COVID-19: Channels of transmission to food and agriculture

Abstract

This paper makes no attempt to produce an impact assessment of the COVID-19-induced outbreak. Instead, it aims to identify the channels of transmissions into the food and agriculture sectors and, based on this, to delineate the degrees of exposure to the COVID-19- induced shock by geographic region. The initial aim was to examine all elements of the food system. However, data availability limited the empirical analysis largely to primary production, trade and final consumption. These elements are analyzed in detail and, where possible, quantified. Based on results of the analysis, a country taxonomy of the exposure is developed and presented. With 80 percent of countries, accounting for 92 percent of global GDP2, under social distancing provisions, labour availability for agricultural supply chains has become a near ubiquitous problem. In general, low-income countries employ higher shares of labour for primary production, which makes them more exposed to direct disruptions in labour supply, including the farmer's own labour force. The same holds for labour-intensive production more generally. Various examples illustrate that fruit and vegetable as well as meat or dairy production have already been adversely affected by COVID-induced labour shortages. Such deficits can be caused by domestic labour supply disruptions, as well as by shortages of seasonal and migrant workers. In addition, also macroeconomic channels of transmission affect agricultural supply, trade and final demand. The precipitous fall in oil and metal prices, for instance, exerted downward pressure on the exchange rates of many commodity exporting countries (commodity currencies). While the downward pressure on exchange rates, triggered by price declines in nonfood commodities, affects all tradeable commodities, including food. It makes food suppliesinternationally more competitive, at least in the short term, and supports exports of food. In response to these changes, some commodity exporters have started to impose export restrictions on food and agricultural products to avoid compromising domestic supplies. Finally, and arguably most importantly, COVID-19 will exert a shock on final food demand by lowering overall purchasing power, especially for an increasing number of unemployed people. The extent of the impacts on food demand will depend on numerous factors, including the depth and length of the macroeconomic shock, the availability of savings and access to credit and safetynet mechanisms.