The impact of Covid-19 on the food industry
This is the safefood podcast.
Linda: Hi, I'm Dr. Linda Gordon, safefood ’s chief specialist in food science. And this is the safefood food safety for SMEs podcast series, where we look at the factors that shape the food industry on the island of Ireland.
This episode looks at the potential impact of COVID-19 on the food chain and we chat to Jim Power. Jim is chief economist for Aviva Ireland and runs his own economic and financial consultancy. He writes a weekly column in the Irish Examiner and is chairman of Love Irish Food. Jim is also the author of the Society of the Irish Motor Industry Motor Industry Review and the Aviva Ireland economic outlook. As such, he's well equipped to talk about how COVID-19 could impact on our industry.
Jim, you're very welcome. Thanks for joining us today.
Jim: You're very welcome, Linda. My pleasure.
Linda: Thank you. Jim, can you briefly summarize for us what impact the coronavirus outbreak has had so far on the economies north and south of the island of Ireland, with particularly, I suppose, thinking about the agrifood chain?
Jim: Okay, I suppose, if you start at a global level, because Northern Ireland and the south of Ireland are both economies that are very, very heavily open to international forces and the global economic impact from COVID-19 since early March has been absolutely dramatic. And the OECD this week described it as a sort of a health event without precedent, and I suppose more tellingly they spoke about the grave uncertainty about the global economic outlook over the coming months. And obviously the big fear there is that we get a second wave of COVID-19 later in the year. And indeed, there are things to be concerned about in that regard. At the moment 21 states in the United States are reporting a significant upsurge in cases. And we've seen the last few days, parts of North Rhine-Westphalia in Germany being locked down, a community in northern Greece has been locked down.
So the risks there are very, very real, but the global economic impact has been very, very severe. Not surprisingly, when large swathes of the global economy shut down.
In terms of the impact on the island of Ireland, very similar, really, to what has happened globally. We've seen the unprecedented situation where large swathes of our economies have been shut down. Obviously, what were deemed a non-essential, higher risk areas of both economies were shut down, the accommodation, the food service sector, pubs, restaurants, hotels, shut down. Many non-grocery retail outlets shut down. All social and leisure activities shut down. So the economic impact has been absolutely dramatic, there is no doubt about that. And where it goes from here is still a source of grave uncertainty, obviously.
Linda: In terms of the food chain here on the island of Ireland, what kind of disruption have we seen to kind of the production and processing, in terms of the impact of the service sector being shut down? How has that impacted on other parts of the food chain?
Jim: Well, I suppose if we go back to early March when, and particularly after United Nations and the World Health Organization declared as a global pandemic, we started to see a lot of panic buying of food products. And we saw a lot of stockpiling by consumers on both parts of the island. We saw large queues in supermarkets and so on early in the process, and there was a basic fear that the food supply chain would actually break down.
And I think I certainly sensed that a lot of people were looking back on the last significant snow event we had, certainly, in the south of Ireland, when the milk trucks were failing to deliver milk to the shops and there was a shortage of milk, there was a shortage of bread, for example. A lot of people thought that that was sort of a demonstration of what could happen with COVID-19.
But of course, what happened to the supply chain back then was that quite simply, because of the weather, you couldn't transport the food to the retailers. Whereas this time round, fears have been totally unfounded, I mean, the food supply chain has held up very, very well. By and large, both domestically produced product and a lot of stuff that we import from outside the country, and the supply chain has held up very, very well. And I think that that is certainly reassuring.
I suppose, for the food industry itself there is an inclination to think that when we've seen a surge in grocery shopping over the last three or four months, and a lot of food being bought and supermarkets’ sales of food are up very, very significantly. And there is, I suppose the temptation to think, at that stage, that this is great for the food industry, it’s focused strong demand back on the industry.
But of course, that's only one part of the picture, because for the full production sector, obviously food services businesses incredibly important. So when you see pubs, hotels, restaurants and canteens, employers in factories and in offices around the country being shut down, well then that is basically cutting off a major part of the business of the food supply sector. And so it's been challenging, there's no doubt about that.
And we see at the farm gate level, your prices of cattle, price of pigs, et cetera have been under pressure. So on the food supply chain, it definitely has been challenging and it's been an economically difficult environment. But I do think a couple of things should be borne in mind.
Number one, the food supply chain held up very, very well. And number two, and this is one I hope for the future, that I think more of our consumers will start to realise the benefits of having a safe, secure supply of domestically-produced food, because one thing that COVID-19 has certainly highlighted, and it would be your area of expertise rather than mine, but one thing it certainly has highlighted, the food hygiene standards in countries like China, the markets where we got the first outbreak. And indeed, there's another outbreak coming out of a food market in Beijing at the moment.
So I think people should realise that we are really lucky to live on an island where we produce a lot of food, where we are basically self sufficient. And I think we really should appreciate that, and I would hope at the end of all of this, and I repeat myself here, but I really hope that people start to realise again, just how important it is to have high-quality, safe, secure supply of domestically-produced food from a health perspective, from a social perspective, from an economic perspective, and I think that's very, very important.
Linda: Okay, great. Thanks, Jim. And yeah, I think everybody has seen an increase in people looking at markets and things like that once the farmer's markets opened up again and people looking to supply food, even people who supply to restaurants, I think, have seen that there's a demand, there has been a demand locally from consumers for their products.
So do you expect that that will continue once things have kind of gone back to some kind of normality?
Jim: I would hope so. But I think it would be naive to believe that there's going to be a marked change, but I think the behaviour of many people will have been changed by this. And I have always argued that, one of the big problems with food production everywhere it's not just an Irish phenomenon, but on the island of Ireland one of the big problems is that people basically want cheap food.
And over the last 20 years, at least we've seen significant food price deflation. And, in fact, it goes further back than two decades, it goes back a long way. And I mean, I am not a scientist, I'm certainly not a food scientist, but it strikes me that if the producers of food are not being paid an adequate price, well then that does pose a risk to the way in which the food is produced. And I suppose, and you may contradict me here but I have always believed that BSE was a direct result of cheap food policy in the UK, where farmers were forced to take sharp cuts in terms of how they reared their cattle and livestock.
So there's a few things I would like to see happening at the end of all of this, as I say an appreciation of the health and economic importance of having a secure, safe supply of food.
Secondly, I would like to see a realisation from people that if they want high-quality food, they are going to have to pay a higher price first. Because you just cannot squeeze and squeeze the primary producer of food and still hope to maintain the same level of quality.
So, I would like to think my Utopia would be where people are much more focused on our domestic food supply. And secondly, people realise that if you want a quality food product, you're going to have to pay an adequate price first. But maybe I'm being totally naive in that regards because I'm not sure COVID-19 will roll back sort of three decades of consumer behaviour.
Linda: Just looking again, we've talked a little bit about the shutdown I suppose, of the service sector to a large extent. Has this been a total collapse of that hospitality sector? And what are your predictions, I suppose, as we're looking at cafes and restaurants and hotels reopening, how do you think the service sector and the hospitality sector are going to perform for the rest of the year?
Jim: Okay, I mean, initially it was totally calamitous because most restaurants and pubs shut down, end of story. But gradually, as the crisis evolved, many of the pubs and particularly the restaurants started doing takeaway food. And in fact the demand for that has been incredibly strong. And I've spoken to some food service providers who say, actually, that their turnover for the month of May, won't be that much down on this time last year, despite the fact that they weren't able to bring people onto the premises to eat.
So there has been a massive surge in takeaway and I think that kind of feeds into the fact that people like eating out, it represents a change from the norm. If you cook your own food for six days a week, going out one night a week, at least, it really is a treat. And, personally, we have found over the last three months that we look forward to Friday evening now when we get some type of take home food from wherever.
So fundamentally, as soon as people feel confident and safe to do so they will return to those food service businesses very, very quickly.
Okay, and I've spoken to a few restaurateurs here around the country in the last couple of days, who say that the bookings for July are very, very strong at this stage. But for those food service businesses, obviously, their business environment is going to be very, very different whether it's two meter or one meter, and we're certainly moving towards the acceptance of one meter at this stage. But whether it's one or two it is going to restrict the number of people who can come into a premises to eat or drink. So that's certainly one thing.
The second point, of course, is that the logistics you have to put in place to deal with that, the safety protocols, the menus, all of this basic stuff. It's just going to complicate doing business, it's going to make it more expensive, it is going to require higher costs. So I would have an expectation that you will see a bit of inflation coming through on the food service side, in order to try and maintain what are already pretty tight margins.
So in a nutshell, I think for the next 12, 18 months, at least, the operating environment for those businesses will be very, very different. And they certainly will not be normal but I think they would be delighted at the fact that, at least there is now a roadmap, they are opening up again, albeit with these restrictions.
And there's a lot of debate going on down here at the moment about the pubs, for example, that the health authorities wanted to allow people on the premises for an hour and a half and have a meal costing at least nine euro. Failte Ireland and the pubs themselves wanted two hours. They appear to have compromised at one hour, 45. So I just kind of asked myself, what is all of this about, is it scientifically based?
As a nonscientific person, I get the distinct impression that basically, the health authorities do not want to open pubs because they regard them as high-risk locations. So, as a consequence, they're now sort of making it as difficult and challenging as possible for those businesses to operate.
And it highlights one of the real challenges in all of this, 'cause at one side, you have the health of a nation. At the other side, you have the health of the economy, and trying to achieve a balance between both of those objectives is incredibly difficult and challenging. There is no doubt about that.
I mean, the health authorities, I think, would love to see everything locked down for another six months to really crush the curve. Whereas, obviously, that would destroy the economy.
And if you don't have a functioning... And it would do long term damage, many pubs, restaurants, hotels would never again open up if the lockdown had continued much further. And, of course, without an economy, then you are not going to be able to generate the resources to fund the health service and to fund the rest of society.
So it's a very, very delicate balancing act and I am very loath to criticize, I'm very loath also to tolerate the criticism of the authorities, because there are no easy choices here. It's a very, very difficult balancing act.
Linda: Absolutely, absolutely. It is a balancing act. Yes, and we will see how that evolves, I suppose, over the next few months.
Looking again, we talked earlier on about the food supply chain and how well they held up, particularly around the retail sector at the early point where there was significantly increased demand. But are there any concerns around food supply chains, looking at raw materials coming from abroad over the, kind of, medium to longer term? The kind of measures that people have to put into place to deal with this pandemic and as it hits different parts of the world at different times. Are there concerns that some raw material and supplies might be affected?
Jim: Yeah, there definitely is that case. If you bring your mind back to early March, I think it was that we saw pictures coming from the Polish-German border where there was long queues of trucks trying to get over the border. And that kind of sent a very, very chilling message at that stage, that the whole EU, based on open borders, was starting to be locked down. And the EU has intervened to make sure borders remain open and they continue to aggressively work in that regard.
So COVID-19 definitely, and the way in which the pandemic has evolved around the world, it does pose a threat. But I think there's probably a more fundamental threat in what you say, and that is that prior to COVID-19, the narrative in many parts of the world over the last three or four years has been one going from greater integration to greater fragmentation.
We saw the growth of nationalism. We saw Donald Trump in the United States trying to renegotiate all of the free trade deals that the United States had been involved in. We saw, closer to home, Brexit, which really was another step away from free trade between the EU and the United Kingdom. And we saw the rise of nationalism in countries like Hungary, Poland, Austria, et cetera.
So, there is definitely this growth of political and economic nationalism out there. There's a strong undercurrent at the moment. And the fear, of course, would be that COVID-19 will act as another excuse to tighten borders, to try and impede the free movement of people, services and goods. And that inevitably could cause some problems for the supply chain.
I think the opportunity that that presents, not in all cases, but a potential opportunity here would be to try to substitute - import substitution. If we believe there are threats to the supply of food or some food products, we look at can we actually produce it here ourselves. So maybe you will gt the growth of import substitution.
And, indeed, Brexit probably has focused a lot of attention on that potential as well over the last couple of years. So it's definitely a threat and I think it'd be naive to believe it's not a threat. And COVID-19 actually could exacerbate what was already an underlying threat in my view.
Linda: Do you think there's any kind of, I suppose you've talked about restructuring a little bit in terms of looking at maybe finding import substitutions. Do you think there are any other changes within the food supply chain that we need, that businesses need to start looking at?
Jim: Well, I think that there's a few things they need to start looking at. One is the supply of raw materials. I think they need to be very strategic about it. Where the raw materials coming from? Are there potential threats to those supplies? And if in some cases import substitution is not possible, because there's certain stuff we cannot produce because of climatic reasons, and so on. But they need to look at, are there other alternative safer sources of supply?
So I think people and this I think, businesses have been doing this in the context of Brexit anyway over the last couple of years. And I think COVID-19 has just exacerbated this trend. Businesses need to be looking much more closely at their supply chain to make sure they are not vulnerable to a breakdown in that supply chain.
So alternative source of supplies, multiple sources of supplies, stuff like that needs to be looked at. As I say, second thing is, is it possible to produce domestically stuff we're importing at the moment? And the answer to that in many cases will be yes, the answer in many cases will also be no, but people need to be focused on that.
So I think COVID-19 will really, really … should focus businesses on the supply chain number one, and number two, the consumer demand that's out there at the moment for the product they produce.
So going back to the beginning of our interview, Linda when I was talking about my hope that this would really focus people's attention back on domestically produced food again, I think food producers need to stand up and drive that trend more aggressively to get out there and let the consumers know we produce this stuff. It is high quality, you need to support us.
There's a big sort of a promotional and marketing thing I think, that needs to be done as well. Because I'd be biased, I know, but I do believe that the food we produce on the island of Ireland is absolutely top quality. And it's produced to the highest safety standards, the highest environmental standards mostly so. We have a good product, we just need to get out there and it market more aggressively.
And then I also think for the food producers on the export side of the equation, they definitely need to look at alternative markets, 'cause there are massive opportunities here as well. And climate change will I think, drive a lot of those opportunities. So I think food businesses really, really do need to get a much stronger strategic perspective on what's going on.
And the problem, of course is that many food producers are small and medium-sized businesses, so they're really good at producing what they produce, but they're a lot less good at marketing as in finding new markets, financial management, et cetera.
And I did a report a couple of weeks ago, arguing that in the south of Ireland, that the new program for governments should have a really strong focus on supporting the SME sector and I was suggesting that a state agency should be set up specifically for the SME sector.
The IDA does a very good job in attracting foreign direct investment. Likewise the UK, attract investment into Northern Ireland, very important. Enterprise Ireland, its role is to sort of build the export capacity of small businesses, but there's no agency that specifically looks after the SME sector. And I think that would really enhance the challenge that those SME food producers will face over the coming years, 'cause as well as those threats, there are massive, massive opportunities out there, but they really do need help to, well number one, to identify, number two, to exploit those opportunities.
Linda: Yeah, lots to think about there, particularly for the SME sector I think to deal with the challenges and as you say, make the most of the opportunities. So, you mentioned that we might expect to see some inflation maybe in the hospitality sector over the next year, I suppose. But what would your prediction be for both employment and food prices generally within the food sector over the next year or so?
Jim: Just as I made that comment about the possibility that food service businesses would increase their prices a little bit to try and protect margins, and to cover the extra costs involved in the various health and safety protocols that they will have to implement for the foreseeable future.
But then on being a two-handed economist here, on the other hand, one of the things that the food service businesses would be missing almost totally this year and I think to a significant extent, next year will be international visitors. I know last year in the south, there was 10.8 million overseas visitors into the country, which was a record high. And up to the end of February, the growth rates in place and evidence at the end of February, were suggesting that 2020 was going to be another record year for inwards tourism. That's a really important market for food producers at all levels here, that's obviously going to be gone this year. We'll probably be very slow to recover next year.
So that's a part of their business that would be really, really difficult. So maybe many of those food businesses will find it more difficult to pass on higher prices in a more limited marketplace. And that is a challenge as well because they undoubtedly, many food service businesses operate on very tight margins, there's no doubt about that. And those margins will be tight and farther and pressurised because of the various restrictions that will be in place for the foreseeable future. So I would like to see a little bit of inflation coming through the system. I think it would be good for the sustainability of the system longer term.
But as we know, we live in a world where there's a lot of deflationary pressures at play, and food price inflation everywhere has been on the floor for many years at this stage. So it'll be a difficult balancing act.
So what I would like to see over the next 12 months would be perhaps two, three percent inflation.
Linda: Just to sum up, Jim, in your view, looking beyond COVID-19 what do food businesses really need to be thinking about over the next 12 to 18 months.
Jim: I think over the last two or three years, my life and indeed the life of anybody in business, I think has been dominated by the spectre of Brexit, okay? And of course, once COVID-19 hit, Brexit went off the agenda for a while, but Brexit is now very much on the agenda. And it's still very difficult to see how the process will evolve.
But I definitely think that businesses need to now get their focus away from COVID-19. And I think this is happening, they're starting to refocus again, on Brexit which is an existential challenge and threat to their industry. There's no doubt about that.
So get back thinking about Brexit because the 31st of December this year, will be potentially another momentous date in the calendar of businesses. Okay, and for Northern Ireland business, doing business with the EU, and for Ireland doing business with the United Kingdom it could fundamentally change come the 1st January next year. So they need to start focusing in on that.
And I think something else they need to start thinking about. I mentioned it, but I think it's important, and this is this growing threat of protectionism, this whole anti-globalization trend has been building in recent years. Your business needs to start thinking about how might that impact on my ability to sell product in certain countries?
Because there's no doubt about it. Donald Trump would like to see a much much stricter trade regime between the United States and the European Union. And already, earlier this year we saw tariffs go on a number of food products that are being imported into the United States. So this whole spectre of global trade war has not gone away. There's no doubt about that. So businesses need to be focused on that as well.
And that's why it is absolutely essential that they get as much market diversification as possible. Because the most dangerous thing for any business is to be totally concentrated on one market. And if that market deteriorates for some reason, well then you are in serious trouble. So diversification really, really important.
Linda: Thanks a million for that, Jim. That was great. Thanks to you, our listeners for tuning in. And please get in touch, send your questions or thoughts to email@example.com.
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Until the next time, goodbye and take care.
You're listening to the safefood podcast. That was Dr. Linda Gordon, Chief specialist in food science with safefood. Talking to economist Jim power on the impact of COVID-19 on the food chain.
This is a special series on food safety for small and medium enterprises on the island of Ireland.
Due to the restrictions of COVID-19 this podcast was recorded on Zoom.