AMES, Iowa — Two demand shocks occurred at the same time, but going in opposite directions when COVID-19 became a significant problem for the United States in March.
“The economic disrupters included the near destruction of demand for food away from home at restaurants and the corresponding increase in demand for food at grocery stores,” said Jayson Lusk, distinguished professor and head of the Department of Agricultural Economics at Purdue University.
Lusk is one of many authors of a paper, “Economic Impacts of COVID-19 on Food and Agricultural Markets,” that is a result of the partnership of the Council of Agricultural Science and Technology and the Agricultural and Applied Economics Association.
“The food sector responded pretty remarkably with a return to normalcy within a few weeks,” Lusk said during a webinar. “We still had some empty shelves, but we started to see grocery stores that looked like we expect by early to mid-April.”
This was followed by a supply shock that occurred in late-April to mid-May.
“That came from the shutdown of big meat packing plants that resulted in significant reductions in processing,” Lusk said. “We’ve recovered in large part for those disruptions, and we’re also seeing recovery in food away from home.”
When the meat packing plants shut down, Lusk said, “the wholesale prices for beef reached the highest level we’ve seen in recorded history and pork got pretty close.”
However, chicken is a different story.
“During this whole period chicken prices have been below where they were last year at the same time,” Lusk said.
“There was a big increase in egg prices mid to late-March largely due to the challenge of moving eggs from food away from home to grocery stores,” he said. “This challenge was because of regulatory issues and packaging since there weren’t enough crates to ship eggs that we buy at grocery stores.”
The 15 largest pork and beef packing plants are responsible for about 60% of all cattle and hogs processed, Lusk said.
“That means affordable meat for consumers, but any plant that is closed down means significant disruptions in the entire supply chain,” he said. “The daily processing volumes in late-April to early May for cattle and hogs were 40% below the same time last year, and the chicken processing was down a little bit compared to last year, but never less than 6% of last year.”
Labor Of Love
“Nowhere else in agriculture is labor more important than the fruit and vegetable industry,” said Timothy Richards, Morrison Chair of Agribusiness in the W.P. Carey School of Business at Arizona State University.
“There was a lot of panic about labor, but early indications are things appear to be OK,” Richards said. “The number of visas issued for H-2A workers in 2019 was 24,300, and for 2020, the number is a little higher, so it looks like growers are able to access the kind of labor they need.”
It is difficult to make generalizations about the fruit and vegetable industry, Richards said, since there are hundreds of individual commodities that are fundamentally different.
“Potatoes are one of the largest, and it is a very regional market,” he said.
Idaho has most of the food service market, and Colorado is one of the major shippers for retail, Richards said.
“By the end of June, we were pretty much back to normal for food service and retail shipments,” he said.
One of the key impacts of the pandemic, Richards said, is the move to online shopping.
“When people hop online they tend to buy larger baskets, they search more intensively and they are less likely to purchase on impulse,” he said. “Because consumers have lower search costs, the long-term effect will be niche products will represent most of what companies sell and this pandemic has accelerated online shopping by 10 years.”
The Doctor Is In
The health care system in rural areas was challenged even before COVID-19 occurred.
“Since 2005, 171 rural hospitals have closed,” said Alison Davis, professor in the Department of Agricultural Economics at the University of Kentucky.
“Emergency medical services revenues in rural places are decreasing where populations and the economic base are declining, which makes it very difficult to fund public services.”
For the most part, Davis said, rural communities were largely spared from COVID-19 infections.
“For those who were diagnosed with COVID-19, they were most often transferred to urban hospitals since as rural hospitals did not have the capacity to treat and they didn’t have the personal protective equipment,” she said. “In late March, all hospitals were ordered to suspend elective procedures and outpatient services.”
Rural Americans face significant barriers that limit their access to health care including proximity, lack of transportation and shortage of providers, Davis said.
“One of the positives of the pandemic is the use of telemedicine and policy changes to allow hospitals to bill insurance for virtual visits,” Davis said. “When COVID hit, both rural and urban areas quickly found telemedicine is a great way to visit with patients to keep everyone safe.”
Out Of The Woodwork
“A lot of our commodity producers had been ramping up production in anticipation of strong demand with the ‘Phase 1’ deal with China and strong global growth,” said John Anderson, professor and head of Agricultural Economics and Agribusiness at the University of Arkansas.
“The rapid shutdown of the economy reduced energy prices and that had effects on corn and the demand for ethanol,” Anderson said. “For the first time in a decade, there was a dramatic slowdown in ethanol production because of the reduction in demand for gasoline.”
The cotton market also has experienced changing conditions.
“With lower energy prices, synthetic prices fell sharply which had a negative effect on cotton demand,” Anderson said.
The pandemic has resulted in a significant impact on the forestry and wood products industry.
“The great toilet paper freak out of March 2020 had a big effect on pulp wood demand,” Anderson said. “Paper demand has really surged, and online shopping is part of the reason for that due to the demand for boxes and packaging. But there are not large farm-level effects on prices because we’ve been in an oversupply situation.”
For the saw timber market, the effect of the pandemic has been a 30% to 60% reduction in the southeast.
“How quickly that market recovers will have a lot to do with what happens with the housing market,” Anderson said.
For more information about the Council for Agricultural Science and Technology, go to www.cast-science.org.