WTO Issues New Report Regarding Impact of COVID-19 Crisis On Agricultural Trade

The WTO Secretariat has published a new information note examining the impact of the COVID-19 pandemic on world agricultural trade

The paper notes that agricultural trade has fared better than other sectors, and that initial measures focused on guaranteeing the immediate availability of food have been followed by a second phase of policies seeking to mend broken supply chains and help producers to cope with the “new normal” situation.

While overall merchandise trade fell sharply in the first half of 2020, agricultural and food exports increased by 2.5 per cent during the first quarter of the year compared to the same period in 2019, with further increased in March and April. However, the crisis has exerted further downward pressure on food prices, and therefore on producer revenues.

“Trade in agricultural products has been more resilient than overall trade”

 

In addition, while world food stocks and production levels for the most widely consumed staples — rice, wheat and maize — are at or near all-time highs, the COVID-19 pandemic’s impact on jobs and incomes has increased the number of hungry people worldwide.

The paper warns that countries are still fighting the pandemic, and its repercussions for food supply chains are still unfolding. While there is currently no reason why the ongoing health crisis should turn into a food crisis, disruptions to food supply chains constitute a risk, with governments’ trade policy choices likely to determine how the situation evolves.

Key points

The COVID-19 outbreak and its rapid spread caught many governments and agricultural producers by surprise, prompting immediate policy responses by WTO members. Many of the initial measures were expected to impact negatively on the agricultural sector. But agriculture has in fact shown resilience, with a trade performance that has fared better than other sectors.

The initial response measures were aimed at addressing members’ most urgent concerns: containing the virus to save lives, and ensuring food security at home. In addition to lockdowns, these measures included policies that both facilitated and restricted agriculture trade: new sanitary and phytosanitary (SPS) measures and tariff reductions, as well as export restrictions. There was also an increase in stockpiling. Agricultural trade flows changed significantly, due notably to a sudden change in consumption patterns triggered by the measures put in place.

Initial measures focused on guaranteeing the immediate availability of food, have been followed by a second phase of policies seeking to mend broken supply chains and to help agricultural producers to cope with the “new normal” situation. While many governments have gradually relaxed lockdown measures, removed several export restrictions, and introduced domestic support measures to support the agricultural sector, the pandemic continues to spread in different parts of the world and is expected to continue to influence the demand for and supply of agricultural products.

Trade in agricultural products has been more resilient than overall trade. This reflects the essential nature of food and the resulting relative income-inelasticity of demand for it, as well as the fact that most agricultural trade (notably cereals and oilseeds) takes place in bulk marine shipments that have not been subject to major disruptions. While overall merchandise trade fell sharply in the first half of 2020, agricultural and food exports increased by 2.5 per cent during the first quarter of the year compared to the same period in 2019, with an increase of 3.3 per cent in March, followed by a 0.6 per cent increase in April, although the preliminary data for May indicate a small decrease (-1.3 per cent) compared to 2019.

This overall picture conceals the fact that demand for certain agricultural products (e.g. non-food agricultural products such raw fur skins, wool or flowers) dropped dramatically, while increasing for others (e.g., staple food, processed fruits and vegetables) reflecting initial panic buying and increased home-based consumption. In April 2020, exports dropped also for several food products, notably for higher-value products, such as fresh produce, dairy and meat, which are generally more dependent on sales to restaurants, schools and the tourism sector than to households. In addition, high-value perishable products transported by air were hit harder by the sudden collapse in air passenger traffic, which diminished air freight capacity and raised costs.

Impacts have varied across regions. Asia saw its agricultural exports decline in March 2020, followed by Europe and North America in April. But some regions have seen exports increase compared to the same period in 2019, with the biggest increases in South America, driven by Asian demand for the region’s exports of products such as soybeans, sugar and meat.

Food prices were already on a downward trend at the beginning of 2020. The COVID-19 crisis exerted further downward pressure on prices, and therefore on producer revenues. Although June saw the first increase in world food prices since the beginning of 2020, prices are expected to remain at low levels amid the economic downturn.

While world food stocks and production levels for the most widely consumed staples — rice, wheat and maize — are at or near all-time highs, and lower prices in principle make food more affordable, the COVID-19 pandemic’s impact on jobs and incomes has increased the number of hungry people. According to the World Food Programme’s most recent estimates, 270 million people could be acutely food-insecure by the end of 2020, representing an 82 per cent increase from before the pandemic. Producing and storing enough food is not sufficient if it does not reach those in need. By contributing to the availability and affordability of food, trade remains a crucial part of the solution to countries’ food security concerns — particularly at a moment when people’s incomes are under pressure. It is therefore critical to keep trade flows open, and to ensure that food supply chains stay operational.