Eating Our Way to the Next Pandemic
July 29th, 2020 | Sofiane Belmiloud
The impact of COVID-19 on the global food chain has been dramatic. Queues at food retailers, short supply of key goods and the difficulties of shopping while physical distancing have impacted a vast swathe of the global population. In production – specifically in meat processing plants – the lack of distancing options or virus appropriate protection gear has seen many workers fall ill and plants closing. Meanwhile, with the commercial supply chain coming to a halt, we have also seen a rise in food waste.
Impacts to food supply
As with many other supply chains, food systems are complex and global, and are currently experiencing a combination of disruptions:
- Harvest disruption: It is harvest season in many regions of the northern hemisphere. This theoretically secures food availability locally for the duration of the season. Agriculture hugely relies on cheap but experienced and flexible labourers. With borders closed, low-wage labour – for example from Central and Eastern Europe, or South America (also largely in lockdown) for their richer neighbours – has become scarce. Despite quickly developed exemptions, such as specific visa programs, many farmers fear large parts of their crops going to waste.
- Production disruption: Production has been completely halted in various sites across the world due to virus outbreaks among staff and difficulties implementing physical distancing. Examples include pork processing and meat packaging plants, such as those owned by US producers Smithfield and Tyson. For others, production might be halted over a lack of ingredients.
- Transport and trade disruptions: Some ports are not operating as usual, and shipping may be delayed or cancelled. Freight trains or trucks may not cross borders, and some countries have stopped all flights.
- Export restrictions: Even if transport is still allowed, export restrictions might disrupt delivery. Turkey, responsible for one third of the global lemon supply, has limited export of the product. Russia, Ukraine and Romania are among those halting grain exports. While currently these restrictions are still exceptions, their impact is still being felt. The reduction in grain exports is impacting livestock farmers, with some already struggling to find enough feed for their herds.[1]
- Switch from commercial to retail demand: Patterns of food consumption have changed dramatically as people eat at home rather than at work or in restaurants, meaning that food demand has suddenly switched from commercial to retail. But retail and commercial supply chains fundamentally differ in terms of the quantities, sizes, formats of delivery and packaging, as well as ordering mechanisms. This has led to loss of income and food waste.
The most critical impacts of a failure to address these challenges will be felt in the world’s poorest countries. The UN’s World Food Program highlighted[2] that the number suffering from hunger due to the COVID-19 crisis could go from 135 million to more than 250 million, with least developed nations most affected[3] – increasing the human impact of this pandemic beyond those immediately affected by the virus, and presenting a serious threat to the achievement of SDG 2: Zero Hunger. In some agricultural regions, droughts and plagues of locusts add further complexity.
Engagement
Investor engagement with retailers, traders, and producers around sustainable food systems is one part of solving the problem. The pandemic reinforces the case for supply chain stress testing, effective business continuity plans, and for strong relationships with suppliers rather than relying on third parties. Some companies have recognized the financial strain their suppliers are under and have paid invoices early or supported loan guarantee programs.
A key focus area is worker protection. The food chain is labour-intensive, and characterized by badly paid, often physically demanding jobs. Engagement must address and investigate the additional challenges that the pandemic has brought, such as the difficulties in implementing physical distancing in environments such as factories and food stores. Where good practices have emerged, such as paid sick leave, engagement should encourage these to be made permanent.
Further engagement options include encouraging financial institutions to support their commercial clients in the food business, including grants, mortgage holidays and debt relief discussions. Sovereign debt engagement could feature discussions around minimization of restrictions on export and trade, as well as on responsible stockpiling.
Conclusion
The task of ensuring food security and business continuity is complex, with challenges including protecting workers, shifting supply chains from commercial to retail, and financially supporting farmers and related industry actors.
Investor engagement is only one small part of the solution but given the scale of the issue, it is important. Investors are not purely financial, but also social actors with a corporate responsibility. To address hunger, debt relief programs implemented by the G20 will need a capital markets’ replication. In line with the call by the G20[4], private creditors need to “explore the options for the suspension of debt service payments”[5] to relieve some of the poorest nations of their immediate repayment requirements so they can focus on securing and distributing food for their populations.
Sources:
[2] 2020 – Report on Global Food Crises https://www.wfp.org/publications/2020-global-report-food-crises
[3] The countries most affected are likely Yemen, the Democratic Republic of the Congo, Afghanistan, Venezuela, Ethiopia, South Sudan, Sudan, Syria, Nigeria and Haiti.
[4] Private sector should join poor countries’ debt relief plan, FT, May 2020: https://www.ft.com/content/f4de06d4-8af3-11ea-a109-483c62d17528
[5] G20 Communique of Finance Ministers and Central Bank Governors Meeting, April 2020
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Author
Nina Roth
Director, Responsible Investment
BMO Global Asset Management
