COVID-19 – Impact on Supply Chains & Greater Economy

Across the globe, stay-at-home measures intended to slow the spread of COVID-19 are doing far more than impacting citizens’ health. They are creating unprecedented disruptions to food supply chains that will impact populations worldwide in both the near and distant future.

With migrant farmworkers unable or unwilling to travel, many European nations lack the labor needed to plant, maintain, or harvest their food supply. In Britain, a new Feed the Nation campaign hopes to fill these critical vacancies by encouraging citizens unemployed by COVID-19 to apply for paid farming positions across the country. France, the European Union’s biggest agricultural producer, has also made a national cause out of filling the labor shortage. Appealing to leagues of newly sidelined workers — waitresses, hotel workers, hairdressers and others rendered jobless and confined by COVID-19 — Farm Minister Didier Guillaume urged them to “join the great army of French agriculture.”

North America and the United States are now being similarly impacted. Canada’s agriculture sector is warning of higher prices and potential food shortages if it isn’t designated an essential service and allowed to do business as usual during the COVID-19 crisis. Farm labor shortages, an issue in the United States for years, will only worsen this year.

Food suppliers must also contend with the virus itself. Outbreaks in certain companies or large plants can have a huge impact. Smithfield Food Inc., the world’s biggest pork producer, is shuttering a major US plant indefinitely after a coronavirus outbreak among employees. The company warns that closures across the country are taking American meat supplies “perilously close to the edge” of shortfalls. This news comes less than six months after China’s pork supply was decimated by African swine fever, shaking global meat markets. The compounding shortage will drive prices upward.

But even if there is a food shortage in one location and a surplus in another, supply chains need to be in place for the food to actually be of any use. As farmers’ longstanding clients temporarily or permanently close, farmers often cannot find new customers in time to offload their inventory.

Across America, dairy farmers are dumping milk because schools and other standard purchasers are shut down. Even as COVID-19 closes slaughterhouses and meat shortages loom, farmers are struggling to sell their product given that their usual clients (restaurants, restaurant distributors, etc.) are going out of business. Farmers must now consider killing animals proactively to survive financially (pigs cost a lot to feed and breed rapidly).

As the Associated Press reported, thousands of acres of Florida grown fruits and vegetables are being plowed over or left to rot because the crops’ intended buyers – schools, restaurants, and theme parks – are closed. Other US businesses still buying produce already have contracts with other companies, including foreign suppliers.

Many farmers and growers have donated to food banks and homeless shelters, but storage is an issue for perishable items like produce and milk. Per Florida tomato grower Tony DiMare, ‘We gave 400,000 pounds of tomatoes to our local food banks. A million more pounds will have to be donated if we can get the food banks to take it.” 

As evidenced by these countless articles, the journey from farm to table for much of the world’s food supply is complex and robust. Any breakdown or slowdown in the process impacts everything downstream. From fewer workers to harvest fields to fewer truck drivers to transport food cross-country, one of the long term repercussions of COVID-19 may be a fundamental change to the American diet.

Things are interconnected in strange ways in our complex economy. I remember a story on how the housing market effects the price of guitars. If wood is in heavy demand for home building, guitar makers have to pay more for the material to make their products. That price increase gets passed along to consumers.

In this COVID-19 economy, soon, more gas might mean less beer.

Growing up, I heard many stories about how gas and oil supplies would soon expire. Today, oil inventory is the highest in recorded history. With fewer people traveling due to stay-at-home orders, oil consumption is down by 30% in the US alone. This pandemic-induced supply glut has sent oil prices so low, companies are paying to have barrels taken off their hands. At the pump, the national average is $1.78, with 13 states selling gas for less than $1 per gallon.

But while filling your tank may be cheap, less driving could reduce the nation’s supply of beer, soda, and seltzer water. Carbon dioxide (CO2), which is what makes those beverages fizzy, is a chief byproduct of ethanol production. Ethanol producers sell large quantities of CO2 to the beverage industry. But ethanol, which is blended into the country’s gasoline supply, has seen production drop dramatically due to the sharp dip in gasoline demand as a result of the pandemic. Less CO2 availability has suppliers charging brewers more for the ingredient. Bob Pease, chief executive officer of the Brewers Association, a trade group representing small and independent US craft brewers, anticipates some brewers to start cutting production in response to the price hikes.

These are just a few of the unforeseen consequences COVID-19 shut downs are having on food supply chains. In the coming weeks and months, more are sure to follow. No decision made now to limit the disease’s spread occurs in a vacuum, it’s just some repercussions won’t manifest themselves until later. This is true across all industries. Retailers order their Christmas inventory early in the year and manufacturers produce it far in advance. Shut downs now will impact what seasonal merchandise appears on store shelves come autumn.

Of course, the breadth of holiday decor selection will matter little if people cannot afford to purchase any. As politicians contemplate when and how to reopen parts of the country, the driving factor is stemming the surge of unemployment. More than 22 million Americans have applied for unemployment benefits in the past four weeks and the number is only expected to climb. The challenge will be to tackle COVID-19’s economic fallout without jeopardizing the lifesaving strides made by social distancing. There is no playbook for this situation. But whatever the “new normal” becomes, I am confident in people’s ability to adapt.

Stay safe, stay strong!