Impact of COVID-19 may cost agriculture billions

Impact of COVID-19 may cost agriculture billions

John Hughes | Freeimages.com

Agriculture faces growing losses as impact of COVID-19 causes prices to plummet

Despite its essential status, agriculture as an industry stands to lose billions of dollars due to the impact of the novel coronavirus (COVID-19) pandemic, according to a new report form Iowa State University.

Consumer food demand remains strong, but inflexible supply chains have prevented that increase in demand from being realized on the farm, according to Chad Hart, an associate professor of economics.

Sudden shifts in consumer behavior have resulted in bottlenecks at various stages of the supply chain across multiple industries, Hart said. Demand for fuel, and therefore ethanol, has dropped to 50-year lows. As a result, distillers grains are increasingly hard to come by or, for some producers, no longer available, according to the Iowa State report.

Similarly, with restaurants closed, food purchasing habits have shifted wildly. Normally, nearly half the food sold in the U.S. is consumed in restaurants, and it is in these settings that Americans typically pursue more expensive cuts like steaks and chops. Now, with nearly all meals eaten at home, stores are struggling to keep products like ground beef on the shelves.

The middle of the supply chain — food processing, shipping and warehousing — can’t keep up with the sudden shift in demand, Hart said.

“We have plenty of supply from farmers, and plenty of demand from consumers, and it’s difficult to get them to match up,” he said. Processing plants are slowing down or even closing as they address staffing shortages and attempt to retool their operations to meet new consumer expectations. As a result of the reduced processing capacity, there’s less room for incoming hogs and cattle, effectively reducing demand for, and the value of, meat and related products.

The value of beef and pork are expected to drop more than $25 per hundred pounds by midsummer, resulting in billions of dollars of losses in Iowa alone. Corn and soybean prices are expected to drop 50 cents per bushel.

Iowa State University’s mid-April report may actually underestimate the potential losses, Hart said, because it was completed prior to processing plant closures caused by outbreaks of COVID-19.

Total losses will also depend on how long the pandemic lasts, as well as the speed of recovery. While some states have begun to ease out of mandated shutdowns, it’s not yet clear how soon consumers will return to their previous dining habits.

“That’s the real wild card here,” Hart said. “We have seen folks being willing to utilize restaurants still for carry-out. But once they’re able to go back and sit in that restaurant … will we see folks reset and use restaurants as they did in the past, or will we see that path build more slowly?”

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