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How will Covid-19 impact the US organic food sector? Mercaris weighs in

April 16, 2020

Americans are buying an increasing number of organic products with sales climbing 6.3% to $2.5 billion during 2018, according to the Organic Trade Association. As Covid-19 continues to spread, however, consumer purchasing patterns and, more importantly, priorities are changing; some farmers are seeing an uptick in demand for certain products, while others are having to dump their agricultural outputs due to a glut of demand.

This is leading to substantial uncertainty for food producers, including everyone along the supply chain from farmer to supermarket.

We took a quick look at the impact on a few key food & ag commodities here.

Mercaris, a market data service and online trading platform for organic, non-GMO and certified agricultural commodities, yesterday released a report seeking to answer how Covid-19 will impact the organic sector. It outlines the most significant risks for the sector and Mercaris hosted a webinar to highlight the key takeaways.

“The global spread of Covid-19 has generated a multitude of risks for organic commodity markets,” Ryan Koory, director of economics for Mercaris said. “With the potential to impact trade, labor, consumer demand, and the greater global economy, its ripple effects will likely be widespread and long-lasting. Taking stock of these risks is crucial as we look to understand the market in the year to come and navigate this unprecedented event.”

At a time when many consumers are taking a closer look at their health and thinking about how they want to feed themselves and their families through the pandemic, organic products may have more appeal, Koory indicated. The fact that consumers may be consuming as many as three meals a day at home creates new opportunities for organic products to find their way into these consumers’ baskets. Food-at-home consumption could increase as much as 50% as a result of the pandemic, according to him, adding billions to grocery store sales. Prior to the pandemic, food-at-home consumption was on a steady decline.

A recent report by the Organic Produce Network and Category Partners, organic produce sales were up 22% for the month of March, compared to just 1.8% in January and February, outpacing the growth in sales of conventionally-grown produce.

But the organic market is not without risks; if consumer incomes decline, layoffs persist and the world goes into a long-term recession, consumers may have less income to spend on premium products and have to choose the conventional counterparts to the organic produce they typically purchase to cut costs.

Current purchasing patterns indicate strong consumer interest in organics. A whopping 84% of Americans report buying organic food sometimes while 45% buy them regularly. The three main reasons that consumers purchase organic foods is to avoid pesticides, to avoid GMOs, and due to a belief that organic products are more nutritious, according to a survey by Natural Grocers.

As far as production, Mercaris concluded that producers of organic grains and other food products are largely insulated from immediate down pressures in the pandemic as most crops have already been planted. Farmers have also largely already acquired the inputs they need to facilitate the 2019/2020 growing season.

Where producers may run into problems, however, is through the closure of livestock processing facilities. Fewer facilities open to livestock processing may reduce demand for organic feed grains as well as creating shortages in the supermarket where most organic meat products are sold. 

To paint a picture of why livestock processing facility closures have a more disruptive impact on the organic sector, the report notes how much organic grain demand comes from the livestock sector compared to other ag sectors. 

“According to USDA PSD data, conventional livestock feed corn use ranged between 36% and 38% of U.S. supplies from 2016/17 to 2018/19, while organic livestock feed corn use range between 51% and 62% of U.S. supplies. For soybeans, the discrepancy is more significant. Between 2016/17 and 2018/19 conventional livestock feed soybean use ranged between 20% and 21% of U.S. supplies. In comparison, organic livestock feed soybean use ranged from 77% to 86% of U.S. organic soybean supply, or nearly 60% more on average than the conventional market,” reads the report.

Organic grain elevators, mills, and oilseed crushing facilities may also slow down as operators limit on-site activity and labor to mitigate the spread of the virus.

Because organic food products are a global commodity, Mercaris also evaluated the pandemic’s impact on organic trade worldwide. US organic commodity imports could be reshaped by port closure and global currency fluctuations through the 2020/21 marketing year, according to Mercaris. Because the pandemic is unprecedented, however, Mercaris was unable to make certain predictions about how some of the largest organic commodity producers may be impacted. He also noted that the recent rise in the strength of the US dollar has led to the reduced price of imported goods.

“Covid-19 is a social, political and economic event without a modern parallel,” Koory said. “Monitoring risks, long-term sustainability planning, and understanding just how much uncertainty remains, are all crucial for navigating the year to come.”

Looking into the future, Covid-19 will likely impact the organic market into 2021 and beyond. Intermittent disruptions in organic livestock production will persist intermittently but without significant market disruptions, according to the report. Imports may remain elevated as the US dollar remains high but potential long-term port closures could stem the ability of organic products to flow into the US.

The largest long-term disrupter to the organic sector is the potential for lasting economic depression through reduced income and a likely recession. This could be offset, however, by some consumers’ transitioning to purchasing more organic products either for health reasons or because they are eating at home.

The report also notes that there are some dangers in comparing the impending recession to the 2008 recession. The first notable discrepancy is that the 2008 recession resulted from global macroeconomic factors while the current recession is due to a health pandemic and related stay-at-home orders. Secondly, the immediate magnitude of the current recession is unparalleled leaving experts with few benchmarks for an adequate comparison. If stay-at-home orders are lifted quickly, then the economic impact may be minor. If they are prolonged, however, then the 2008 recession provides a helpful model for playing out the coming months.

“Influencers that interface with consumers have the challenge and opportunity to understand shifting preferences, and clearly communicate the value or organic food & agriculture to those consumers,” says the report. “The entire organic supply chain, from farmer to retailer, will have the considerable task of ensuring that business models, social and environmental goals align with those emerging consumer realities.”

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