April 14, 2020

Things may look vastly different when we finally emerge from the COVID-19 tunnel

By Mike Karst, Senior Partner  

We’ve suddenly found ourselves in a strange new reality.  

The novel coronavirus is permeating the world, and (what seemed like) overnight there was a fundamental shift in how we do life together. Many aspects of our daily routine came to a screeching halt, with the exception of those essential services that sustain us as a society.

Agriculture is one of those essential industries, providing the world with food to survive, but the markets it serves were turned inside out as restaurants and food services were forced to close their doors to the public. This caused a destructive reaction back up the ag value chain as supply and demand were thrown out of balance. This chain is resilient, but it isn’t one that can just turn on a dime.

The focus now in the ag industry is on responding to the harsh realities brought on by COVID-19…and creating contingency plans for those that haven’t hit yet. Companies are under months-long work from home orders and many of those are likely to be extended. Retailers and co-ops are operating under skeleton crews and keeping their doors locked and serving customers curbside. Food production facilities where employees work in close quarters are having COVID-19 outbreaks and being forced to shut down. Growers in the heartland are heading into a very unusual planting season, while produce growers have lost their biggest markets.

There’s a lot of uncertainty about how long this will go on. As things settle down and we emerge from the other end of the COVID-19 tunnel, our new normal may be markedly different than what normal looked like two months ago.

Changes to Food Markets

With so many restaurants operating on drastically reduced volume (or completely shuttered), and with people’s financial situations uncertain for the future, you bet agriculture will be feeling the effects for months and maybe even years down the road.

Economic prosperity is one of the major drivers that causes big changes in markets. Will the aftermath of this pandemic lead to reduced consumption of food services and restaurants? “Eating out” represents more than half of U.S. food dollars spent—the USDA reports we spent $678 billion at restaurants and just $627 billion at grocery stores in 2018. And that doesn’t include spending at sports and entertainment venues. We’re talking about hundreds of billions of dollars in losses over the next few months while everything remains on lockdown.

Many produce growers were forced to get creative in finding markets for their crops that had no place to go. Maybe some of these alternative markets will stick around in the post-pandemic world.

Changes to Industry Dynamics

We can confidently anticipate regulatory changes resulting from this pandemic, though the degree of those changes is hard to predict. There are also trade issues to think about. Will ag feel pressured to adopt the Made in the USA mentality and source domestically? Growers already have pricing pressure, so what will happen if sourcing ingredients and materials from around the globe is restricted? Or consider the fact that China was shut down for an entire month—a lot of the key components that go into U.S. agriculture products are made in China. Ag inputs are fully stocked for this year’s growing season, but will it disrupt next year’s supply?

Changes to Ag Businesses

Now that companies have gotten a taste for operating with a remote workforce, will they be apt to allow more working from home offices in the future? Some may discover they can operate effectively with a remote workforce and consider moving away from one central location where everyone works. This offers more flexibility and less risk than having everyone under one roof…and likely would be a beneficial selling point for recruiting new hires.

Ag companies also will need to take a hard look at their contingency plans as we emerge from this crisis … were they well-prepared for this disaster? What didn’t go well? Much will be learned during this time and many may need to rewrite or amend their previous crisis contingency plans. We’ve helped clients through strategic planning sessions using war gaming methodology, and that same approach could be applied to contingency planning and help you be prepared for anything. 

Changes to Grower Behavior

Growers undoubtedly will learn from this experience and many will make changes. Maybe they’ll dive deeper into digital technologies they tried for the first time during this unusual season. Will this strange year push some growers to retire, or will they stick it out because they don’t want to end their career on an anomaly of a year?

It’s still too early to tell how planting season will go, but it’s safe to say it will be different and there will be obstacles. After this tumultuous season, some growers may be more inclined to place orders early to ensure they have what they need, banking on the assumption they can return whatever they don’t need. A year from now, many may still be feeling the effects of significant price drops and lost markets and approach their operation more conservatively.

Another important factor to keep in mind is that many growers are in the most at-risk age group for getting severely ill from COVID-19. We need to keep them healthy, so some of the social distancing practices in place now may need to continue long-term to protect growers whose health is vulnerable.

Preparing for What’s Next

We are living through some strange new realities; but as we anticipate some of the lasting effects, we can use this time to prepare for the aftermath and what it will mean for U.S. agriculture.

Indeed, we have more questions than answers at this time. There’s no doubt about that. More will become clear as the months progress. The ag value chain can withstand most bumps it encounters, and we are optimistic that fine balance will be restored again.

What else would you add to the list?

Email us at info@entira.net or post a comment on our LinkedIn page. We’d love to hear what you’re experiencing and what you foresee in the months ahead.

I would personally welcome the chance to visit with you about what you’re experiencing and your outlook of our post-pandemic realities. Feel free to give me a call at 901.753.0470 or email mkarst@entira.net.

Read more about our perpsective on COVID-19 and agriculture

The ag value chain is dealing with harsh new realities and many more unknowns yet to come. In some ways we’re in a mode of “wait and see” because everything is changing so quickly, but there are certainly things all businesses should be doing now. We have more thoughts on these topics so read on for more!

Restabilizing Our Food Systems in the Wake of COVID-19
Supporting Growers from a Safe Social Distance

 

In the midst of this global health crisis, we are hunkered down and staying informed like you; but Entira is still open for business. The best we can do for each other and our country is to continue the business of supporting the farmers who feed our nation and the world.