For many people, the events and shutdowns resulting from the Covid-19 outbreak have
brought about harrowing times unlike anything they have known before. At the beginning of
the month, many were contemptuous regarding Covid-19. Shortly after Italy went on
lockdown on March 9 and Israel shocked the world by imposing a 14-day quarantine on
anyone arriving in their country, the tone changed.
These previously “extreme” measures are now commonplace around the globe, and many
borders, even in Europe, are shut altogether. The U.S. belatedly woke up to the threat,
imposing restrictions on social gatherings at varying degrees from state to state. Without
the opportunity for these measures to take effect yet, the progression of the virus has
continued to increase dramatically, causing panic, emptying store shelves and in some cases
turning neighbors against neighbors.
And the threat is real. The Imperial College in London estimates that without intervention
2.2 million people could die of this disease in the U.S. alone. I don't believe it is an
overstatement to say that this is the biggest disruption to the global economic, social and
political systems since World War II.
At the same time, for most of the world's population, the worst that will happen is that they
will suffer the equivalent of a mild or average flu. Some won't even know that they have it at
all. From a logistical standpoint, the biggest issue is a shortage of hospital beds and
breathing machines for the most severe cases.
The expected infection rate follows a gaussian distribution. Where it isn't “flattened”, the
number of severe cases will be more concentrated meaning that the limited resources
available to help treat them won't be available to all. By flattening the curve through social
distancing, those same resources can be used for several patients over a longer period of
time, limiting the human cost of this pandemic.
That said, even the most modern economies do not have the resources to deal with a
disease of this scale without drastic and early interventions. The U.S.’ belated response
ensures that there will be a human price to pay, the question is how high?
The measures that have so far been implemented have come at a bewildering economic
cost. Through the end of week 12, when this article was penned the S&P 500 has lost 32%
of its value and is expected to fall further. In China there are reports that retail sales are
down by 23%. Amid this chaos companies will go bankrupt, people will lose their jobs and
national debts will soar as countries launch a barrage of stimulus plans to save as much of
the economy as they can.
So in this overwhelming scenario, I turn back to our industry and offer my thoughts on what
insights market data can offer to help weather the storm, that for many is already upon us.
The first insight that I believe is helpful is that fresh produce is incredibly resilient to
downturns in the stock market.
Through the last stock market crash, when the S&P 500 lost 53% of its value from its
highpoint in August 2008 through the lowest point in March 2009. To draw a comparison
with China retail sales, according to US Census data, the US's retail sector in 2009 saw a
14% fall in sales from its high point in 2008.
Avocados, which for many consumers are not considered a food staple, saw an increased
volume from 2008 to 2009 by nearly 50m kilos, representing growth of 10%. Prices for the
fruit only decreased by $2.21 per case, a 7% difference on the previous year. This 3%
difference between the increase in volume and the decrease in price implies a modest
growth in demand, even through these adverse economic times
Blueberries saw an even more impressive year, with 2009 measuring the biggest rate of
growth in the categories history bringing in 29m kilos more to the market - 28% more fruit
than the previous year. During this time prices only fell by $0.61 or 7.3%.
The difference between the increase in volume and the decrease in price is 20%,
representing a massive surge in demand. Admittedly, this same rate of growth should not be
expected for blueberries today.
At the time, the category was going through a renaissance with Chile, adding some of the
first major volumes of counter-seasonal fruit, filling a void in the market left by the northern
hemisphere's production window. The juicing craze and blueberries’ label as a super fruit
probably didn't hurt either. These factors aside, the important takeaway is that the
underlying reasons for the category's growth continued relatively unaffected.
Some may argue that the last two commodities mentioned are an exception, the high-value
fruit survived because wealthy people purchase them and they even have money in the hard
times…
So I offer one last example, a much more established fruit that is available to all: table
grapes. In the last 20 years, the category’s growth in volume has been limited, especially
compared to avocados and blueberries. However, 2009 still saw growth, increasing by 54m
kilos, or 4.3%. Prices in 2009 fell by $0.12 or 6.3%, representing a 2% decrease in demand,
which could be accounted for by regular variance in the markets and a long cry from the near 53% loss in value that the S&P saw, or the 13% drop in retail sales
I am hopeful that this analysis calms some fears in a sea of trouble. This does not mean that
our industry is saved, it just speaks to its resilience and ability to weather massive shocks to
the economy that will send many other sectors of the industry under.
Unlike any previous economic downturn, however, this epidemic brings with it serious
supply-side issues that can still greatly impact the fresh produce supply chain. On March 18
the US Government stopped processing new H2A visas for Mexican guest workers, effectively cutting the labor supply of skilled guest workers from Mexico by 60%.
In Europe closed borders are making it harder for food to travel between countries,
restricting supply and affecting food security in the otherwise highly integrated trading
block. Imbalances in trade because of the virus are causing containers to stack up in China,
making them harder to come by in the west, with the spot price for freight jumping by 200%
and still expected to rise.
Considering that the presidential approval rating is going up, the president's recent
statements that social restrictions could last for three to six months might well be realistic.
So as we settle in for the long haul, it is safe to assume that some supply disruptions will
occur. Assuming stable demand as we saw with the previous stock market crash, this means
that prices will rise.
These are the economics of supply and demand, allowing prices to act as a pressure relief
valve for the available supply to satisfy consumer demand. This increase in price is the
lifeline that the industry needs to stay afloat through these uncertain times. It will help them
deal with unexpected costs, such as hiring local labor, higher than usual shipping costs and
help ensure food security for the country now and in the future.
Through the ‘Agronometrics In Charts’ series, we work to tell some of the stories that are
moving the industry. Feel free to take a look at the other articles by clicking here.
You can keep track of the markets daily through Agronometrics, a data visualization tool
built to help the industry make sense of the huge amounts of data that professionals need to
access to make informed decisions. If you found the information and the charts from this
article useful, feel free to visit us at www.agronometrics.com where you can easily access
these same graphs, or explore the other 20 fruits we currently track.