TWN Info Service on Health Issues (Jun20/07)
19 June 2020
Third World Network

COVID-19: Food markets face months of uncertainty, says FAO
Published in SUNS #9139 dated 16 June 2020

Geneva, 15 Jun (Kanaga Raja) – Food markets will face many more months of uncertainty due to the COVID-19 pandemic, the UN Food and Agriculture Organization (FAO) has said.

According to FAO’s latest biannual report on global food markets, while most markets are braced for a major global economic downturn, the agri-food sector is likely to display more resilience to the crisis than other sectors.

“The impacts of the COVID-19 pandemic have been felt – at varying degrees – across all food sectors assessed by FAO,” said Boubaker Ben-Belhassen, Director of the FAO’s Trade and Markets Division.

“Whilst COVID-19 has posed a serious threat to food security, overall, our analysis shows that from the global perspective, agricultural commodity markets are proving to be more resilient to the pandemic than many other sectors,” he added.

“That said, owing to the size of the challenge and the enormous uncertainties associated with it, the international community must remain vigilant and ready to react, if and when necessary,” said Ben-Belhassen.

According to the FAO report, in spite of uncertainties posed by the pandemic, its first forecasts for the 2020/21 season point to a comfortable cereal supply and demand situation.

Early prospects suggest global cereal production in 2020 surpassing the previous year’s record by 2.6 percent.

Based on conditions of crops already in the ground, planting expectations for those still to be sown, and assuming normal weather for the remainder of the season, world cereal output is forecast at 2,780 million tonnes (including rice in milled equivalent), nearly 70 million tonnes higher than in 2019, setting a new record high.

After stagnating in 2019/20, world cereal utilization in 2020/21 is tentatively forecast to expand by 1.6 percent (43 million tonnes) year-on-year to reach an all-time high of 2,732 million tonnes.

Based on its first forecasts for production in 2020 and consumption in 2020/21, FAO has projected world cereal inventories by the end of national marketing seasons in 2021 to reach a new record of 927 million tonnes, an increase of 5.0 percent (44 million tonnes) from their already high opening levels.

The expected increase in cereal stocks would result in a slight rise in the global cereal stock-to-use ratio, from 32.5 percent in 2019/20 to 32.9 percent in 2020/21, indicating a generally comfortable supply situation when compared to the 21.2 percent low registered in 2007/08, it said.

Of the total cereal stocks, as much as 47 percent are expected to be held in China, where national stocks could increase for the second consecutive season and reach a new high of at least 439 million tonnes.

FAO said that its first forecast for world cereal trade in 2020/21 stands at 433 million tonnes, up 2.2 percent (9.4 million tonnes) from 2019/20 and setting a new record, boosted by expected expansions in trade of all major cereals.

Global production of wheat in 2020 is forecast to fall slightly below the previous year’s good out-turn, it added.

The latest prospects largely pertain to expectations of production downturns in the European Union (EU), Ukraine and the United States of America (USA) more than offsetting increases in Australia, Canada, the Russian Federation and several countries in Asia, said FAO.

“While the dampening impact of the COVID-19 pandemic on demand could push up global inventories despite a decline in production, the prospect of a modest increase in world trade in 2020/21, amid tighter export availabilities among major exporters, is expected to provide support to international wheat prices, especially during the second half of the marketing season.”

Total wheat utilization in 2020/21 is likely to remain close to the 2019/20 estimated level, as projected growth in food consumption is expected to almost offset a foreseen fall in feed utilization and a contraction in industrial use.

Notwithstanding uncertainties regarding the impact on food consumption of the COVID-19 pandemic, feed use of wheat is expected to decline due to ample supplies of coarse grains, in particular maize, which is likely to erode wheat’s price competitiveness in feed rations.

Following a significant demand slowdown caused by COVID-19 in early 2020, total utilization of coarse grains is forecast to regain momentum in 2020/21, but would still remain below global production for a second consecutive season, leading to higher stock levels and keeping international prices under downward pressure, said FAO.

FAO’s first forecast for world coarse grains production in 2020 is pegged at a record 1,513 million tonnes, an increase of 65 million tonnes (4.5 percent) from 2019, almost exclusively due to higher maize production.

Forecast to reach an all-time high, global maize production is boosted by expected record harvests in the United States of America (USA), Canada, and Ukraine, and near-record harvests in Argentina and Brazil.

In contrast, world production of barley is likely to decline, largely on reduced output in the Russian Federation.

After stagnating in 2019/20, world total utilization of coarse grains is forecast to increase in 2020/21 by 2.7 percent.

According to FAO, the bulk of the growth comes from anticipated higher feed use, but also a rebound in industrial use on expectation of some recovery in maize-based ethanol production, as well as higher demand for starch production.

“These expansions mostly concern maize and stem from expected increases of feed and industrial uses in China (mainland), the USA, Brazil and Argentina.”

Ample supplies and price advantages, particularly relative to wheat, are expected to boost global trade in coarse grains in 2020/21 above the 2019/20 level, said FAO.

Increased maize and sorghum import demand from China (mainland) is anticipated to be an important driver behind the expected expansion in global trade, while foreseen greater barley imports by Saudi Arabia and the Islamic Republic of Iran would also add support.

On the export side, bigger shipments of both maize and sorghum are forecast from the USA while increases in barley exports are expected from Australia.

According to FAO, world rice production is set to recover in 2020, boosting rice utilization and keeping carry- overs at their third highest level on record.

While economic constraints and firm prices may curb trade growth in 2020, a more robust trade expansion is projected for 2021, it said.

After El Nino-influenced weather patterns negatively affected the outcome of the 2019 season, the return to more normal growing conditions could facilitate a 1.6 percent annual expansion in world rice production in 2020 to a new high of 508.7 million tonnes.

Anticipated increases in Asia are seen to sustain much of the forecast growth, although a strong output recovery is also set to take place in the United States of America (USA), with further production inroads anticipated for Africa.

Stagnating African imports and scattered Asian demand may limit the increase in global rice trade in 2020 to 800,000 tonnes, resulting in world rice flows of 44.9 million tonnes.

World trade in rice is tentatively forecast to expand more vigorously in 2021, as ample exportable availabilities and more attractive prices rekindle African demand, while sustaining continued import growth in all other regions except Asia.

World rice utilization is forecast to expand by 1.6 percent in 2020/21 to a fresh peak of 510.0 million tonnes.

This level would surpass anticipated production, requiring reserves to be drawn down by some 0.8 percent over the season, said FAO.

“Still, at 182.0 million tonnes, global stockpiles at the close of 2020/21 marketing years are forecast to stand at their third highest level on record, thanks to still large stockpiles in China (mainland) and continued carry-over expansions in the major rice exporting countries.”

Despite subdued demand prospects linked, inter alia, to the ongoing COVID-19 pandemic, FAO’s latest 2019/20 forecasts for oilseeds and derived products point towards a tightening supply-demand situation, triggered by a marked contraction in production.

Tentative forecasts for 2020/21 suggest that supplies could remain tight relative to demand, said FAO.

In 2019/20, oilcrop production is expected to decline from the previous season’s record level, with pronounced drops in soybean and rapeseed outweighing gains in the other crops.

In the United States of America (USA), adverse weather conditions led to sharply lower soybean planting and yields, while global rapeseed output was affected by further area contractions in the European Union (EU) and Canada.

“While poor harvests, notably of soybeans, are expected to drive down global supplies of meals/cakes, consumption is seen to keep expanding, albeit at a below-average rate, linked in part to temporary lockdowns imposed in numerous countries to halt the spread of COVID-19.”

Global output of oils/fats is also set to fall, as likely modest gains in palm and sunflower oils would not be sufficient to offset reductions in other oils, said FAO.

At the same time, growth in global oils/fats utilization is expected to come to a halt, as both demand for food and uptake by the bio-fuel sector are seen slowing down in the aftermath of the COVID-19 pandemic, while demand from bio-diesel producers is also hurt by the recent plunge in mineral oil prices.

“The outlook remains subject to major uncertainties, notably concerning the evolving effects of the COVID-19 pandemic, implementation of the United States-China “Phase One” trade agreement, and potential changes in national bio-diesel policies,” said FAO.

According to FAO, world sugar production is forecast to decline in 2019/20 (October/September), and to fall below consumption for the first time in three years. The global shortfall is now set to hover around 6 million tonnes.

Expected decreases in sugar output in the European Union (EU), India, Pakistan and Thailand will likely offset anticipated expansions in Brazil, China and the Russian Federation.

On the demand side, growth in world sugar consumption is expected to be subdued, reflecting the negative impact on sugar intake resulting from the COVID-19 lockdown and confinement measures.

Depressed international sugar prices and the need to rebuild sugar inventories in some traditional importing markets should lead to a moderate expansion in global import demand relative to the last marketing season.

However, the implementation of import restriction measures in some major markets could limit the expansion, said FAO.

Exports by Brazil, the world’s largest sugar exporter, are set to increase, while those by Thailand, the second largest sugar exporter, are likely to decline following a production setback.

“A key feature in the current season is the extent to which the COVID-19 pandemic would influence sugar trade, by, for example, creating new trade routes or diverting existing ones.”

According to FAO, world total meat production in 2020 is forecast to fall to 333 million tonnes (carcass weight equivalent), 1.7 percent lower than in 2019, marking the second year of consecutive decline.

Much of the contraction is again expected to reflect a sharp drop in global production of pig meat, largely concentrated in Asian countries affected by the African swine fever (ASF) viral disease, but also of bovine meat, especially in the United States of America (USA) and Australia.

In contrast, global production of poultry meat is forecast to expand, albeit at half the rate recorded last year, while modest output growth is also predicted for ovine (lamb and mutton) meat.

The pace of expansion of all the meat sectors has been negatively affected by COVID-19 market disruptions, aggravating the effects of animal diseases, said FAO.

International meat trade is forecast to grow to 37 million tonnes in 2020, up 2.4 percent year-on-year, but considerably slower than the 6.8 percent registered in 2019, in large part reflecting a possible reduction in world meat consumption, consistent with expectations of widespread economic downturns.

Logistical bottlenecks, limitations in shipping and port backlogs are also likely to restrain growth in world meat trade, said FAO.

The combination of COVID-19-related economic hardships, logistical bottlenecks and a steep decline in demand from the food services sector due to lockdowns has led to a global slump in import demand, causing international meat prices, measured by the FAO Meat Price Index, to fall, with the sharpest drop registered for ovine meat, followed by poultry, pig and bovine meats.

“Plummeting food service sales have resulted in meat stock accumulation, especially premium categories, and in bulk packaging, enlarging export availabilities and weighing on international meat prices, despite a decline in meat output caused by labour shortages in slaughterhouses, processing and packing due to the pandemic.”

According to FAO, world milk production in 2020 is forecast to grow by 0.8 percent to 859 million tonnes, mostly owing to expectations of production expansions in Asia and North America, with moderate increases in Central America and the Caribbean, Oceania and Africa, partially offset by slight declines anticipated in Europe and South America.

Continuing farm modernization in China and mobilization of village cooperatives in India are sustaining milk output growth in Asia, it said.

World exports of dairy products in 2020 are forecast to contract by 4 percent to 74 million tonnes (in milk equivalent), which, if confirmed, would mark the sharpest year-on-year decline in three decades.

This negative outlook rests on likely declines in imports mainly by China, Algeria, Saudi Arabia and United Arab Emirates, attributable to the COVID-19 lockdowns and physical distancing measures, but also to widespread economic slowdowns and low petroleum prices.

Given the economic hardships that many countries are facing, demand is likely to remain subdued in the coming months, which would likely keep international prices of dairy products under pressure, said FAO.

Global fish production dropped by some 1 percent in 2019, with seafood trade also contracting as trade conflicts and related uncertainties dragged on economic growth and impacted business revenues.

“The previous improved forecast for 2020 has now been completely upended by the emergence of the COVID-19 pandemic,” said FAO.

Governments around the world seeking to contain the virus have introduced isolation directives, limitations on business opening hours, and travel restrictions.

Food-service demand has been sharply reduced as restaurants have closed, although retail sales of non-perishable products, such as canned tuna, have seen a boost as households changed their purchasing behaviour.

On the supply side, shortages of labour and other business challenges appear likely to continue exerting a negative impact on seafood production across the world, alongside the poor demand outlook.

Aquaculture harvests are being delayed and stocking targets drastically reduced, affecting production of heavily traded commodities such as shrimp, salmon, pangasius, tilapia, seabass and seabream.

Meanwhile, said FAO, entire fishing fleets are laying idle due to a combination of poor demand and restrictions on crews and vessel movements.

Logistics have also become costly and slow due to closed or restricted road borders, health inspection delays, and the large-scale cancellation of flights.

According to FAO, the general outlook is still overwhelmingly dominated by uncertainty and the focus is on damage mitigation.

Permanent changes in the market landscape, particularly in terms of marketing and distribution, can be expected, it said.

While China and some other countries have been able to restore some degree of normality, the process is likely to be slower in the European Union (EU) and the United States of America (USA).

“For other large seafood markets where the virus is yet to peak, such as Brazil and the Russian Federation, the scale of the damage is yet to become clear.”

Prolonged market downturn can be expected even after current restrictions are lifted or relaxed, said FAO.