The steady supply of food globally is taken as a given most of the time, with food supply chains running reliably most of the time. The coronavirus pandemic has raised challenges for global food supply chains — this report considers three major issues.
First, the coronavirus pandemic has raised concerns about the security of supply of critical products. As outlined in Panjiva's research of May 5, there has been an obvious focus on medical supplies with the risk of long-term protectionist measures.
There is a similar situation in the food industry. Data published by the World Bank identifies 40 measures that have been implemented since the start of the year across 29 countries. Thankfully, many of those have already been removed in response to international pressure with only 19 of the measures still in force.
The most significant measures still in force include export restrictions for a selection of cereal products from Ukraine and the Eurasian Economic Union led by Russia. Panjiva's data shows exports from Ukraine and EurEU of all grains were worth $19.0 billion in 2018, or 17.2% of the total, underscoring the risks that can be caused by just a handful of restrictive measures.
Aside from export restrictions, there's also the specter of stockpiling which could boost prices and restrict demand as deeper-pocketed countries price poorer ones out of the market. China's moves to stockpile grain are an example of such a risk.
Second are potential interruptions to supply chain operations. These have emerged in two main forms. On the downstream side is the restructuring of supply chains to focus on retail channels rather than food service. The latter will only slowly scale back up and could require a further round of disruptions.
The upstream side faces a combination of challenges in the production process. In meat, specifically, there are concerns about preserving worker safety in meatpacking plants with issues emerging in both the U.S. and Brazil.
There are already signs of a potential downturn in Brazilian beef exports. While total exports surged 26.2% higher in the fourth quarter, they dropped by 13.7% in January and 4.8% in February. In March, there has been a markedly different performance between the big three exporters. Minerva SA and JBS SA have both seen a decline in exports of beef throughout the first quarter, culminating in a 14.7% slide in March for Minerva and a 5.9% slide for JBS. Marfrig Global Foods SA, meanwhile, has seen a surge of 28.0% which may be at risk if production lines need to close.
Other examples of supply-side constraints can be seen in Indian harvest worker shortages as well as the need to accelerate shipments of fertilizer and seeds into spring sowing markets where the availability of farmhands may be restricted. A related challenge may come from the technical side of logistics, with shortages of containers — in particular of refrigerated capacity — being an early challenge.
The third distortion comes from regulatory risks that are being worsened by the geopolitical tensions caused by the COVID-19 pandemic. Deteriorating relations between Australia and China covering trade in barley and beef, and a similar worsening of relations between the U.S. and China are prime examples.
In the case of the U.S. and China, there could be a wider breakdown in the phase one trade deal between the two countries, with Global Times reporting that the government of China is considering the "possibility of invalidating the trade pact and negotiating a new one." That could easily jeopardize the ongoing pickup in Chinese orders for U.S. agricultural products which most recently has focused on pork, Bloomberg News reports.
Panjiva's analysis shows that Chinese imports of U.S. agricultural products committed under the phase one trade deal have run well behind schedule. In the first quarter of 2020, exports were worth $1.03 billion per month compared to $2.79 billion implied by the phase one trade deal.
Soybeans are a major part of that commitment, with exports in 2017 having been worth $1.1 billion per month on average compared to $343 million actually exported in the first quarter. However, U.S. exporters face a challenge in boosting exports of soybeans in the face of competition from Brazil.
They also face a challenge in expanding meat exports given the aforementioned restrictions to operations in meatpacking plants. Shipments of meat were already worth $242 million per month in the first quarter, a 560% year-over-year rise due to increased demand for pork.
Panjiva's U.S. seaborne export data for pork for April, calendarized from the first 25 days of the month, shows the expansion in exports continued with a 189.8% increase in the total. Not all exporters have been able to boost shipments, though.
Exports linked to WH Group Ltd. (Smithfield) fell 8.7% year over year after declining 4.0% in March. Shipments by JBS still surged by 74.1% year over year in April while those by Tyson Foods Inc. climbed 45.6%.
Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.