Countries start hoarding food as prices rise and Covid-19 worsens

Bloomberg October 14 | Updated on October 14, 2020 Published on October 14, 2020

‘Covid-19 has forced consumers to shift from just-in-time inventory management to a more conservative just-in-case approach’

Agricultural commodity buyers from Cairo to Islamabad have been on a shopping spree since the Covid-19 pandemic upended supply chains.

Jordan has built up record wheat reserves while Egypt, the world’s top buyer of the grain, took the unusual step of tapping international markets during its local harvest and has boosted purchases by more than 50 per cent since April. Taiwan said it will boost strategic food stockpiles and China has been buying to feed its growing hog herd.

The early purchases underscore how nations are trying to protect themselves on concerns the coronavirus will disrupt port operations and wreak havoc on global trade. The pandemic has already upset domestic farm-to-fork supply chains that provided just enough inventory to meet demand, with empty store shelves across the world leading consumers to change their shopping habits.

Covid-19 has forced consumers to shift from just-in-time inventory management to a more conservative approach which was labelled just-in-case, said Bank of America Corp. analysts led by Francsico Blanch, head of global commodities. The result is that consumers are holding more inventory as a precaution against future supply disruptions.

Also read: Retail inflation soars to 7.43% in Sept on costlier food items

A number of factors are adding to a rally in prices for corn, wheat and soybeans, including floods in China and the country’s increased purchases to meet commitments under its phase one trade deal with the US. But Beijing is also keen to heed the lessons of the pandemic and ensure its stockpiles are plentiful enough to withstand supply issues, people familiar with the situation said last month.

“Some countries decided to bring their food purchases forward to ensure supplies in case the coronavirus rattles supply chains,” said Abdolreza Abbassian, a senior economist at the UN’s Food and Agriculture Organisation. “Only a handful really sought to boost strategic reserves, such as Egypt and Pakistan, but they also had other reasons to do so, including access to foreign currency, the size of domestic supplies and the need to keep domestic prices in check.”

Bad harvests in Turkey and Morocco added to their need to boost imports.

Also read: Agri-Business virtual expo to start from Oct 15

“Many may buy now but could buy less into the new year because they won’t need it,” Abbassian said in a telephone interview from Rome, referring to early purchases. “I could see that happening, especially as winter wheat conditions are not that great and if you wait, prices could rise further.”

“Agricultural prices have been on the rise as countries stepped up purchases, adding to demand from China and a drought in the Black Sea region. That has helped push the Bloomberg Agriculture Subindex, which measures key farm goods futures contracts, up almost 20 per cent since June. Sugar prices have gained a boost as China replenished stockpiles,” said Geovane Consul, Chief Executive Officer of a Brazilian sugar and ethanol joint venture between US agribusiness giant Bunge Ltd. and British oil major BP Plc.

And China could still add more fuel to the fire next year. The biggest importer of everything from crude oil to iron ore and soybeans, is planning to increase its mammoth state reserves as part of its five-year plan.

China would certainly support commodities prices if it made such extensive purchases, Commerzbank AG Analyst Daniel Briesemann said in a research note.

The extra purchases have been welcomed by producers, who had seen demand for goods from corn to sugar slip as the pandemic shut transportation, cutting demand for ethanol made from crops, and slowed industries. Buying by China already means grain and oilseed exporters in the US are making the most money in years shipping from American ports.

Food conglomerate Archer-Daniels-Midland Co’s global trade desk in Switzerland delivered its best second quarter ever as countries looked to secure food supplies due to the coronavirus.

“A lot of countries around the world, in terms of food supplies, have moved from effectively a just-in-time philosophy of buying food to a just-in-case philosophy,” Ray Young, ADM’s Chief Financial Officer, said at a virtual conference in September. “They wanted to build up a little bit of reserves in their country, not knowing how the supply chains will react through the Covid-19 environment.”

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Published on October 14, 2020
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