Introduction
As we are clocking in weeks of confinement we are entering the midst of the crisis with an outlook difficult to predict both on the health and economic side. Confinement and social distancing are stopgaps to stymie propagation in waiting for a vaccine or a cure. Even if several country in Europe are now starting to either relax the lockdown rules or give an outlook.
Germany, Austria and Spain have started to relax the rules.
1. There is no outlook for when the situation will normalize and social distancing could be necessary until the end of 2020. We are currently only navigating the first consequences on our food system.
A bleak trade outlook on all sides
This Wednesday the negotiations between the UK and the EU will restart after a pause. They have been delayed by approximately a month, at the same time HM government has diverted its energy to fight the covid but still seems to commit to an exit from EU rules by the end of 2020. This is challenging and given the change in UK priorities a realignment of negotiations or a deadline extension could happen. Or it will mean that a massive renouncement will come from one of the blocks.
If this doesn’t happen the UK will have to potentially buy back its entry into the single market like Norway (and the EU institutions it want to take part) as a stopgap and will be considered as a third party for the time of the negotiations.
The 3 shipping giants have already reduced strongly the number of boats stopping along the channel depending on the ports it ranges from cutting it by a half to ¾. This is particularly true for intermodal traffic. In the UK as of march 2020 the number of intermodal train has been cut by a 100 every week.
This is due to a range of reason ranging including crew changes unable to be done. And though Chinese ports are reopening and China is easing the lockdown the maritime traffic is one way orientated and piracy is ramping up in key areas (Gulf of Guineas, Ormuz strait…) as a result of the retreat of pacifying fleets.
Note that the EU has closed its borders and that some countries have unilaterally decided to either filtrate or close their border. Most international links have been cut or a severely disrupted we are thinking about ferries (including to and from the Maghreb – to the bare minimum or freight only workings) but also roads (freight trains have been relatively immune to problem so far across the EU, not that is of much importance given the amount of food carried by those). Some controls at the German border have created delays of up to 20h.
- Goods and humans resources have troubles to move around the EU and are severely delayed – this seems to intensify gradually as measures increase
- Le Marin (FR)
- Rail Magazine (UK)
The retailing industry is settling in for the long run
In the UK food retail is dominated by the supermarkets with 179 billion £ out of the yearly 190 billion £ spent; 94% of the market. Though highly valuable from the social point of view other retailing channels account for very little. (Compared to circa. 75% in France). The food market is a low value market compared to other European countries.
Many signs of customers may have shown that there is a will to diversify where their food comes from but there are not so many alternatives in the UK and only on a handful of products. In the last week general reports came flowing back with a decrease in buying and visits to supermarkets. This has been a European trend.
- People shop less often but tend to buy more to catter for the children at home and the unability to use coffees. The spurr of panic buying has ended
It was estimated that during the month of March every household spent £ 69,92 more on groceries. Over the course of a week people had overstocked £ 1 Billion in groceries. March 2020 was qualified as the biggest month ever for retail. – BBC Radio News 27th of March 2020.
Shortages continue to happen on staple produces and long life on which people have concentrated. This leads to an ongoing simplification of the number of products in major retailers to deal with the increased input. Basic eggs, flour, milk, pasta, frozen food or rice can still be a rarity at some stores but things improved.
A consequence of the increased tension in the supply chain has been the reduction in discounts in stores (i-e multibuys…). But as in other European countries buyers have kept focusing on quantity rather than quality with a disinterest for registered quality food (for example geographical appellation for welsh lamb or protected cheese). Retailers also had to deal with the orders they already made overseas months ago and that just got in.
Shoppers have tended to use more click and collect/drive thru/at home deliveries to reduce contacts. They also tried to relocalize (when possible given the might of supermarkets) their food buying in a way. Either by shopping locally but also by registering to alternative channels of food delivery. Though high value for everyone they remain a drop in the ocean but pay they share to the increased demand. Being able to secure lasting demand for their products will be one of the challenges for those alternative retailers – making worth going the extra mile.
This relocalize trend can also be seen with retailers proudly advertising their farmers and their products (i-e: Morrison’s Front of the SUN advert) though real change is yet to be witnessed.
- The fear of food shortage – something unprecedented since 1954 and the 2nd World War triggered a part of the population and of the industry to reflect on relocalization while craving for low cost food.
This at the same time when a food strategy is being designed in the UK.
- Sustainable Food Trust
- Which ? https://www.which.co.uk/news/2020/04/supermarkets-coronavirus-latest/
- IDELE – French Support organisation for livestock rearing farmers -http://idele.fr/reseaux-et-partenariats/covid-19-dossiers-speciaux.html
A very challenging farmer’s outlook
Sheep Farmers :
Though the drive to relocalization I can’t say things improved over 2 weeks for british farmers as a whole. They have been hard hit by the drive for low priced products in quantity.
The French outlook is way more alarmist than the AHDB one for last week and prospects. Lamb prices went down after peaking early in March but most importantly the number of lamb passing through abattoir has gone down. There was a 10 000 (or a 1/4th) head difference with 2019 first April week killings. This wouldn’t be worrying if export prospects were good. Pricewise the trends of 2020 are peculiar.
AHDB Market and Prices
Lamb is a relatively pricey meat compared to mince or frozen food. Retailers already had ordered NZ and AUS lambs for 2020 Easter season. Which meant that there has been a competition in store despite the calls for relocalization. The fact that there has been no discounts and an impossibility to hold family meals drove the demand down. If no reunions can be held it is unlikely that the summer drive for BBQ meat will be present.
More importantly the EU market so important to swallow ample and high value UK lambs is failing (while the AHDB claims the contrary). The IDELE (Fr) explain clearly that the French market is already failing for the same reasons as the UK one.
Prices are Down/Killings are Down/The retailers aren’t provided at 100%/The market is clogged - IDELE (FR)
The demand is not holding on. On other sheep consumer countries (Middle East) the confinement will also drive down demand for the Ramadan & Aïd. And we are not yet witnessing the consequences of their economic and monetary crisis (a lot of them are depending on export to get international currencies to import food à Oil, Manufactured good. Ex: Egyptia, Algeria or Lybia).
Given the slackening in killings it is likely that there will be a sizable stock of lambs by June and that might continue to expand. Farmers might be unable to sell on time and will have to keep more animals on their farm. The blow will be deadlier for early lambing farms (01-02) that tend to target the Easter market and which tend to be focused on expensive systems (either on lowlands or uplands)(i-e: crops, cake…).
It will be important to look at how the market holds in the future – particularly in summer and autumn time? Will there be an increased number of hoggets to be sold for fattening? Will the price be deflated all year long?
Also it is not only a question of demand but which demand and paid in which money for what quality.
Beef Markets (AHDB and IDELE)
Spring is a key time to scale the beef farm for the year to come and adapt it to the market.
On beef markets though minced meat as been much in favour of buyers it seems that the prices of culled cows (O cat.) are going down rapidly while others prices (EUR cat.) tend to hold better. The lack of fast food is pressuring the O type market. Prices have gone down everywhere in Europe in week 14 following this.
AHDB Market and Prices
British meat faced the competition of Polish meat in the market but for now the supply chain is still killing approximately the same number of animals and price hold steadily (with some variations).
Though due to the wider economic activity stopping leathers and wools are unable to find a market which will drive prices down (car industry, clothing and textile…).
The relocalization drive in many countries combined with the decrease in demand will certainly drive a huge lamb and beef stock. It is already the case in Poland which has been unable to get rid of its cattle. Food markets are not known for their elasticity of demand. We will later explore the options to cater with overcapacity.
The one with contracts won’t be affected immediately while those selling at the marts already experience challenging market conditions. If the fat beef market isn’t working the store market is going to collapse in the summer/autumn – and without any floor to it contrary to the meat markets. Every beef and sheep farm is already heavily reliant on subsidies a drop in income will be dramatic.
Milk - AHDB
Farmers are starting to drop milk down the drain particularly those with Müller (first noticed 4th of April) – there are some in Wales which is revelatory because Müller produces milk and fresh products for a smaller retailers (inc. Waitrose – relatively high-end). But it was not enough to outplay the loss from the hospitality industry. The drop to the wholesale and foodservice has been as high as 50-60%, whales farm depend on it at 50%. So far milk collection hasn’t been too problematic though it has taken its share into milk dumping.
Business Insider Milk Commodiy SPOT quotation over the course of a month (15th of March à 15th of April).
Staff shortages, slower production and reduced demand where the main factors cited
There has been some calls to reduce outputs from manufacturers. Not to coerce but cooper as contracted milk price have stayed relatively firm. There are reports of milk being thrown away in factories.
As a result a lot of pressure is applied on the SPOT market (i-e Free Market Milk commodity quotation) with a steep fall in prices (price being based on fat content thus meaning that cheese focused dairy producers are paid less – manufactured product SPOT from milk have gone down steeply in the last week butter, powder milk). This is likely to intensify in the coming weeks with dairy farmers being asked to cut productions.
The brilliant spring that we are witnessing is at last boosting grass growth (for now – see closing remark) with increased milk yield in all farms apart autumn calvers. For now the crisis deeply impacts spring calvers – they can cut on input cost (cake) but the loss will be heavy for this low cost low output systems – and high output all year round dairy farms. Spring is when the income flows in and they could be the first dairy producers to be endangered.
Secondly financially fragile dairy farms will be much endangered if the production is heavily cut down. For big units it could well be the difference between losses and profits. The survival of the dairy industry - when the UK has just achieved self-sufficiency for the first time in 40 years - will very much rely on the diligence of banks to lend money if things stay for long.
The first step for dairy farms will be to cut cost by reducing cake and cull some cows. But there will be a different baseline for every farm on how far they can go in ouput reduction. The production of a dairy herd is not changing overnight it takes time to adjust cow yield and once it is reduced it can be difficult to make it pick up again.
- The Farm production management will have to be managed carefully all along the crisis to be able to match the demand and the offer. Otherwise when coffee will open their will be another stretched market.
Vegetable Growers (Informarchés - AHDB)
Cauliflower - Very High Prices. Prices in Brittany cat.1 bulk buying - €/6 heads. Brittany’s Cauliflower market went up these last couple of days. The colder weather as well as the slight decline in output numbers drove this trend. The demand could go down as a result.
The price of Cauliflower (even if in France) reflects turmoils faced by a lot of vegetable and fruits on the markets right now from the farmer’s point of view: There is a slight increase in demand versus a scarcity of offer and lack of perspective in planting for the rest of the year. The main problem being the low numbers of workers available to collect crops from the fields.
On vegetables the lack of perspective can undermine planting if price are not buoyed (and the harvest secured) and this could lead to a scarcity in farms - most of these crops are planted for a year and harvested several times (max cost is workforce for each harvest) - or planted on short cycle but it means you can shorten it or lengthen it with a range of options (plastic cover, fertilizer...) depending on your soils and the market.
Farm worker in every European country are coming from different places which amounts to 100 of thousands of people most notably in France (East European), Netherlands (East European), Spain (Morocco)... Which are the main exporter to the UK of fruit and vegetable. The problem is also present in the UK with calls for a 2020 land army (by reference to the 2nd world war scheme recruiting townspeople to send them working in fields - inc. Children...). Yesterday the Guardian announced that Romanian workers would be flown in to harvest the crops, the response from the “to be land army” hasn’t been enough. The flights would be chartered by biggest growers companies.
One major obstacle felt is that there is a lack of clarity on a number of things there on whether one can spend time there and what would be the conditions most notably in term of salary and quarantine. Out of the basic salary transport (daily and long distance), the accommodation only leaves an amount of real salary. In France the French government offered to compensate local people to go and help in the fields.
One thing is also to have people farm fit, these are often back breaking tasks that require a lot of expertise in movement to avoid further health problems apart from the long lasting chores. The pay rate also reflects a high efficiency in tasks which can be only attained through experience.
- For horticulture the prospects are difficult with a market hard to negotiate that can fluctuate week on week. If farmers are unable to harvest their crops the output will be reduced all along the season.
In the UK veg’ boxes – local farm shops are often at a smaller scale with a more secure workforce. The supply will be continuous and the farm income is protected but it can only be extended to what is possible to handle in the company sustainably.
Likewise farmers offered contract by transformations or secured output by cooperatives will certainly ramp up their production as much as possible. Potato farmer are linked by their contract to the packing sector.
- For most agricultural produce the capacity to whether the storm between prices and demand rest on the nature of the contract anchoring them in the supply chain (meat, dairy, vegetables…). Those who are not are the one that could be the most at risk
- Volatility and uncertainty weighs heavy on the more input heavy businesses in terms of potential losses
Competition rules – flexibility has been given Buying powers and future policies: (AHDB Market Outlooks)
We are not yet witnessing the full impact of the economic crisis and it is difficult to see how the buying power of consumers is going to be impacted. Though there will be some impacts, usually during crisis consumers tend to focus on staple products (which will be a problem for veg boxes, fruits and vegetable as well as the quality meat market).
In every European countries some measures have been taken to help furloughed workers and the newly unemployed. Specifically Italy has created a 400 million € food stamp fund to help people get access to food through its main retailers. Spain is thinking on introducing an universal income.
But in the short term there are more pressing matter – Farmers and the transformation have been cut short of some outlets. When dealing with perishable products (short shelf life) such as produced by UK production it means that there have to be transformed into storable items. These facilities have a maximum capacity – representing a bottleneck -, the liquid milk processer have only a limited cash flow to sit on piles of milk powder, frozen meat or butter. At some point collections or killing could be halted even more and farmers will be hard pressed to deal with their own pile of milk/beef stock.
Finally when transforming a perishable produce into a long life product a lot of the product value tend to be lost, there is a lot more competition and relatively low demand.
Netherlands and France are pushing hard to allow EU subsidized private storage for milk products. Where will the UK stand? It won’t be included directly in the EU scheme as it isn’t part of the EU anymore. If USA and EU pledge to help food markets there might be some mixed consequences for the global market – timescale of impact.
The payment agencies in Europe have started the process for this year CAP, though it is marred by the lack of possible business meetings and postage problems. So far there hasn’t been any outcry onto how things will go ahead. Farmers will certainly need the BPS as a reassurance – a security – more than they did for some years.
https://www.nfuonline.com/news/coronavirus-updates-and-advice/
As a closing remark I would like to notice the Metoffice forecast with a dry weather for the rest of April and the beginning of May predicted. There is now the possibility that a drought is going to hit the UK in 2020 with farms overstocked or already stretched for money.
Sources:
- AHDB : https://ahdb.org.uk/prices-stats
- Farmer’s Guardian Online Edition
