COVID-19 Reveals Resilience in the Agrifoods Systems in Canada and the United States

Summary: A new study argues the Canada and United States agri-food sector suffered in the short term from effects of the COVID-19 pandemic, but its specialization traits and “just-in-time” supply chain produced a resilience that was unforeseen, pointing to the growing importance of understanding the whole supply chain. In addition, the authors forecast that in the longer term, the pandemic will push the sector toward a trend of greater automation, greater concentration, and potentially more uncertainty in global poverty reduction efforts in developing countries.

This piece describes the short-term and long-term implications of COVID-19 on the United States and Canadian farm sectors, by analyzing six major commodities.  The primary gross impact on the agri-foods sector was the shuttering of the hospitality sector and its subsequent effect on food demand choices and sources, and the availability and health of agricultural workers in the supply chain. The markets for agricultural commodities in these two countries are highly integrated, so the paper discusses each sector and how they are interrelated when discussing COVID impacts.

As the authors point out, agricultural production had to continue due to its biological nature, despite the changes in demand. Some perishable products were disposed of while systems adjusted. The North American food supply chain has been characterized by specialized processing plants that have a narrowly focused customer profile, and operate on set production schedules based on well-known customer requirements. This paper explores the “brittleness” of this supply chain, how the sudden and dramatic shifts in demand were met, and with what consequences on that supply chain. In addition, it considers the human health implications on agri-food workers in the supply chain, the bottlenecks resulting from facility shutdowns due to health effects, and the ripple effects on livestock farmers upstream and food retailers downstream.

Short-term impacts

Authors describe the impacts on the livestock sector, including processing disruptions due to major Covd-19 outbreaks seen in workers at major plants. Retail prices rose in beef, pork and chicken, with lower output in the short-term. Backlogs of livestock were carried at a cost to feedlots, cow-calf operations, pork, chicken and turkey producers. Processors had reduced capacity, while there was downward pressure on their input costs, whether for fed cattle, or mature pork and chicken. Throughputs quickly returned to normal. The authors noted various actors within the supply chain were impacted differently, and they argue that some impacts could remain for the longer term, such as lower prices seen by cow-calf producers, the very start of the beef supply chain.

The authors describe seeing temporary disruptions in the poultry, dairy and egg sectors as well, due to changes in volume and type of product demand. The authors note in general, retail prices temporarily rose, while producers were burdened with additional costs to hold animals longer than planned, or excess product to be sold to processors at a much lower price, or in the case of milk and eggs, dumped. These products fall under the Supply Management system in Canada, and the reductions seen in product price were therefore distributed to all producers. In the United States, the authors observe that price impacts were more acute and specific to certain producers and regions.

The grain and oilseeds markets in both Canada and the United States were noted to be driven substantially by export markets, and little impacts on price or production volumes were seen due to Covid. One exception was that of corn in the United States, which is both a major feedstock for ethanol fuel and livestock feed, both of which saw lower prices in 2020 due to reduced demand.

The authors note one of the biggest impacts of Covid-19 on the agriculture system was the reduced access to needed foreign workers. With travel restrictions limiting numbers, combined with Covid-19 outbreaks seen on various farms, farm labour was a challenge in both countries.

Long-term implications

The authors find the specialization of participants in the food supply chain over time has lowered costs to consumers but has resulted in a limited reserve capacity to adapt to shocks. Authors conclude this lack of reserves had minimal impact in most sectors in Canada and the United States, with a resilient supply chain moving quickly to adjust to new conditions, minimizing losses. Any permanent changes to improve reserves capacity or major alternatives would make goods cost more, so consumers would have to choose either to pay more for the benefit of “just-in-case,” or settle for lowest prices and “just-in-time.”

In the meat sector, in particular, the balance between adaptability and global competitiveness is marked, and some jurisdictions such as Ontario are now considering funds to support expansion and addition of medium and small-sized meat processors.

Changes that will potentially stick include increased collaboration through the supply chain, the continued development of protocols and best practices for management of Covid health risks for workers, and the acceleration of the automation process through the whole supply chain.

Authors assess if a long-term economic downturn results, some products like red meat may fall in demand and get substituted with other lower-cost proteins. During the pandemic, consumers were less interested in where or how food was grown, but these behaviours may change in favour of local food sources if they view these sources as more resilient in uncertain markets. This potential change ultimately depends on whether consumers are willing to pay for this attribute, but this has always been the case.

Covid-19 has effectively raised the prices of some foods marginally in Canada and the United States, while supply chains have seen short term disruptions. In the longer term, the impacts could be larger on the global economy and developing country food production, therefore influencing poverty reduction. The Covid-19 era could produce more agricultural protectionism, again affecting developing countries more than Canada and the United States.

Conclusions

The authors conclude that while the Covid-19 pandemic had major impacts on short-term food distribution and consumer sourcing, agricultural trade between Canada and the U.S. remained steady. The “just-in-time” specialization for most food supply chains led to initial disruptions but also allowed for rapid rebounds. Input markets, specifically labour, were impacted considerably, and this effect will urge the sector to continue to seek more automation as a response. Primary producers were hardest hit temporarily in product prices with falling demand and bottlenecks in processing, while processors and retailers charged higher prices during this window of opportunity. Longer-term, the authors forecast that it is up to consumers to determine if there is willingness to pay for more backup and stocks for the next pandemic interruption of our food supply chain.

Reference:

Alfons Weersink et al., “COVID-19 and the agri-food system in the United States and Canada,” Agricultural Systems 188 (2021) 103039. https://www.sciencedirect.com/science/article/pii/S0308521X20309008?via%3Dihub

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