COVID AND PRICE INCREASE: THE AGRI-FOOD CRISIS AND HOW TO RECOVER FROM IT
Due to the Coronavirus, the prices of bars, restaurants, and supermarkets have increased a lot. It was inevitable given the problems at the bottom: those of the agri-food sector. Here's what they are and how to get out of this situation according to CREA (Council for Agricultural Research and Agricultural Economy Analysis)
In the last few hours, there has been a lot of talk about the increase in prices for bars and restaurants but not much has been said about the increase in the prices of these products, many of which, during the Covid-19 crisis, went to waste in the refrigerators.
Then, there was even less talk about the increases in the price of raw materials in large-scale retail trade and the situation facing the agri-food field, a key sector for the entire Italian restaurant and hotel industry.
Therefore, let’s try to understand why prices are rising going to the root, that is, sifting through the moment the agri-food industry is experiencing. The subject of the debate, and for the regularization of the workforce implemented in these days by Minister Bellanova.
COVID-19: the impact on agri-food according to a CREA study
To get the Italian agri-food sector back in the best and right direction, however, it is essential to know the impact of the measures to contain the covid19 pandemic. And this is precisely the intent of the study “Valutazione dell’ impatto sul settore agroalimentare delle misure di contenimento COVID-19” (Assessment of the impact on the agri-food sector of COVID-19 containment measures) published by the Research Center for Policies and Bioeconomy of CREA.
The study, coordinated by Annalisa Zezza and carried out by Roberto Solazzo and Federica Demaria, reports the medium-term simulations of the sector’s performance, carried out with AGMEMOD and CAPRI, two well-established econometric models in the analysis of agri-food trends. In particular, AGMEMOD (of which CREA Politics and Bioeconomy network is part) is used by the European Commission and therefore allows to have results comparable with those of the Commission’s analysis offices and with those of other Member States.
In the models, alternative scenarios of reduction in GDP have been hypothesized, included in a gap ranging from -1.5 to -5 percentage points, based on the indications initially provided by the various international studies. In fact, this reduction is now underestimated, so the effects could be amplified to the extent that it varies from the duration of the lockdown. Within the models, the drop in demand for the Horeca (Hotellerie-Restaurant-café) is captured by the GDP contraction. Where, as expected, the reduction in value-added in catering was greater than the variation in GDP, given its weight on total purchases of agri-food products, the effects on demand and income on the agri-food sector would be amplified.
The results of the models and the comparison with the evidence from the other studies show that the agri-food sector is not among the most affected by the drop in GDP. However, for some industries (in particular, livestock), there are also critical issues. There should be no significant reduction in production; therefore, considering the level of world stocks, food security will not be a problem. Domestic demand should also remain at substantially stable levels.
AGMEMOD scenario: decreasing until 2023, compared to the pre-COVID forecasts, especially apple and milk consumption; those of meats, cheeses, cereals, and related products would be in line, or slightly decreasing, with respect to the previous estimates. The low elasticity of demand for agri-food products, as in the 2008-09 crisis, allows the sector to respond better to economic crises than other production sectors. This also happens for international trade, where, however, exports and imports are expected to decline. This last data, given the “transforming” nature of our agri-food sector, could cause difficult situations in some supply chains. The products most affected by a reduction in imports, compared to pre-COVID estimates, would be chicken and pork.
On the other hand, purchases from abroad of cereals and cheeses would remain substantially in line with forecasts. For the poultry sector, there is also a slowdown in export growth, which, however, is further improving for apples. Regarding prices, a drop compared to pre-crisis estimates would concern chicken meat, durum wheat, derivatives, and cheeses. For the latter, this would be an attenuation of the growth forecast by the previous estimates.
CAPRI scenario shows a significant reduction in agricultural (per hectare) and livestock (per animal reared) income, in both cases higher than the assumed change in GDP. The livestock sector would be most affected by the drop in profitability. Compared to other European countries, the Italian agricultural sector seems to respond better to the pandemic shock, probably due to the weight covered by fruit and vegetables, which would be less affected by other sectors of the income crisis. This effect could be attributed, at least in part, to the greater diffusion on the national territory of the agri-food chains (national and local).
What to do? Here’s how to recover from the Covid-19 crisis
1. Preventing a shortage of labor (not considered in the models used for the study) from translating into a supply crisis and therefore facilitating the access of companies to work for both immigrants and the workforce available from other sectors, ensuring the safety of working conditions;
2. Facilitate the transport and logistics of perishable products (fresh milk, fruit, and vegetables), which are the ones at greatest risk;
3. Recognize as “essential” in all parts of the supply chain, including feed and packaging, in order not to affect the production chain;
4. Ensure the integrity of the supply chain through measures that strengthen traceability to avoid unjustified crises of confidence in food safety and, at the same time, strengthen controls at borders;
5. In commercial relations, monitor any unjustified sanitary and phytosanitary barriers (SPS) and collaborate with the private sector to identify any problems that may arise;
6. Ensure liquidity for businesses, avoiding credit restrictions, introducing measures such as wage subsidies, the suspension of corporate tax payments and the application of the minimis regulation, adequately revised, which can alleviate financial tensions and help companies;
7. Avoid all forms of speculation that could harm consumers through unjustified price increases;
8. Ensure access to food for the most vulnerable sections of the population.
This post is also available in: Italiano (Italian)