COVID-19’s Layered Impact on the Food Supply Chain

COVID-19 is starting to rattle Mexico’s beverage industry. Heineken and Grupo Modelo have announced their intention to halt production. Food supply remains less affected as supply chains continue operating around the country. However, as the COVID-19 cases continue to rise, it is worth contemplating where we could see an impact regarding food accessibility.

The first impact comes from outbreak speculation and panic purchases, which has already manifested with eggs. With a spike in demand, prices doubled or even tripled in some areas of the country. However, eggs remain in ample supply, with PROFECO even recording a surplus. As the government assures the public there is no need for hoarding, and panic purchases recede, prices come down again. In the US, panic purchases has led to very temporary shortages at retail stores. As long as production, processing and delivery continue, this is just a minor hick-up.

The situation gets more critical as we move up the supply chain. In the US, livestock farmers are dealing with less access to slaughterhouses, as operations have been cut and people have been sent home. On March 31, the New York Times reported that some meat packaging facilities in the US were at three-fourths of their capacity. Similar issues are emerging in Mexico, with recent reports of dropping meat processing in Durango. Processing facilities are central to a great many foods, and as the government or private owners implement more restrictive measures, the necessary human capital can be inhibited significantly from doing their job. This leads to limited production capacity and lagged supply to retailers. The advantage for Mexico is that at least a segment of foods skip larger facility processing and go straight to a market where they are processed or sold in their original form. As long as the delivery middleman stays in action, food can reach the final consumer. Retail spaces and markets remain open even in countries with lockdowns.

As we go further up the supply chain, we reach the farmer. While farmland is more scarcely populated, not providing COVID-19 such an attractive breeding ground as urban centers, the impact of the virus can certainly halt operations. In Malaysia, the government recently halted all palm oil production in an area of the country where workers had tested positive for the virus. An extra critical element is that harvesting requires significant human capital and is time sensitive, meaning that there is window in which harvest has to happen. We recently witnessed the panic of California farmers, when new visas for seasonal workers from Mexico were restricted. The next harvest there will begin in just a few weeks.

The last concern is that international exchange of goods becomes inhibited. For good reason, food continues to be classified as an essential part of the economy, as in other parts of the world. Recently, the president assured, after talks with his US counterpart, that food exports and imports would remain in place. As food items are not considered to harbor the virus, they are free to cross the border.

The greatest threat to our supply is therefore restricted human capital.