Impact of Covid-19 on the agribusiness sector, European Commission and FAO reports.

By
Dario Dongo , Marina De Nobili
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Impact of Covid-19 on agribusiness, first reports from European Commission and FAO. Details to follow.

European Commission, food production and consumption, spring 2020

The report published by the European Commission takes a snapshot of the situation of major food production from February to April 2020. (1) The situation is not considered comparable to that of the 2010 crisis because of the larger stocks (with not insignificant problems) and the positive outlook on crops. (2) And it is still early to assess the effects of the emergency and the economic crisis that follows it.

The pandemic destabilized international markets and was exacerbated by border closures, including in Europe. The establishment of the
green lanes
, by the European Commission, has partly facilitated trade in commodities. (3) Without, however, solving the problem of labor shortages and irregularities in agriculture, which various countries have tried to address with ‘amnesty’ measures, such as those introduced in Italy with the so-called relaunch decree. This is followed by market data and forecasts.

Food of plant origin, EU market

Cereals. Grain availability in the European Union does not appear to be affected by the Covid-19 emergency. Expected output-though slightly lower than last year (-2.2 percent)-will remain above the five-year average (+2.2 percent). Harvest forecasts on corn and barley slightly down, barley, oats, durum wheat up (spring wheat up 17%). As long as there is no climate imbalance.
According to the European Commission analysis, world grain production in 2020/2021 will reach a new peak, especially on corn and wheat. Thus, prices are expected to remain stable.

Oilseeds and legumes. The 2019-2020 marketing year saw large quantities of seeds and soybeans (14.2 mln tons) and rapeseed (6 mln tons)imported into the EU to meet domestic needs. In the 2020-2021 season, European production of protein crops for food & feed is expected to grow, +4%. Thanks to improved yields on soybean and sunflower (while canola production will remain below the five-year average) and the extension of fava bean and field pea(Pisum sativum var. arvense, called Rubiglio) crops.
The sharp drop in oil prices negatively impacts demand for biofuels. Therefore, a reduction in palm oil import is expected (-8 percent).

Sugar. Abundant 2019/2020 production in Brazil caused sugar prices to plummet, whose consumption, moreover, dropped during the lockdown due to the closure of the Ho.Re.Ca.(hotel, restaurant, catering) channel. Some European industries have thus converted part of their site to produce alcohol for disinfectant use, the consumption of which has conversely increased.

Olive oil. Olive oil production 2019/2020 ended on a downward trend, -15% compared to the previous year, due to a drastic drop in production from Spain (-35%). Although Italy has more than doubled production after an annus horribilis, and Greece and Portugal have themselves recovered well (+43% and +30%, respectively). Despite this, availability is still satisfactory given last season’s remaining stock. Prices, under severe pressure since last year, partially stabilized only in February 2020, thanks to private storage aid launched in November 2019 (especially on virgin olive oil, although below the five-year average of 40 percent). (4)
Until February 2020, exports increased in volume and decreased in value (-12% and -22%, Italy and Spain respectively, on the value per unit of exports to the U.S.). The crisis dictated by Covid-19 negatively affects global demand and export of European olive oil. Retail sales are currently observed to grow in the producing countries (+13%) but are projected to decline (-9%) over the five-year average in the rest of the EU.

Wine. The wine sector appears to be one of the most affected by the Covid-19 emergency. The closure of bars and restaurants caused a halt in sales of high-end wines and sparkling wines, which was partly matched by an increase in sales of mid-range products in the retail channel. The Commission predicts a reduction in consumption in the EU, -8% from the five-year average. With a slump inexports, -14 percent, and a smaller drop inimports. This will result in a slight increase in stocks, which are already at record levels, by the way. (5)

Fruit and vegetables. Focus on apples and oranges. Demand for fruits of European origin grew during the quarantine due to increased domestic consumption and difficulties encountered in tropical fruit imports.

Apples. +9% the expected increase in EU apple consumption. Conversely, sales of processed products, of which, however, imports are increasing, are declining. The collapse inexports, -34% over the five-year period, is attributed to declining production, increasing domestic demand, of trade barriers (e.g., India).

Oranges. Demand is growing globally, thanks to the widespread perception of citrus fruits as beneficial health foods. To the point of reabsorbing on the retail channel the lost sales on the Ho.Re.Ca. channel. Exports are declining, for the same reasons as for apples. Imports for the 2019/2020 season, which had declined (-20%, as of the end of February 2020), are expected to partially recover the gap initial and remain stable, thanks to good harvest prospects in South Africa (first partners extra-EU trade for fresh oranges) and production, of orange juice or concentrate, from Brazil.

Animal husbandry and food of animal origin, EU market

Dairy. It is reported to be one of the sectors most affected by the crisis, although the aggregate figures do not appear to be entirely negative. Production is estimated to increase, +0.3 percent cheese, +0.4 percent milk, +1.2 percent butter (which, however, shows a loss in value, -7 percent). There has been a decline in milk powder prices (whole -6%, skimmed -17%) since February, due to lower demand from the Middle East and China (which has increased milk powder production). And yet signs of restarting exports to Asia point to continued growth in trade.

Meats. Beef. Beef production is expected to decline by 2020 due to declining prices. The crisis mainly affected fine cuts of meat, most of which were consumed away from home, and products destined for fast-food outlets and redirected to retail. Thus, imports from South America have plummeted (-13%), as European producers seek to focus sales on the currently more profitable Asian markets. Covid-19 did not affect exports, although that of live cattle was already weakened by competitive prices from Brazil and Uruguay (as well as lower Turkish demand).

Poultry. Productions and consumption of chicken meat are expected to increase due to cheap prices. Also at the level of per capita consumption of chicken (+0.2 percent, 23.6 kg/year). On the other hand, the closure of restaurants and agritourisms has limited the sale of higher value-added poultry meat (e.g., the goose, duck, etc.). Import down, export up. However, European countries at risk of avian fever-such as Poland, Europe’s top poultry exporter to China-have suffered import bans from the top non-EU buyers (e.g., China, Vietnam, South Africa and the Philippines).

Swine. The European Commission warns of no signs of crisis in the pig supply chain. Exports to Asia continue to soar, +12% in China due to the collapse of domestic production (caused by the African swine fever epidemic). Spain doubles exports to 28 percent of total EU exports and the largest number of heads, just a short step behind Germany still in the lead. European pork consumption is set to decline (32.5 kg per capita, down 21 percent from 2019), to the benefit of cheaper meats (poultry). What escapes Brussels, on the other hand, is the deep crisis of pig farming in Italy, which in recent months has experienced a drastic drop in demand and consequent price collapse, estimated at around 30 percent.

Sheep. Sheep meat production (from goats and sheep) will remain essentially stable in 2020 (to consider the lower production in Romania and generally smaller flocks). The crisis from Covid-19 generated a negative impact mainly due to the missed customary celebrations of the religious celebrations of Easter and Ramadan. It will be possible to freeze surplus slaughtered meat for use in the second half of the year, but price pressure can be expected. Live animal exports decrease (due to shrinking demand from Libya, Jordan and Israel and transportation difficulties to Iran), meat exports increase (Ireland and Spain in the lead, to the Middle East and Hong Kong. In contrast, the negative trend on imports was stable.

FAO, global food price index

The FAO Food Price Index, released in early May, shows that the performance of European markets is in line with the global trend. (6) April 2020 saw a -3.4% decline in prices compared to March, -10% less when compared to January.

Grain prices declined marginally, as wheat (after announcements of possible export limits from the Russian Federation) and rice (partly due to the temporary freeze on exports from Vietnam) increased, in contrast to maize, which depreciated sharply (due to reduced use in animal feed and biofuel production). The lower expected consumption, in general terms, should result in the increase of reserves, of corn in particular.

Sugar followed the collapse in crude oil prices due to reduced demand for sugarcane for ethanol production. Production therefore focused on processing into sucrose, with increased quantities contributing to the collapse of prices, which have been at their lowest in 13 years.

Vegetable oils-palm, soybean, and canola in particular-have fallen dramatically, linked to the collapse in demand for biofuels.

Dairy product prices, just as in the European Union, showed an overall decline (-3.6 percent, with double-digit decreases for butter and milk powder). This is due to the increase in availability and stocks as catering activities in the Northern Hemisphere decrease.

Meat also shows a decrease in prices (-2.7 percent). The partial recovery in import demand from China has helped offset the decline in imports in other countries, although lockdowns and logistics obstacles are still being paid for in the main producing countries.

Marina De Nobili and Dario Dongo

Notes

Dario Dongo
Dario Dongo
+ posts

Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.

Marina De Nobili
Marina De Nobili
+ posts

Graduated in law in Trento, she follows a master's degree in food law at Roma Tre. She is passionate about food and wine, she is between culture and tradition.