The measures being taken in some parts of the world to reduce the spread of the coronavirus – while obviously necessary to defeat the contagion – are starting to raise multiple concerns beyond public health. In particular, the uncertainty of spillover effects on global trade and specifically food supplies can cause people and markets to act out of panic.
The extent to which our food supply chains will be affected by the pandemic depends on the economic measures taken as well as their duration.[1] However, there are already initial reports and analyses on the virus and its impact on China’s meat market and trade and as well as resulting effects on tropical forests which merit some reflection.
Supply of meat in China steady despite coronavirus
After the first cases of coronavirus were reported, the price of pork rose across China, whereas beef, chicken, and lamb prices remained stable. Pork is the most consumed meat in China, and the recent shortages due to swine fever are still fresh in the memory. Fears of another pork shortfall led Chinese consumers to buy up and stockpile whatever pork was available, driving up prices. The government reacted quickly and controlled the rise by releasing massive amounts of pork from its reserves into the market. Overall, the disruptions of the food supply due to coronavirus were minor, and the fears turned out to be ill-founded.
Spillover effects of the last major disruption in the Chinese meat supply chain
Though China did not face major disruptions in its pork supply chain, the changes in Chinese demand and market measures may have some indirect impact on tropical rainforests. There are still many unresolved questions regarding the spillover effects that global measures and collective behavior might have beyond immediate food supply effects. However, we know that global markets have an important effect on regional deforestation dynamics.
Episodes such as the swine fever and the US-China trade war evidenced that disruption and adjustment of agricultural commodities supply chains can have unforeseen impacts on the economic drivers of deforestation. For example, as a result of the US-China trade conflict, the Chinese shifted their soy imports from the US to Brazil, which generated a premium of up to USD 90 per ton for Brazilian soy.[2] The positive prospects for Brazilian soy exports led to a clearing of forests for cattle and soy expansion in Brazil.
Global meat trade slows down and uncertainty gains in global markets
In the first months of 2020, due to the corona crisis, trade flows between China and its partners suffered delays and re-directing, even though soybean imports in the first two months of 2020 rose by 14.2% year-on-year as cargoes from the U.S. booked during a trade truce at the end of 2019 cleared customs.[3] As the transport of refrigerated meat containers from ports to other facilities slowed down, Chinese ports had limited space to receive more refrigerated containers, and shipments were delayed. [4]
There are also indications of reduced meat imports from different regions of the world, notably the US, [5] which had hoped to resume its exports after having settled the conflict with China, and Argentina, [6] which due to the virus did not manage to agree with China on a price. In other regions, the crisis has generated spikes in meat exports to China, notably exports from Brazil [7] [8] and from Australia.[9] However, their delivery is now facing bottlenecks mentioned before.
In many cases, the uncertainty of what will happen and how long the crisis will last does not allow supply chain actors to make long-term decisions. Meat and livestock futures markets are now reaching a ten-year low due to concerns that the coronavirus may impact the demand for meat. [10] On top of that, the world economy is now slowly being infected by the coronavirus spillover effects which will have other types of ramifications for agricultural commodities supply chains (e.g. investments, profits, etc.).
Although it is still very early for conclusive evidence, this should signal to markets the need to cut the volumes of meat supplied to the main consumer markets. However, it remains unknown how much demand will drop, and, if that reduction will last, leading to a long-term reduction in pressure on tropical forests.
Early indications of future transformations in the Chinese meat supply chain
On the other hand, the decisions made now will determine how agricultural commodities transform in the long term. In the case of China, authorities are pushing to accelerate the adoption of refrigeration and upscale the stockage capacity.[11] They are also looking towards an increase in meat imports to reduce the over-dependence on domestic meat supply, which had not yet recovered from the swine fever before it started to suffer from the effects of the coronavirus pandemic.
This might lead to an increase in Chinese meat imports and a decrease in soy imports, which are currently destined to feed pigs and poultry in China. It might also lead countries currently exporting meat to China to increase their soy imports as well as their meat production and exports to China. This type of shift may drive deforestation in Brazil and other Latin American countries.
We need to keep an eye on the potential impacts that major trade disruptions might have on deforestation and climate change – in particular when they occur in China, whose economy increasingly drives global trends.[12] We also need to think pro-actively about how to be a step ahead of those changes and their spillover effects.
The future is now, and there is only one Earth!
Footnotes:
[1] Andrew G. Huff, Walter E. Beyeler, Nicholas S. Kelley, Joseph A. McNitt: How resilient is the United States’ food system to pandemics? 6 June 2015.
[2] AMIS (2019), Market Monitor, Number 70.
[3] Reuters News: China January-February exports tumble, imports down as coronavirus batters trade and business, 7 March 2020.
[4] Reuters News: Coronavirus disrupts China meat imports, food supply during pork shortage, 6 February 2020.
[5] Wall Street Journal: Meat stockpiles surge as coronavirus epidemic curbs exports, 2 March 2020.
[6] Infobae: Exportaciones carne argentina a China caen 30% en enero por discusión precios y coronavirus, 24 February 2020.
[7] Successful Farming: Brazil’s JBS, Minerva mull slaughterhouse suspensions – statement, sources, 16 March 2020.
[8] CNBC: Brazil beef exports jump on strong Chinese demand -Abiec, 5 February 2020.
[9] Mirage News: Australian livestock prices defiant as global markets rattled by Covid-19, 5 March 2020.
[10] Reuters News: Livestock-Cattle futures hit 10-year lows as coronavirus stokes demand uncertainty, 16 March 2020.
[11] Bain & Company: Coronavirus Accelerates the Transformation of China’s Meat Supply Chain, 4 March 2020.
[12] Reuters News: Column-China and the world economy’s shifting centre of gravity: Kemp, 5 March 2020.
