Darren Hudson says the supply chain for the U.S. is in good shape, and food supply is ample to handle a short-term shutdown.
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 University Department of Agricultural and Applied Economics in the College of Agricultural Sciences & Natural Resources, 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 and home textiles.
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 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.
