirus while middle- and low-income households might struggle to buy enough if they can afford it in the first place.

Conclusion

Despite panic buying, commodity price swings and export bans for cereals, food supply chains around the globe seem to have coped remarkably well as the corona pandemic evolves. Apart from some temporary supply problems caused by panic buying, it seems that so far, actual food shortages have been absent. However, this should not mislead us to take secure food supplies for granted as we move through and eventually out of the pandemic.

We will only be able to estimate the pandemic’s effects on food security once the scale of its impact in rural communities can be assessed. For now, the precautionary principle holds: In the absence of better information we should use the times of relative quiet on the food supply front to prepare for the harder times that may come. Although medical and public health deliberations dominate current politics, we need to start thinking how to stabilise our food supply fast, especially in poorer communities and countries.

What is it we should do? Thoughts among agricultural and agri-food experts converge on key actions, which include:

Ensuring the movement of agricultural commodities, food products and agricultural inputs in the same way as medical supplies.

Optimising the efficiency of food supply chains and reducing food loss and waste along the chain, including quicker and more accurate matching of supply and demand by using technology.

Identifying when and where there are labour peaks that traditionally attract seasonal migrant workers and finding solutions on time to convert these labour peaks despite movement restrictions so that crops can be planted and harvested. The example from Germany suggests this is possible when farmers, workers and governments authorities seek workable solutions.

Temporary fiscal relief to farmers and food chain actors, e.g. through tax breaks, reduced VAT, or access to government-guaranteed loan.

Reducing trade barriers between countries to facilitate imports and export.

Identifying and addressing structural problems in the food system that have existed before and that the corona pandemic now accentuates. This will not be possible overnight. But if this pandemic has had a positive side, then that of showing that quick concerted action across all parts of society is possible to do what is necessary to avert a crisis.

A research conducted by Agramondis, a Nigerian-German specialist consulting working on agriculture, agribusiness, agri-finance developmental issues.

Get real time updates directly on you device, subscribe now.