- Strong demand from emerging countries (notably China and India)
- Relatively resilient to the economic and health crisis linked to the COVID-19 pandemic
- Highly exposed to climatic hazards and biological risks
- Severely impacted by protectionist tensions
- Volatility of agricultural commodity prices
Overall, as an essential sector, agri-food is showing resilience to the economic and health crisis linked to COVID-19. However, it is also facing challenges in this context, such as the drop in activity in restaurants and bars, which has led to decreased demand for the sector overall.
Meat production has been disrupted, as many meat processors had to temporarily shut down after employees caught the virus. In addition, harvests in Europe and North America were affected by the lack of temporary foreign labour because of border closures.
Coface also expects that biological risks inherent in the sector, and recently exacerbated by the African Swine Fever (ASF) outbreak, the consequences of the fall armyworm’s spread and the locust invasion in Africa, will put downward pressure on global agricultural production this year.
ASF, which continues to plague Asia - particularly China - and Europe, is affecting the global pork market, as China is the world's largest consumer and producer.
La Niña, a climate phenomenon characterised by below-normal temperatures in the southern Pacific that causes weather changes around the world, is occurring and is expected to last until spring 2021 at least. Agricultural commodity harvests are set to be affected.
Sector Economic Insights
Agri-food continues to show resilience overall to the COVID-19 crisis, but the impact and recovery will vary across segments
While the agri-food sector is holding up well to the COVID-19 crisis overall and compared with other sectors (such as transport and automotive), some of its segments have been hard hit. For one thing, restaurants and bars were closed in most economies during the lockdown and saw reduced traffic when they did eventually reopen, due to caution among consumers and fear of catching the virus. The resurgence in case counts then led many countries to close bars and restaurants again or impose very restrictive rules to restaurants, which caused a drop in demand for the agri-food sector’s products. Activity in restaurants, which represent an important outlet for producers, has crashed since the beginning of the year: restaurant reservations worldwide were zero from 23 March to 30 April (-100% year-on-year). They then recovered to reach a post-outbreak peak in September (-29%), but with the second wave of infections in many parts of the world and new health restrictions, bookings fell again (-60% YoY on 1 December). Alcohol producers were particularly impacted, but other segments of the agri-food industry were also affected to a lesser extent.
In addition to the reduction in restaurant activity, the sector was impacted by COVID-19 via other channels. Fearing that it would bring coronavirus into the country, China banned imports of meat from several plants in Brazil, Argentina and North America in Q3 2020, after some of their employees contracted COVID-19. As China is the world's largest importer of meat, these restrictions could have an impact on the affected countries’ agri-food markets if the bans remain in place.
The agricultural commodities segment benefited from the situation, but it also had some trouble. Pantry stocking (particularly of pasta) during the first general lockdowns, with half of humanity confined in the second quarter of 2020, boosted demand for the sector. Following this increase in demand, some countries, including Russia, the world's largest wheat exporter, introduced restrictions on food exports because of fears of shortages and high food inflation. These restrictions fuelled inflationary pressures in international food prices. Meanwhile some countries, such as France, Germany and the United States, faced temporary labour shortages for agricultural commodity harvests.
In the medium-term, the impact of the COVID-19 crisis on the sector is expected to remain moderate and vary across segments. Coface expects that catering will continue to be heavily impacted and will recover gradually, due to the measures taken to slow the spread of the virus. This gradual recovery should be particularly evident in demand, which is expected to remain contained.
The biological and climatic risks that existed before COVID-19 have not left
African Swine Fever (ASF) broke out in Europe and Asia in the summer of 2018. The disease has spread throughout Asia, severely affecting the region and causing havoc among pork producers, particularly in China, which accounts for 50% of global pork production and consumption. ASF in China has several consequences. The most direct is the increase in Chinese pork imports from other parts of the world, such as the European Union and the United States. Increased Chinese demand has caused pork prices to surge, prompting some Chinese consumers to switch to other meats. This has led to an increase in external demand for beef and chicken, which has benefitted Brazil, Argentina and the EU (Brazil is the largest exporter of beef and chicken, the EU is the third-largest exporter of beef and the second-largest exporter of chicken, while Argentina is the fourth-largest exporter of beef). Moreover, the decline in the Chinese pig herd has reduced worldwide demand for soybeans, which are mainly used to feed pigs. According to the U.S. Department of Agriculture (USDA), pork production in China is expected to start increasing again in 2021 mainly due to the gradual rebuilding of the Chinese pig herd. According to the USDA, global pork production fell by 11% compared to 2019 but is expected to increase by 9% in 2021. Pork stocks held by China and sold on the domestic market, in an attempt to maintain prices, are decreasing, putting pressure on domestic pork prices, which were 63% higher in August 2020 than in August 2019. In addition, cases of ASF were recently discovered in wild boars in Germany, Europe's largest pork exporter and producer. Consequently, several countries, such as China, South Korea, Japan, Brazil and Argentina, stopped importing German pork, while other EU countries stopped importing pork from the ASF-affected region but continue to import from the rest of the country. Ultimately, all of this could push the price of pork up and, through a substitution effect, that of other meats, which would see increased demand when pork becomes more expensive.
In addition to ASF, fall armyworms (FAW) and locusts are two major biological risks for the agri-food sector. The FAW is a caterpillar that feeds mainly on maize, but also on rice, sorghum and cotton, among others. It was first detected in West Africa in early 2016 but has now spread to several Asian countries, including Vietnam, Myanmar, Bangladesh, Indonesia, Taiwan and China, as well as Australia. China is the world's second-largest maize producer, so the FAW's presence could create inflationary pressures for world maize prices. A locust invasion is underway, particularly in East Africa, the Arabian Peninsula, Iran and Pakistan.
An occurrence of La Niña, a climate phenomenon characterised by below-normal temperatures in the South Pacific that causes weather disturbances around the world, is currently underway and could affect the production of agricultural commodities. The overall effect of La Niña is difficult to assess as losses in some countries could be offset by gains in others. However, the harvest of some commodities could be particularly affected because their production is more geographically concentrated. For instance, the three main producers of soybeans (the United States, Brazil and Argentina, which together account for about 80% of world soybean production), are expected to experience drier weather conditions because of La Niña.
China is increasing its purchases of U.S. agricultural goods under Phase 1 of the trade agreement signed in January 2020
As part of Phase 1 of the trade deal aimed at easing trade tensions between the two countries, China will have to increase its imports of U.S. agricultural goods by USD 12.5 billion in 2020 and USD 19.5 billion in 2021 over 2017 levels. However, there is no guarantee at this stage that China will buy enough U.S. farm goods to meet the terms of the agreement: China has little room to step up its U.S. soybean imports, since they are seasonal and ASF has reduced China's need for soybeans. The increase in agricultural purchases should therefore apply mainly to the meat segment, in which Chinese needs have grown precisely because of ASF. China did increase soybean imports from the U.S. by 35% in the first 11 months of the year, year-on-year. However, these imports are still below pre-trade war levels.
Last update : February 2021