As countries continue to implement risk-adjusted responses to COVID-19, global leaders and analysts alike continue to assess the evolving implications of the pandemic on global markets. What makes COVID-19 unique is that it is a health shock that has fundamentally affected both the supply and demand sides of the global economy.

Interventions in the food industry

In the food industry, government policy responses have mainly hinged on three major interventions since the pandemic started. These include (1) an initial intent to implement protectionist trade policies in major agricultural producing countries, followed by a pullback of direct trade restrictions; (2) supply-side support for the agricultural industries in the form of historic budgetary support for small and large companies; and (3) demand-side support by way of a boost in household incomes through wage support.

First, during the early days of the pandemic, countries such as Russia, Kazakhstan, Cambodia and Vietnam, among others, introduced export quotas and bans on rice and wheat. This was an attempt to ensure stable domestic staple food supplies amid uncertainty about how long the pandemic will last. But these policies were soon abandoned, as aforementioned countries signalled a return to the open market trading terms within the next two months.

One of the reasons that contributed to this change included the exemption of agriculture and food supply chains from COVID-19 restrictions that had affected other sectors of the economy. The International Grains Council has lifted its 2020/21 global grains harvest by 2% year-on-year to 2,2 billion tons. This is a welcome development for grain importing countries who feared the risk of food insecurity when the protectionist policies were announced. This includes South Africa and the African continent at large, which relies on rice and wheat imports from the global market.

Second, as initial worries about production abated, it became clear that the biggest challenge was not a lack of food in the market, but logistical disruptions. However, the closure of meat processing plants in America, Ireland, Canada and Brazil, among others, due the outbreaks of the virus in production facilities, now brings renewed fears that the longer the pandemic continues, the more likely those parts of the food system will cease to function.

The risks of meat shortages in the global market, as well as the negative ripple effects in other parts of the food system linked to the meat sector, imply that the food system remains extremely vulnerable. The emerging concerns of potential meat shortages – and potential shortages in other parts of the food system – are putting intense pressure on political leaders to respond more aggressively, as seen in the United States, where president Trump ordered meat plants to re-open to avert an inevitable spin-off crisis.

Financial relief programmes for farmers

This specific aggressive intervention is just part of a much broader set of unprecedented policy responses from global leaders, which have been underpinned by large fiscal spending eclipsing those of the 2008 financial crises and the Great Depression. Richer countries have implemented financial relief programmes to support small and large businesses, including farmers, to cope with the deep negative impacts of the pandemic.

In South Africa, the Department of Agriculture, Land Reform and Rural Development ring-fenced R1,2 billion for financially distressed small-scale farmers. This prioritises the poultry, livestock and vegetable sectors, amongst other agricultural commodities which will be selected on a case-by-case basis. The farmers within the Proactive Land Acquisition Strategy programme are also included in this package.

Third, governments tried to preserve incomes and livelihoods, and in turn supported the demand side for the food sector. Rapid increases in already high levels of unemployment in most parts of the world translate to a weak demand for food, particularly high-value products in the near-to-medium term.

Income protection and support in countries such as the United Kingdom and the United States is expected to mitigate the weakening demand, and to some degree, keep demand at levels that ensure the economies can bounce back quickly once they are fully opened post-COVID-19.

Household income and purchasing patterns

Meanwhile, in the emerging markets, South Africa has been amongst countries that provided support through an increase in social grants, food vouchers and aid. While these are short term assistance, they help improve household demand for food products to some extent. These measures are short term and are being implemented with the expectation that the pandemic will keep the economy closed for three months.

But if the global economy does not bounce back sooner, then household income and purchasing patterns might be altered over the short to medium term, under the pressure of a new wave of infection which leads to a much slower opening of the economy. In this case, the implications for the agricultural and food sector could be dire.

It is expected that the demand for higher-value products will inevitably decline somewhat post-COVID-19, but the longevity of this decline could lead to a shift in the supply chains. Depending on the extent and duration of the impact over time, the shift could be permanent, due to irreparable damage to the supply chains if critical businesses shut down permanently.

This is crucial for countries like South Africa, whose agricultural sector is export-orientated, with roughly 49% of the produce in value terms exported. South Africa’s high-value export products are mainly fruit, wine and beef. These are mainly destined for the European Union and Asia markets which accounted for nearly $10 billion in 2019 (Exhibit 1).

Pressure on the global food system

In a nutshell, the resilience of global agriculture will continue to be tested as the pandemic impacts both the supply side and demand side of the global economy. There is no telling how long the global food system – as currently configured – will continue to sustain the pressure from COVID-19.

What is becoming increasingly clear is that, the longer the pandemic continues to impact on the supply and demand sides of the global food system, the more likely we are going to see structural shifts that will fundamentally reconfigure it as it adapts to the changing effects of the pandemic.

What is particularly worrying is the lack of support measures for businesses and households in developing countries. In resource-poor nations – especially those on the African continent who are already under the weight of worsening debt levels – governments do not have the wherewithal to support private businesses and farming communities to the same degree as the United States, the United Kingdom, China, and others.

This means that the developing world is a part of the global food system and economy that remains extremely vulnerable to the pandemic. There have been relatively lower numbers of COVID-19 cases in sub-Saharan Africa so far, perhaps due to a lack of testing capacity. But if what is happening in the global north is a harbinger of what is to occur in sub-Saharan Africa over the next couple months, then the largely informal food systems in Africa will likely come under extreme pressure, a scenario which will evoke a food insecurity catastrophe.– Wandile Sihlobo, Agbiz

Wandile Sihlobo, chief economist at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on agricultural markets for the major commodities.

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