Monday, 20 April 2020
AHDB Market Intelligence Director Phil Bicknell takes a look at the wider economic implications of the COVID-19 outbreak on the agri-food industry.
With some significant impacts in the food and farming sectors as a result of coronavirus, it’s easy to lose track of what’s happening in the wider economy.
For instance, I hadn’t really appreciated the anticipated extent of furloughing in the UK economy. Some recent data from the Resolution Foundation points to more than nine million workers in this situation. To give some perspective, that’s more than one in four in the national workforce.
I’m sure that labour statistics and the effectiveness of the scheme will be eagerly anticipated by economists, and I can’t help looking at the US where a decade-long growth in employment has evaporated in the last month as 20 million jobs have been lost.
More widely, the last few days have seen a range of economic figures emerge as the fiscal forecasters incorporate the impact of coronavirus into their assumptions. The International Monetary Fund say the world economy will experience the worst recession since the Great Depression.
Closer to home, the UK’s Office for Budget Responsibility (OBR) has published its reference scenarios, with a working assumption that the UK economy sees a drop of 35% in GDP terms in the second quarter. Whilst the OBR scenarios also explore a rapid recovery, our economy is in for some volatile swings.
To some extent, we’re isolated from that. There are only two sectors of the economy where there isn’t a drop in output anticipated – health/social services and agriculture.
I imagine that there are some finer points that many of us in the industry would point out to the OBR forecasters (milk disposal, labour constraints in horticulture), but the reality is we’re in an industry where there is a strong underlying demand for what we produce. Three meals a day, seven days a week sees to that.
However, what we eat and where we eat does change. We saw that with the pre-lockdown panic and some record-breaking retail sales figures for food. As we’ve adjusted to a stay at home routine, we’re seen behaviours and demand similarly adjust.
Of course, these demand-side shifts have implications for us as suppliers. The carcass balance challenge created by the surge in demand for mince and the loss of foodservice customers triggering short term oversupply in milk markets have both been well documented.
The beef farmer in me would like to think that we will get back to normal as quickly as possible – for instance, supermarkets and processors will shift a few more hindquarter cuts and the beef market will get back to its pre-coronavirus levels. But the economist in me knows that’s a huge ask.
The demand-side changes will continue to evolve as we emerge from lockdown. What particularly concerns me is a potential recession and we know from past experience that behaviours change when incomes are tight. We downgrade our purchases, we buy takeaways instead of heading to restaurants, price becomes even more significant. And that carcass balance challenge may be longer lasting than we anticipate.
The last few weeks have been particularly fast-moving and the issue for agri-food has centred on dealing with the shock and the immediate fallout. But we should be in no doubt that the global public health crisis that is coronavirus will have economic knock-on impacts that will shape food and agriculture’s fortunes for the longer term.