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Coronavirus: Impact on food markets

(c) U.S. Food and Drug Administration | VIRIN: 200129-O-ZZ999-001A
05 Mar 2020

After only two months since the first reported outbreak of a novel coronavirus in Wuhan, a city of 11 million in China’s central province of Hubei, it has already spread to almost 80 countries worldwide (according to the World Health Organization as of 5 March 2020). With more than 90,000 confirmed cases and over 3,000 deaths, COVID-19 has become the most important global health scare since SARS in 2003. China still accounts for the majority of cases, but latest figures suggest that the number of new infections outside of China largely outpaces those inside the country. In comparison, SARS, which also originated in China, spread to 26 countries, infected about 8,000 people and claimed 774 lives. Although SARS was contained rather quickly (within 4 months), it still caused significant panic and economic cost, which mostly fell on China as the most affected country. The implications of COVID-19 will likely be much greater.

Apart from more people and countries being affected, the world of 2020 is also very different from the one when SARS broke out. Today, markets are more integrated and interlinked, with a Chinese economy that contributes 16 percent to the global gross domestic product, four times as much as in 2003. Thus, any shock that affects China now has far greater consequences for the world economy. This week, the OECD cut its forecast for global economic growth in 2020 from 2.9 percent to 2.4 percent, which would be the lowest level since the financial crisis a decade ago, warning that a prolonged and more intensive coronavirus epidemic could even halve this figure to a mere 1.5 percent. 

Global food markets – and the markets for the four AMIS commodities – are of course not immune to these developments. However, they are likely to be less affected than other sectors that are more exposed to logistical disruptions and weakened demand, such as travel, manufacturing and energy markets. While basic food commodities may face some constraints stemming from transport interruptions and quarantine measures, impacts are likely to be less severe and shorter in duration. Also, global reserves of non-perishable goods such as wheat and rice should be sufficient to meet any imminent demand. This is especially so when external shocks are of relatively brief duration as this episode is hoped to be. 

While slower economic growth often leads to a loss of appetite for value-added foods, including meat and vegetable oils, the demand for basic foodstuffs such as bread and rice could actually increase. The panic engulfing many markets today could pose a threat to food security in places where food shelves are emptied in fear of possible shortages. Such developments could indeed give rise to supply interruptions and higher food prices at local level, but for now they are unlikely to have any substantial impact on international markets.