Contributed by: Josef Schmidhuber
International food markets are well supplied, but supply chain disruptions and access to food by the most vulnerable warrant interventions
As the world faces an unprecedented public health crisis in living memory in the form of COVID-19, this special feature examines the current and likely impacts of the pandemic – the “Great Lockdown” – with a focus on international food markets. Such markets are not insulated from changes in the wider economy, therefore emphasis is placed on how broader economic shocks have, and can be, transmitted to food markets, notwithstanding the direct transmittable effects of the novel virus to the agricultural sector. In terms of required policy responses, much can be learnt from previous crises, especially the “Great Recession” culminating in 2009. It provides an informative benchmark on how to return market functioning to normality, even if contagion rates remain unchecked.
The big picture – what we can expect
With the new coronavirus spreading rapidly, the impacts of the COVID-19 pandemic on global agricultural and food markets are becoming increasingly apparent. The contours of these impacts are shaped by changes in macroeconomic environments, energy and credit markets, and importantly, input prices and prices in agricultural factor markets. Some of these shifts resemble those of the last global crisis – the Great Recession – and the lessons learnt can help target policy responses in addressing the challenges of the severe ongoing economic emergency.
Not to detract from the global scale of the human tragedy from COVID-19, a leading indicator of the economic impact of the virus is that of GDP growth. The International Monetary Fund’s (IMF) most recent World Economic Outlook (April 2020)3 forecasts a global recession to the tune of a -3 percent annual fall in world GDP in 2020. This compares with a mere -0.1 percent reduction in 2009. The IMF expects global growth to rebound in 2021, with a yearly growth rate of 5.8 percent. It estimates the cumulative output loss in both 2020 and 2021 at USD 9 trillion. The Fund’s projections also suggest that no country group – rich or poor – will escape economic contraction, with high-income countries expected to experience deeper and longer-lasting recessions. Such has been the severity of the COVID-19 shock that the IMF has significantly downgraded GDP growth in a matter of months, as illustrated in Figure 1.
The newly projected economic environments are likely to unleash profound impacts on food demand, access to food and nutritional outcomes, well into next year. The big question is whether COVID-19 will lead to a full-blown global food crisis, resembling what the world experienced over the years 2007 to 2009.
Is there enough food currently available?
To set the all-important stage, a critical question is whether current global food supplies can satisfy food needs. One traditional indicator to guide this assessment is the amount of cereal stocks held globally, and their ‘liquidity’, that is whether they are made available for procurement on the international stage. At the beginning of the 2020 COVID-19 crisis, cereal stocks hovered around a multi-year high of about 850 million tonnes. In absolute terms, they were nearly twice as high as at the beginning of the 2007/08 crisis (472 million tonnes) and even relative to utilization, they had reached levels far above those registered in 2007/08. These high stocks should provide a solid buffer against adverse shocks such as, for instance, a bad weather event in the 2020/21 growing season. While important, absolute levels of stocks are not all that matters for buffer capacity. Equally significant is the distribution of stocks over countries, over exporters and importers, and notably, their concentration over major storers (few or many).