The trade relationship between the European Union and the United Kingdom will not be the same after the end of this year, regardless of a definitive agreement being reached during the final negotiation talks: British businesses will have to take into account compliance with food standards and new tariffs, resulting in additional costs that may impact on consumer prices. The trade relationship between China and Australia seems to have reached a deadlock, too, as China is imposing sanctions on Australian food imports (beef, wine, barley) to push it to withdraw its criticisms. In the USA, beef prices are still affected by the coronavirus outbreaks in meatpacking plants months ago.
Selected daily news on food chain disruptions and countries responses to the COVID-19 impact on food chains.
FOOD CHAIN DISRUPTIONS
The United Kingdom will complete its withdrawal process from the European Union at the end of this year, when the country will be definitely outside of the EU’s Single Market. Therefore, various rule changes will impact on businesses and new trade barriers will be created, with or without a final agreement (a “soft” or “hard” Brexit): for example, traders will have to prove the compliance of their products with precise standards and a tariff payment will be required. This will also have a huge impact on thousands of vehicles carrying perishable goods like fresh seafood and vegetables or live animals, that will be stuck near the access roads to ports, with consequences also on consumer prices.
China is currently absorbing around one third of all of Australia’s farm exports, and that’s why analysts believe that Australia has been over-reliant on a single overseas market for the last 14 years. This will probably represent an issue in the near future, as China has been using sanctions against key farm imports from Australia (such as beef, wine and barley) as a lever to force the country to withdraw some of its criticisms around the global pandemic’s epicentre or China’s ambitions in the South China Sea. This year, Australian exports to China further increased by 8%, but their trade relationship may have hit its peak.
Most of the United States’ meatpacking facilities are located near feedlots that are concentrated in just five states: Nebraska, Texas, Kansas, Iowa and Colorado. This lowers the costs associated with transporting cattle to processing and with feeding it. However, this concentration determines huge volumes of meat handled in those facilities, making plants particularly dependent on humans making the cuts: workers spend hours in close proximity, and this caused the big coronavirus outbreaks in May. One of the largest meatpacking firms in the US reported having spent USD 340 million on safety equipment, safety measures and employee bonuses related to Covid-19, and these costs still have an impact on consumer prices.
IMPACT ON COMMODITIES AND FOOD PRICES
Nigeria identified different agricultural products that could help diversify the country’s exports, such as palm oil, cashew, cocoa, soybeans, rubber and rice, provided that agricultural productivity manages to ensure a sufficient supply: despite the Central Bank of Nigeria’s active role in providing affordable finance to improve productivity, the sector is growing at a slower pace than it has for the last 10 years. Brazil’s Ministry of Agriculture estimates that the next harvest will be substantially larger than the last one, thanks to the profitability of maize and soybean, which brought producers to maximize the crop area for these commodities.
The Nigeria Export Promotion Council (a government institution that develops and diversifies the country’s exports) has recently announced that the federal government has identified 22 strategic products that will be exported to diversify the nation’s foreign exchange earnings away from oil. Some of these products include palm oil, cashew, cocoa, soybeans, rubber and rice, but the success of this initiative depends on the extent to which agricultural productivity can be improved. However, despite the efforts of the Central Bank of Nigeria, agriculture only grew by 3.2% between 2015 and 2019.
The Ministry of Agriculture’s National Supply Company (Companhia Nacional de Abastecimento) estimated that Brazil will produce 278.7 million tons of produce during the next harvest (a volume that is 8% larger than the last harvest), based on data gathered during visits to the fields, surveys with producers, climate forecasts and satellite images. This projection includes the production of soybeans, maize, rice, beans and cotton, and the increase in production despite the negative economic situation of the country could be explained by taking into consideration the good profitability of maize and soybeans in the last harvest, which stimulated producers to increase their areas of cultivation for these two commodities.
Iowa’s agricultural sector was challenged by the impact of the coronavirus pandemic and by a rare inland storm that ravaged maize crops and caused other severe damages. In order to offset such difficulties, the state’s Governor has recently allocated part of the CARES Act relief funds to different programs that target small and big meat and biofuels producers, farmers, schools and cattle breeders. Meanwhile, a Mexican food export company developed a new software to improve the traceability of its mangoes, while a Brazilian company chose the perfect timing to launch its instant specialty coffee brand in the United Arab Emirates.
The Governor of Iowa has recently announced that around USD 100 million of federal Coronavirus Aid, Relief and Economic Security (CARES) Act funds were allocated for a range of agricultural programs in the state to offset the impact of both the coronavirus pandemic and the derecho storm that passed through Iowa on 10 August, causing severe damages to the state’s farmland (nearly 35% of the maize crops were destroyed by the strong winds). More than half of the allocation will be used to provide grants under the Iowa Livestock Producer Relief Fund to pork, beef, poultry and fish producers.
A Mexican company, that is leader in the export of fresh mangoes (it currently holds a 15% share of the total exports of fresh mangoes from Mexico to the United States), has implemented a systematic, industry-wide approach that improves supply chain speed, efficiency and control. More in particular, the company improved the traceability of its products by installing new equipment for marking and coding in most of its plants, and by developing a special software that allows for the management of variable information for each box of mangoes (which are added or deleted during the printing process), eliminating the use of thermal printing labels.
A Brazilian company that is specialised in providing training to coffee professionals managed to survive the financial straits imposed by the coronavirus pandemic by opening an e-commerce in the United Arab Emirates and occupying a free spot in that market for instant specialty coffee, which is a pioneer product in the Middle East. The company leveraged on the fact that people had to spend more time at home to advertise this new product, and this strategy turned out well.
Ocean health will be further hampered if China’s government fails to achieve its objective of reducing the enormous fishing fleet that the country sends to very distant waters in order to ensure food safety for its inhabitants. China’s fishing fleet is so big thanks to the government’s subsidies, and it largely outweighs those of Japan, Taiwan and South Korea taken together. In Sub-Saharan Africa, a company is addressing the severe logistic issues that have been affecting intra-Africa trade for a long time, and it has also cooperated with Nigeria’s government to provide timely information on the movement of essential goods and high hygiene standards for its employees.
China’s fishing fleet is made up of between 200,000 and 800,000 vessels (it’s four times bigger than the fleets of Taiwan, Japan and South Korea taken together), which are spread out around the world. It became the biggest fleet in the world thanks to government subsidies to ensure a greater geopolitical power and food security for its 1.4 billion inhabitants. When the United States withdrew their naval presence from the Middle East and West Africa, China strengthened its own in those regions, further enhancing its geopolitical control. If the government’s plan to reduce the number of vessels in distant waters fails to achieve its objective, ocean health will be severely affected.
A logistics company that is headquartered in Lagos is addressing some of the challenges that are unique to the intra-African trade: decrepit railroads, outdated road systems, onerous duties and corrupt bureaucracies. It operates in six African countries, where it connects truck fleets and independent drivers with major companies that need goods moved, handling payment, scheduling and providing loans to drivers for truck purchases, while allowing the clients (which currently include Unilever and Lafarge) to track their goods in real time. Furthermore, the company collaborated with the Nigerian government during the early stages of the pandemic, by providing daily updates on the movement of essential goods and by providing its drivers with standard hygiene and healthcare.