Hot Commodities: Demand And Distribution Disruptions During Covid-19 Pandemic

Hot Commodity

Hot Commodities

Hot Commodities: Demand And Distribution Disruptions During Covid-19 Pandemic

[April 22nd, 2020]

Hi all,

Not many could have imagined the effects COVID-19 would have had on our demand and distribution around the world; however, with daily disruptions to economies and societies it has become our new normal through 2020. From governments preparing for global food crises to farmers dumping their agricultural products down the drain, certainly, organizations like the UN are attempting to combat these crises to the best of their abilities. Meanwhile, some commodities are seeing an increase in prices but holding onto the hope of avoiding an outbreak of COVID-19 amongst their employees. As a result, various structural challenges need to be addressed regarding the disruption of demand and distributions around the world.

COVID-19 To Trigger Global Food Crisis

As of April 22nd, the global pandemic has so far affected over 2.5 million people and killed over 172,000. Conversely, in most parts of the world, food demand has been affected by mandated lockdowns.

According to the New York Times, clear distinctions are being seen in the effects of COVID-19 on food inequality. Certainly, one can contract coronavirus whether you’re poor or rich; however, in wealthier nations, food distribution is often automated, while in developing countries it is “labor-intensive, making these supply chains much more vulnerable to COVID-19 and social distancing regulations”.

Consequently, Chinese government officials have begun to prepare for a global food crisis. As reported by Reuters, China’s Deputy of Agricultural Ministry, Yu Kangzhen, views the “the fast-spreading global epidemic” as bringing “huge uncertainty on international agriculture trade and markets.”

On Monday, China stated that it will be able to meet local demand for grains, but imported products such as soybeans and vegetable oils could be affected. Exports of Chinese agri products such as fish, fresh produce and tea also will be affected by the current situation.

All of China’s usual trading partners have seen a halt to their economies as all but essential businesses have been ordered to close. However, as China experienced the height of the curve before the rest of the world, they have begun to open their economy and will be positioned better than others to kickstart its factories, ports and domestic consumer market.

Farmers Deal With Milk Glut

While many families struggle to find the economic means to feed their families, a farmer in Wisconsin was forced to pour out 6,000 gallons of milk that were usually destined for restaurants and schools. This is what the pandemic has forced farmers across the United States to do as the disruptions in supply means that there are no bulk-product customers. Moreover, suppliers need to address packing and shipping for the retail market.

In another example, The Wall Street Journal reported that a 1,000 cow farm, which normally supplies milk for bottling and cheese making, has faced the dark reality of pouring unwanted milk into a manure pit as the economic shock of COVID-19 starts to take its toll on businesses.

In the first week of April, as much as 7% of milk produced in the United States was dumped even though butter and cheese producers have been approached to increase their intake for their finished products.

Dairy Farmers of America, a cooperative of family-owned dairy farms, has stated that its members will be paid for the dumped milk however those payments are expected to be reduced as there will be less milk in the market.

India’s Food Supply Chain Frays As People Stay Home

Over the past few weeks, India has seen the world’s biggest lockdown due to the COVID-19 outbreak. Under these circumstances, the country’s workforce has been the missing link in the food supply chain.

According to The Wall Street Journal, essential workers in the supply chain such as harvesting and food delivery are allowed to operate. Although, the millions of workers that move the essential products from farm to fork are not allowed to work, causing dramatic bottlenecks in the supply chains through to the consumers.

Many individuals who work in essential businesses are choosing to not risk their lives by contracting COVID-19 and instead remain at home and follow the government guidelines for non-essential business workers.

“Out of the 10 things people order, I can only give them around three,” said Gopal Kumar, who owns a general store in New Delhi. “Customers are getting worried and so are we.”

As of this morning, India has over 18,000 confirmed cases of and 600 deaths related to COVID-19.

Ukraine Ready To Halt Wheat Exports

Ukraine, one of the largest grain producers in the Black Sea region, is positioning itself to halt wheat exports in an attempt to conserve enough grain for the domestic market during the COVID-19 outbreak.

As reported by Reuters, Russia has limited its grain exports to 7 million tons from April to June while Romania has banned grain exports to non-European Union members.

Ukraine is currently under strict lockdown guidelines from the government but the summer harvest is expected to take place as planned. Winter wheat is planted before winter and is harvested from May/June while the summer wheat is planted before the summer and is harvested in June/July.

In 2019, Ukraine harvested a record 75 million tons of grain. Currently, wheat is trading at $228 per metric ton FOB Ukraine.

The East African Agrarian Economy

For information on how COVID-19 is affecting the East African Agrarian Economy, please see our PX Africa reports below.

Warnings Of Unrest As Food Supply Dwindles

As reported by the Financial Times, the uncertainty in food security around the world has consequently led to heightened tension and unrest. The UN held a virtual G20 meeting to discuss the effects of COVID-19 on the growing food insecurity. Remarkably, they warned from 2019 to 2020 the “number of people facing acute food insecurity could double to 265 million.”

Where hunger is already an issue, an increase in tension could get out of hand as “the risk of social unrest is rising exponentially if the lockdown is extended.” The UN stated that Africa and Asia comprise the poorest countries at the highest risk. For example, many “economies that rely on overseas remittances or tourism” are greatly impacted by the travel restrictions of COVID-19. Meanwhile, other countries that depend heavily on manufacturing industries have had to let go many employees as a response to the drastic slowdown in demand. Left with little choice, some individuals could turn to violence to access food for their families.

The UN’s World Food Programme has outlined proposals in the hope of countering the potential violence that may arise from the current COVID-19 situation. One example is the G20 nations agreeing on a 2020 halt for low-income countries repaying loans. Additionally, the WFP has asked nations that had already pledged to donate money towards food distribution to donate early to meet the needs of these nations that are in dire need right now. However, the WFP is struggling to raise the appropriate amounts needed to halt the increase in violence and tension from the lack of food supply.

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-Editors, Ronnie Luwero and Elena Lopez Del Carril