Expert opinions, INVESTMENT CLIMATE

How the coronavirus provokes food price hikes

There are differing opinions on how events will develop. Some believe COVID-19 can significantly reduce the population on the planet; others sound skeptical of this and attribute these projections to panic; still others are sure that the disease is truly dangerous, but with the current containment measures, it will be taken under control. As for the real picture, I do not think we will be able to embrace it for another few months, until the panic subsides. Perhaps this virus is deliberately overhyped by pharmaceutical companies or other interested parties who profit on the panic. Whatever the truth, this process cannot be stopped.

This attitude developed right from the start of the coronavirus outbreak in China. The whole world riveted on Wuhan, we all generally assumed: if China, the world’s second largest economy, is giving such an unprecedented response that we observe things should be really serious.

In agriculture, the worst effect of the novel coronavirus outbreak is perhaps the high degree of uncertainty it brings into the picture. Whereas yesterday, we knew which way we were moving and what our vector of development was for the coming months and years, today we are not sure of anything. In the past two weeks, agribusinesses had to change their plans literally several times a day.

We are closely cooperating with American experts on dairy farming matters. But agricultural companies began to cancel their experts’ foreign trips long before the borders were officially locked. We have been working with our foreign experts and technologists remotely for several weeks now.

In late March, we were expecting a big delegation from the United States to discuss expansion of the existing farms and construction of new ones. The other day, we finally cancelled their visit.

In everything that concerns cheese production, we are relying on our European consultants’ experience. We were expecting production technology consultants from Italy, France and the Netherlands with whom we are working on new types of cheese. All these visits had to be cancelled and nobody knows when we will be able to resume this work.

As a result, we are postponing launches of new product lines. In our case, a production cycle – especially if we are talking about hard cheeses – often takes years. Some cheeses need at least one year to mature. For example, the launch of a new type of hard cheese that we planned in 2021 will now happen in 2022 at best. Of course, it will affect our sales and profit – and, as a result, we will be underfunded for further development.

Staffing is one of the biggest problems for our industry today. It is not that difficult to send office workers to work from home, give them computers and distribute tasks. Perhaps it will be slightly less efficient than working in the office but processes will not stop. Car manufacturers, timber processors, mining companies could also handle a temporary shutdown – they will lose a small part of production but will survive.  

As for cows, they need feeding and milking every day, which cannot be done without people. We feed and milk cows three times a day, inseminate female cows daily and take care of their calves. Yes, there is special equipment but it needs to be managed by people. If we stop working cattle can simply die. If we skip even one milking, we will not only suffer production losses, but also harm the health of the animals and their ability to produce milk for a long time. It takes at least three weeks for the milk yield to recover after just one disruption.

There is another side to this coin. We produce milk and cheese; they are very sensitive products that require high sanitary standards. At our production facility, it is not allowed to sneeze and work while having a fever or any other symptoms of diseases that could affect the product. All employees undergo a medical check-up before their shifts, almost like pilots before flights. Each of the shops is equipped with hand sanitizers, and we have very strict requirements to the shoes and clothes, they must be perfectly clean.

We have an old rule: after you sneezed or coughed, you must not approach neither milking machines nor the cheese production line. Of course, we have recently toughened requirements even more. But if we stop allowing personnel to the facility, who will work then? I honestly don’t know. And this uncertainty grows every day. Yes, we must take strict preventive measures. But no, we cannot stop the production process even for one day.

All these events are happening against the backdrop of one of the most important periods for the agricultural industry, the spring sowing season. It cannot be canceled or postponed. Forage and cereal crops must be sown. Sowing cannot be postponed for a month, there can be no better time to do it, it simply must be done. We are making active preparations for the works and making every effort to protect people from coronavirus, and we are highly motivated. Staff members and senior management will most probably work for 12-16 hours per day instead of the regular 8 or 10-hour period. I hope than our team is motivated and solid enough to achieve this goal.

Now I will sum up the aforementioned issues and speak on their possible impact on the agricultural sector and the national economy in general.

First, a possibly insufficient amount of produced fodder may result in higher prices, which means we will have either to reduce the number of livestock or to pay more for the fodder. In either case, we could face a deficit.  

Second, the volume of sown and harvested crops will possibly be insufficient as well. The decrease is unlikely to be critical – yet it will most definitely result in higher crop prices. 

This will lead to an increase in prices for all basic food groups such as milk and all dairy products, as well as bread, grain and cereals. This is the impact that coronavirus pandemic could have on the agricultural sector. The situation could be aggravated by the devaluation of the ruble, which we are observing amidst the current economic crisis.

I think this is really bad. The decrease in purchasing power will lead to a drop in demand for non-essential goods. I suppose we will be assessing the impact of the COVID-19 outbreak for at least the next one or two years – and that’s the best case scenario if the pandemic slows down by the summer. If this is not the case and we face a new wave of the coronavirus infection, consequences will be hard to imagine.              

By Dmitry Matveyev, President, Kabosh group of companies

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