“It is unavoidable that the novel coronavirus epidemic will have a considerable impact on the economy and society” – China’s President Xi Jinping, televised address, February 23, 2020. Besides its worrying effects on human life, the novel strain of coronavirus (COVID-19) has the potential to significantly slow down not only the Chinese economy but also the global economy. The COVID-19 pandemic has hit every segment of the business world on an unprecedented scale and speed, and the food industry is no exception. Globally, the food & beverage industry is expected to experience the differential impact of this rapid spreading COVID-19 on each stage of its value chain through the mediums of the affected workforce at an industrial level, raw material supply (agricultural produce, food ingredients, and intermediate food products), trade & logistics, demand-supply volatility and uncertain consumer demand at foodservice outlets—among other factors. Production, distribution, and inventory levels across the food & beverage industry spectrum are expected to be impacted.
During the last two decades, China has become crucial to the global economy. China’s rising importance in the global economy is not only related to its status as a manufacturer and exporter of consumer products. The country has become the main supplier of intermediate inputs for manufacturing companies abroad. It was also one of the major importers and exporters of food and beverages across the world. As of today, about 20 percent of the global trade in manufacturing intermediate products originates in China. Any disruption of China’s output is expected to have repercussions elsewhere through regional and global value chains. Indeed, the most recent data from China indicate a substantial decline in output. China Manufacturing Purchasing Manager’s Index (PMI), a critical production index, fell by about 22 points in February. This index is highly correlated with exports, and such a decline implies a reduction in exports of about 2 percent on an annualized basis.
China has a significant connection with other countries throughout the world in terms of food trade. In 2018, the top partner countries, from where China imported food products include France, the United States, the Netherlands, Australia, and Peru. In 2018, the top partner countries to which China exported food products include Japan, the United States, Hong Kong, China, Korea, Rep., and other Asian countries. However, many countries have now imposed export restriction as a result of the COVID-19 outbreak. The heads of the WTO, the UN Food and Agriculture Organization, and the World Health Organization issued a joint statement on March 31 calling on governments to minimize the impact of COVID-19 related border restrictions and ban on trade in food, and warning that “Uncertainty about food availability can spark a wave of export restrictions, creating a shortage on the global market.” However, authorities in several countries have acted to ban the import of food items from China, in response to the crisis.
Major Trade Losses Between China And Its Trade Partners, 2020
Source: Secondary Research, Primary Interviews, Related Research Publications, Industry Journals, Press Releases, and MarketsandMarkets Analysis
Indonesia had started to ban live animal imports from the country and is set to ban other import items as well. A similar situation has been observed in Russia, where retailers have stopped the import of fruits and vegetables from China. Russia has closed its 4000 km land border between China and itself, though not imposing the ban directly. The Middle East and Jordan have reacted to the crisis more aggressively by completely banning all the animal and vegetable products from China. The vegetables and fruits division of the Cairo Chamber of Commerce of Egypt has officially suspended the import of garlic, carrot, and green ginger from China. However, countries such as the Philippines and Dubai have not shown any resistance to importing Chinese products as of now.
The United States is China’s largest trading partner; there was a free trade agreement between the US and China. Soybeans were expected to form a large portion of China’s US agriculture imports, as part of the phase one trade deal signed on January 15. China is taking numerous steps to meet the agricultural commitments made in phase one trade deal with the United States, according to a statement signed by two top US officials.
Impact Of Trade Restrictions (With China) On Regions, 2020
China had great food trade relations with New Zealand and Australia. It had become New Zealand’s largest trading partner in terms of goods after they had signed a free trade agreement (FTA) over a decade ago. Two of the top exports to China have traditionally been meat with China accounting for 41% of its total meat exports and dairy accounting for 35% of its total dairy export. However, due to the coronavirus outbreak, the trade between these two countries has suffered some heavy hits. The meat and seafood food sector is estimated to be affected the most, although dairy has managed to remain still stable. According to the data from the New Zealand government’s public statistics domain states that the total value of exports to China from New Zealand as of February 2020 stood at NZ$1.1bn, which is around NZ$142mn less than what it was during the same time last year. China was Australia’s largest beef export market in 2019, at over 24% of the total exports or 300,000 tonnes of beef. However, the overall demand and consumption for meat are expected to drop dramatically; it is also expected to reduce the exports, correspondingly. Also, seafood export to Australia will suffer because, for China, Australia was the supreme export destination for live rock lobsters in 2019, accounting for more than 90% of its exports.
Thus, it is quite evident that the meat and seafood markets of China will be suffering the major losses, as it served as the largest exporter of beef and seafood to many countries. Simultaneously, other countries importing these products from China for decades will also suffer a shortage of supply. The fruits and vegetables market in China is expected to be affected moderately as not many countries were dependent on China for these ingredients. This is going to create a huge impact on the economy of China.
As the exports and imports of essential food items between countries cannot be paused completely, food and beverage companies are developing response actions and effective plans to help mitigate their risks and prepare for how they can deal with the effect of coronaviruses. Further, on the factors mentioned above and on the economic front, although the prices of food and beverage products and agricultural produce have remained stable globally, a prolonged outbreak of COVID-19 is expected to have a significant impact on the food & beverage industry across the world.