Agriculture and COVID-19: ‘Wineries fear a recession’
The latest instalment from IHS Markit’s new series examining COVID-19’s impact on agri-food supply chainsThis article is powered by Agra Europe
The coronavirus pandemic has caused trade restrictions across Europe and it looks set to cause market disruptions for months to come. To explore what this financial fallout could mean for agri-food supply chains, IHS Markit is talking to farmers navigating these unchartered waters – next up is Samuel Masse, a winegrower in Hérault, France.
Samuel Masse has 20 hectares of organic vineyards where he grows 11 different varieties of white, red and rosé grapes. The coronavirus pandemic presents both immediate and long-term risks to his production, but it is the latter that Samuel thinks will have the most severe impact.
“One of my biggest concerns is a recession,” he said. “Wine would be one of the first products people won’t consume.”
The International Monetary Fund (IMF) expects the coronavirus pandemic to cause a severe recession this year – one that may hit the economy worse than the financial crisis did a decade ago.
Samuel believes a recession of any size would put winegrowers in a particularly precarious position because they sell a luxury good, which some consumers may no longer be able to afford.
The lockdowns imposed across Europe also pose an immediate challenge for winegrowers because it limits their ability to prepare for an economic downturn.
“Wine is not the main product that people think to consume in this situation,” Samuel said, adding that this slump in demand could see a drop in the price at which he can sell his grapes – reducing the cash flow for his operation.
“We‘re planning to do our calendar for the [organic plant protection] treatment agenda but there are some products that we cannot buy because I'm not sure what price we’ll get for our wine,” he said, adding that some pesticide companies are also reducing their operations because their employees are working less.
Unemployment is the final piece in this possible economic storm. The United Nations think that over 24 million jobs could be lost if governments fail to take the right actions soon. Samuel fears this poses a risk for the wine sector because less immediate disposable income in the economy could exasperate other factors, driving a drop in consumption and the price of wine.
All these risks arrive at a crucial period for European vineyards – they are just about to bloom and it is a time when agricultural inputs and extra labour are sometimes needed to ensure a financially viable harvest later in the year.
“Nature is not stopping,” Samuel said. “If a link in the chain stops, that affects our ability to continue.”
Samuel is also a vice-president of the European Council of Young Farmers (CEJA), responsible for the agricultural association in southern EU countries. His members are telling him that the coronavirus pandemic has affected the processing side of different agri-food supply chains because some labourers have stopped working.
Despite this disruption, Samuel believes there are enough stocks of products like butter, wheat and meat to prevent any food shortages over the next few months – but, after that, it is a bit more uncertain. Samuel said there are some southern European farmers unable to get their produce collected by food companies, particularly in the dairy sector.
To prevent farms from going bankrupt, Samuel would like to see food producers get better access to finance from national banks, highlighting the cost of livestock feed when there is a reduced capacity to process and sell animal products.
“It's still just the beginning so it's very hard to know what will happen,” Samuel added.
The European Commission responded to the hardship caused by the Covid-19 pandemic by giving EU farmers more time to apply for their Common Agricultural Policy (CAP) payments. Samuel said this was an important decision to support farmers getting payments during the outbreak, but he feels there is still a need for a clearer European food vision to deal with the pandemic.
“We should be more organised because it's a little bit messy between all the countries,” Samuel said, adding that the bloc needs a stronger procedure to ensure the agriculture sector can provide food to European citizens across the bloc.
He mentioned that French manufacturers of pasta are having to increase production because there is less supply coming from Italy, a result of the coronavirus hitting trade between the two countries.
The Commission has also introduced some measures to ensure the flow of ‘essential goods’ across the bloc, but there has been some confusion on what exactly this means for the agri-food sector – with some EU policymakers calling for more specific support for farmers and their sector.
“At a European level we need to make sure food can pass borders – not one country can produce everything,” Samuel said.