AAEC’s Darren Hudson discusses effects of COVID-19 Pandemic on agriculture
By: George Watson
The COVID-19 outbreak and subsequent actions taken to mitigate the pandemic have already had a significant effect on the world marketplace. Job and production losses and changes in purchasing habits have put a strain on the economy.
While there is no definitive answer as to how long the pandemic and subsequent shutdown of non-essential services will last, it is certain that it will have some effect on almost every aspect of daily life in the U.S. One of those areas is agriculture, from the food that is grown to commodities such as cotton.
Darren Hudson, the Combest Endowed Chair for Agricultural Competitiveness in the Texas Tech Department of Agricultural and Applied Economics, said the agricultural industry should be able to handle a brief shutdown of normal life, but that the longer it lasts, the more prominent the effects will be.
The key, he said, is to avoid panic buying in order to not overwhelm the supply chain with out-of-control demand. A long-term shutdown will hurt some commodities, such as cotton, more because consumers will shy away from purchases that can be delayed on products such as clothing.
From an agricultural standpoint, what are the major concerns with COVID-19 and its potential for a long-term disruption of normal society?
Our food supply chain is quite resilient. It is a complex web of interrelated industries that brings us food and fiber. But all systems have weaknesses we should understand. The first is labor: farm labor, labor in processing facilities, trucking, retailing, etc. When we face potential losses in terms of mass reductions in labor availability due to illness, we can expect disruptions. Further, closing borders in response to this pandemic exacerbates this problem, although much of the labor force for agriculture is, so far, still allowed to cross the border.
Second, changes in food demand will strain the system. That is, more than half of all food consumed in the U.S. last year was consumed away from home. And while food supplies are ample, they are in the wrong channel, and shifting those supplies to the grocery channel will not happen overnight. Third, the commodity markets currently are a wreck. Current prices on futures exchanges are insufficient to cover the costs of production for farmers, making it hard to gain financing to plant crops. That lack of profitability can be overcome in the short run through government programs but will damage the long-term viability of farms if markets do not return to some sense of normalcy.
Given that businesses are shut down for the most part, how will COVID-19 affect the agricultural labor force?
In the short run, not much. Government programs that will most likely be enacted will protect non-farm labor to some extent, meaning there will be fewer options for that labor to shift to agricultural needs. But the bigger impacts will be if immigration is curtailed or sickness significantly shrinks the available labor pool. While agriculture is rural and may be more isolated from widespread infection, there are also fewer people so that any widespread illness could impact the labor pool.
Is the virus expected to significantly disrupt agricultural food supply (fruits and vegetables, rice, wheat, etc.)?
No, not really. There will be items, of course, especially those imported, that may be impacted due to events in other countries. Some states, like California, for example, produce a good bit of fruits and vegetables, and if they see significant labor shortages it will impact those supplies. Again, the extent of the impacts depends on location and severity, immigration disruptions and duration of the virus' impacts.
Summarize how the issues in grocery stores is a demand problem, not a supply or supply chain problem, and how it needs to be handled.
The stock outages we have seen in grocery stores are because of acute demand. That is, everyone rushed stores for supplies in a short time period. Because this was happening all over, stores have struggled to restock because shipments have been limited by wholesalers to spread supplies as widely as possible. But we continue to rush stores for supplies, making it hard for them to catch up. This is not because we have limited supplies, but because demand exceeded supply at a particular point in time that was unanticipated. If consumers will slow down, relax and understand the supplies will be there, stores will catch up.
How long does this "shutdown" have to last before we do see severe agricultural effects, if at all?
A shutdown of significant duration (6-8 months) will strain agriculture, primarily from the labor point-of-view. Our farmers and the supply chain are good at what they do, but no one can sustain significant over-use without some breaks in the chains. Much like we do not want to overwhelm our hospitals and medical staff so they can focus on saving lives and not triage, we do not want to overwhelm the food system for a long time. But I have full faith in our system to perform as needed and sustain us through this trying time.
In terms of non-food-related agriculture, such as cotton, what is going to be the effect of the virus? Will this affect planting season?
Right now, there appears to be no reason to expect this will significantly impact planting season, either for food or non-food products. But we need the markets to stabilize so planting can progress as needed and the available financing for moving forward is there. Again, the Federal Reserve has acted to shore up liquidity, and I expect banks will be able to push funding out there to get this done.
Are agricultural companies being affected by the downturn in the stock markets? If not, could they?
All companies are being impacted, but in terms of market capitalization. So, balance sheets look a lot worse today than they did, and it will make getting debt capital to operate more of a challenge. Agricultural companies have traditionally been more financially conservative, and those that have been will be in a better position today. But we will see stress on some companies and industries.
If you know, how will the stimulus package approved by Congress potentially affect agriculture?
There are provisions being debated that will impact agriculture. On the demand side, cash transfers and unemployment insurance will help keep American households solvent and purchasing the food and supplies they need. There also are provisions replenishing the funding for the Commodity Credit Corporation that administers direct income support programs like the recently used Market Facilitation Program (MFP) payments. Congress knows the importance of the food supply, so I expect bipartisan support for those support programs in the near term.
CONTACT: Darren Hudson, Professor, Larry Combest Endowed Chair for Agricultural Competitiveness and Director of the International Center for Agricultural Competitiveness, Department of Plant and Soil Science, Texas Tech University at (806) 834-0546 or firstname.lastname@example.org
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