Since the COVID-19 pandemic upended supply chains, agricultural product buyers from Egypt to Pakistan have been on a shopping spree.
Egypt, the world’s top buyer of wheat, took the unprecedented step of tapping foreign markets during its local harvest and has boosted purchases by more than 50 percent since April while Jordan has built up record wheat reserves. While Taiwan said that it will raise strategic food inventories, China too has been busy buying to feed its rising number of animals grown for meat.
Changing buying habits
The early purchases highlight how countries are attempting to protect themselves from coronavirus concerns that will disrupt port operations and wreak havoc on global trade. The pandemic has already upset domestic farm-to-fork supply chains, providing only enough to meet demands, with empty supermarket shelves across the world causing customers to change their buying habits.
“COVID-19 has forced consumers to shift from just-in-time inventory management to a more conservative approach which was labeled just-in-case,” said Bank of America Corp. analysts led by Francsico Blanch, head of global commodities. “The result is that consumers are holding more inventory as a precaution against future supply disruptions.”
A number of factors are contributing to the rise in prices of corn, wheat and soybeans, including floods in China and increased purchases by the government, in order to fulfill the commitments under its phase one US trade agreement. But Beijing is also keen to take the lessons from the pandemic into account and ensure that its stockpiles are sufficient to withstand supply problems, individuals familiar with the situation said.
Not a concern
In the event of coronavirus rattling supply chains, several countries have agreed to put forward their food purchases to ensure supplies, said Abdolreza Abbassian, a senior economist at the UN Food and Agriculture Organization. Only a few, including Egypt and Pakistan, attempted to raise strategic reserves, but they also had other reasons for doing so, including access to foreign currency, the volume of domestic supplies and the need to keep domestic prices under control. Poor harvests in Turkey and Morocco added to their need to raise imports.
“Many may buy now but could buy less into the new year because they won’t need it,” Abbassian said while referring to early purchases. “I could see that happening, especially as winter wheat conditions are not that great and if you wait, prices could rise further.”
China’s role
Agricultural prices have been on the rise as countries stepped up purchases, adding to demand from China and a drought in the Black Sea region. As China replenished stocks, sugar prices received a boost, said Geovane Consul, chief executive officer of a joint venture between Brazilian sugar and ethanol between US agribusiness giant Bunge Ltd. and British oil major BP.
Moreover, China could still add more fuel to the fire next year. As part of its five-year strategy, the largest importer of everything from crude oil to iron ore and soybeans is preparing to raise its mammoth state reserves.
The Five-Year Plans are a series of social and economic development initiatives issued since 1953 in the People’s Republic of China.
“China would certainly support commodities prices if it made such extensive purchases,” says experts.
Producers, who had seen demand for products from corn to sugar slip as the pandemic shut down transport, reducing demand for ethanol produced from crops and slowing factories, welcomed the extra purchases. Buying by China already means exporters of grain and oilseed in the US are making the most revenue from American ports in years by shipping.
The global trade desk of the food conglomerate Archer-Daniels-Midland (ADM) Co. based in Switzerland delivered its best second quarter ever as countries looked to secure food supplies because of the coronavirus.
“A lot of countries around the world, in terms of food supplies, have moved from effectively a just-in-time philosophy of buying food to a just-in-case philosophy,” Ray Young, ADM’s chief financial officer, said at a virtual conference held in September. “They wanted to build up a little bit of reserves in their country, not knowing how the supply chains will react through the COVID-19 environment.”
