by Jean Balié and Harold G. Valera
As governments around the world are realizing the multiple connections between the COVID-19 health crisis and the global and local food systems, they are contemplating an array of policy decisions or already implementing preventive measures to protect food supply. In most cases, these measures are taken in autonomy and with little consideration for the global food systems and their interdependence.
Understandably, governments feel a sense of urgency to act. This arises from the rapid spread of the health crisis and the exponential rate of contamination of people by the coronavirus. Although there are established linkages between health and food systems, they are not the same. They operate under different timescales and conditions. In times of crisis, there is a need to look at the big picture and get a sense of proportion, possibly relying on market foresight.
In table 1 we show that the market fundamentals are robust. In the short term, there is no reason to expect supply problems. The last rice harvests were good or even better than expected globally. Stocks are high and much higher than what they were in 2008 and 2011. In China, which is both the main producing and importing country, the USDA estimates that rice stocks (unused rice kept in storage) have reached a record of 113 million tons just below the level of annual consumption. In India, the second-largest consumer and the first world exporter of rice, stocks are sufficient to cover several months of consumption. Hence, a shortage of rice is unlikely in the short run.
Table 1: Main rice market indicators
|
Variable |
2019/2020 (million MT) |
|
World consumption |
490 |
|
World production |
499 |
|
World rice stock |
182 |
|
World trade |
44 |
|
China consumption |
143 |
|
India consumption |
102 |
Source: USDA-PSD.
However, there is a need to distinguish short term and medium term issues. In the medium term, any shock on production that could result in a lower than expected harvest could trigger a price crisis. Likewise, a massive surge in demand fueled by panic buying and hoarding could also trigger a price rise in the medium term. Decisions like limiting the flow of rice within and between countries, including export bans and other trade restrictions as well as excessive buying, can all precipitate a surge in rice price in spite of good market fundamentals (see table above).
On the demand side the behavior of China requires attention. If the country decides to massively import for reasons related to a disappointing forecast on harvest or to build up strategic rice reserves, it could have considerable consequences on world markets. On the supply side, policy decisions aiming at keeping domestic prices low such as export bans or export restrictions could also result in price spikes. In India, there are growing concerns that the breakdown of the supply chain after 2 weeks of lockdown could cause a shortage of food as well as other essential goods in the market. The Indian government has decided to restrict the movement of non-essential goods, but the lack of clear definition of an essential good has generated massive slowdown and, in some cases, interruption of the flow of goods including food.
Similarly, export restrictions or a dramatic increase of the international price of rice could have devastating effects in Africa, a continent that relies on imports to meet its food requirements, especially on rice. Nigeria imported 3.4 million metric tons of rice in 2019, making it the second largest buyer after China. The combination of supply and demand side effects could result in another price crisis in the rice sector after that of 2008 and 2011.
In Figure 1, we show the potential impact of export bans on the world reference price of rice (Thailand 5% broken price) under four scenarios, using the IRRI Global Rice Model (IGRM). When Vietnam and Cambodia impose export bans, world rice prices would increase by 19% ($84/MT) and 23% ($100/MT) respectively, from the baseline. In the scenario that India also bans exports, the price spike is more pronounced with world rice price rising by 52% ($230/MT) from their base level. In the worst case scenario, rice price could spike well above the maximum level reached during the 2008 crisis. Therefore, price is the main variable that will determine if a rice crisis is looming or already underway.
Figure 1: Price effects of various scenarios under COVID19
In the medium term, there are three main channels that need to be monitored:
(i) The primary channel through rice production could be impacted is labor, due to shortage and/or rising labor cost, especially in countries where mechanization is low. If the COVID19 pandemic evolves into a protracted crisis, it could mean that the workforce available in agriculture could decline. This would result in higher costs of labor when this already represents a source lack of competitiveness in most countries (Philippines, Indonesia). A shortage of or prohibitive cost of labor could affect the critical stages of transplanting, weeding, and irrigation control (stages that are very labor intensive) and negatively impact the next harvest. The role of women in rice production is essential, in particular for transplanting and weeding. COVID-19 may limit the time they can spend in the field as they also are traditionally responsible for the care of children, the sick, and elderly. This also means they could have increased exposure to the virus, with ripple effects on rice production and nutrition (meal preparation). It is also the case that rice farmers tend to be older than average in most Asian and African countries because youth have often migrated to urban areas. Older farmers are more vulnerable to the coronavirus.
(ii) The secondary channel to watch carefully is the logistics. The COVID-19 pandemic has primarily disrupted transport and distribution networks. These logistics issues could impact the supply of inputs for agriculture, like seeds and fertilizers. There is growing evidence that the supply chain in and outside agriculture could be massively impacted by the current crisis. This could have significant consequences on planting and crop management.
(iii) The third channel to consider regards the capital flow or shortage of liquidity to the agricultural sector, which could constraint credit to farmers for the growing season. The main risk is associated with the cost of credit (short term interest rate) as not all governments can afford to design and implement a quantitative easing monetary policy to maintain the level of liquidities and keep interest rates low. It is well known that in the rice sector many types of credit are not transacted through a bank, but are the result of informal lending. Farmers may have to face prohibitive interest rates in times of shortage of liquidity and volatile financial market conditions.
Lessons can be learned from the previous global food price crises in 2008 and 2011. We know that there is a risk of collective action problems, whereby the decision made by one government to improve its own situation in the short term can make the situation worse for others. There is also the risk that when one government decides to adopt a “competitive” rather than “cooperative” policy, it will be followed by other governments, triggering a chain reaction. When governments take unilateral decisions they can fuel the problem of rising food prices.
By contrast, we have also learned that policy coordination and trade facilitation can relax the tension in markets. This is the main reason that pushed the G20 to establish the Agricultural Market Information System (AMIS), which is jointly implemented by FAO and the OECD.
We need to carefully monitor policy decisions. We need to encourage governments to talk and coordinate their actions. The current global outbreak of COVID-19 has the potential to disrupt agriculture and food systems, and the rice sector in particular. To address this challenge effectively, learning the lessons from the past is paramount.
It is equally important to recognize the need for informed and science-based decision making. Governments need to support the collection and dissemination of timely and credible information and its analysis by reputable institutions. Evidence can help governments avoid disproportionate responses to perceived threats that could aggravate the problem.
Ultimately, ill-conceived decisions and uncoordinated actions on food policy will invariably affect the food and nutrition security of the most vulnerable. The most concerning issues at the moment regard the lack of willingness for coordinated action among governments. The COVID-19 pandemic can also be turned into an opportunity to identify and address the major vulnerabilities and inequities in our food systems, with a view to make them more resilient to the next crisis.