Agricultural trade is shipping’s bright star

Agricultural trade has successfully sidestepped the sharp fall in overall merchandise trade in the first half of 2020, but can it continue to avoid the ripple effect of the Covid-19 pandemic?

A note from the World Trade Organisation finds that agricultural trade has fared better than other sectors, with initial measures focused on guaranteeing the immediate availability of food. Those measures brought in processes that both facilitated and restricted agriculture trade with new sanitary and phytosanitary (SPS) measures, tariff reductions, and export restrictions. A second phase of policies sought to mend broken supply chains and help producers to cope with the “new normal” situation. There has also been an increase in stockpiling, propping up agricultural trade as governments bought unsold produce.

“Agriculture has in fact shown resilience, with a trade performance that has fared better than other sectors,” said the WTO. It calculates that agricultural and food exports increased by 2.5% during the first quarter of the year compared with the same period in 2019, with further increases in April.

Figures from BIMCO reveal that combined agricultural export volumes from the US, Argentina and Brazil rose to 148.6 million tonnes in the first half of 2020, from 136.8 million tonnes in the first six months of 2019. The rise was fuelled by strong Brazilian soya bean exports which drove total agricultural exports out of Brazil up by 40% in the second quarter compared with the same period last year, said BIMCO’s chief shipping analyst Peter Sand.

“As the Covid-19 pandemic took hold, it was clear that seaborne exports of agriculture bulks were this year’s wild card, the one that could grow, whereas the rest of the commodities were bound to fall.

“As the main exporters in the western hemisphere were able to ship 22% more agricultural goods in Q2 this year than in the previous quarter, much of it long-haul, charterers ran down tonnage lists and drove up freight rates. If exports of soya beans and corn from the US are strong from the beginning of the new marketing year, we will get for a healthy support to the dry bulk market from 1 September,” Sand said.

Products and producers

The positive picture does, however, hide the variations in demand for different agricultural products. The WTO said that trade in non-food agricultural products such raw fur skins, wool or flowers dropped dramatically during the first quarter, while it increased for others, including for staple foods, processed fruits and vegetables. This reflected initial panic buying and increased home-based consumption. Further exports dropped for higher-value products in April 2020, including for fresh produce, dairy and meat, which, said the WTO, are generally more dependent on sales to restaurants, schools and the tourism sector than to households.

Demand impacts have also varied across regions with Asia’s agricultural exports dropping in March 2020, followed by Europe and North America in April. However, the WTO reports that some regions have seen exports increase compared with the same period in 2019, with the biggest increases in South America, driven by “Asian demand for the region’s exports of products such as soybeans, sugar and meat”. Here, Brazil accounted for around half of the continent’s agricultural exports.

WTO data for least developed countries reveal a bigger drop in exports than in other regions, with the exception of Ethiopia and Myanmar, which saw their exports increase.

On the flip side, imports of agricultural products increased for virtually all regions in the first quarter, compared with the same period in 2019. However, demand for imports in April contracted compared with the previous year in Europe, North America and South America and some least developed countries.

Dark clouds

There are clouds on the horizon for global agricultural trade. For one, the crisis has placed downward pressure on food prices, which has in turn hit producer revenues. Additionally, the WTO points out that while global food stocks and production levels for the staple agricultural crops of rice, wheat and maize are at or near all-time highs, rising unemployment and poverty has “increased the number of hungry people worldwide”.

The WTO warns that repercussions for food supply chains are still unfolding. “While agricultural trade has proven more resilient than trade in other goods owing to the essential nature of food products, additional disruptions to supply chains could start to undermine this resilience, with damaging consequences.

“There is currently no supply-related reason why the ongoing health crisis should turn into a food crisis,” it continued. “However, disruptions to food supply chains constitute a risk for global food security. Governments’ trade policy choices will play a major role in shaping how the situation evolves.”

According to the World Food Programme’s most recent estimates, 270 million people could be “acutely food-insecure” by the end of 2020, representing an 82% increase from before the pandemic. “Producing and storing enough food is not sufficient if it does not reach those in need. By contributing to the availability and affordability of food, trade remains a crucial part of the solution to countries’ food security concerns — particularly at a moment when people’s incomes are under pressure. It is therefore critical to keep trade flows open, and to ensure that food supply chains stay operational,” concluded the WTO.
Source: Baltic Exchange