COVID-19 and the Food Supply Chain

Show Notes

‘Sadness’ and Disbelief From a World Missing American Leadership, Karin Bennhold, New York Times

Export Prohibitions and Restrictions, World Trade Organization, April 23, 2020

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Transcript

Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the audio before quoting in print and write yeutterinstitute@unl.edu to report any errors. Transcripts will be posted within one week of the show.

Jill O'Donnell: Welcome to Trade Matters, a podcast of the Clayton Yeutter Institute of International Trade and Finance at the University of Nebraska Lincoln. I'm Jill O'Donnell. Our guest today is Darci Vetter, Vice Chair of Agriculture, Food and Trade at Edelman. She is also the former chief agricultural negotiator at the Office of the US Trade Representative. Darci, thank you so much for being with us today on the Trade Matters podcast. We really appreciate it.

Darci Vetter: It's my pleasure. Thanks for having me.

Jill O'Donnell: So I'd like to start with a big picture question that helps to set the stage and helps us understand how the COVID-19 pandemic has impacted the food supply chain around the world. We've seen really striking images recently of dairy farmers dumping milk and grocery shelves that are empty of certain items. That's not something we're used to seeing here. There were headlines just today about supply disruptions in terms of meat because of reduced meat processing capacity that has been the results of plant closures. You and others have said before, we have a surplus of food globally right now so those bare shelves are not the results of a lack of supply, but rather disruptions due to the process by which food gets to us. Walk us through if you would, some of the ways in which this pandemic and the measures that are being taken to counter it are disrupting the food supply chain right now.

Darci Vetter: You ask a very good question and a really big question. I feel like COVID-19 has activated a number of different shocks to our food system and so you have different forces moving in different directions that are causing these mismatches in supply chains. And first and foremost on the one hand you have pictures of farmers dumping milk, plowing under fruits and vegetables. At the same time you have thousands of people waiting in line for food donations and food banks that don't have enough food. And what you've really seen here is an evaporation, almost instantaneously, of the food service market. So restaurants, cafeterias as schools and universities close, workplace cafeterias, etc. So a lot of food that was really exclusively destined for food service, for the food service channel, so restaurant suppliers, processors and packagers for commercial markets, those producers suddenly had no place to send their product.

And the processors that used to take them were really very efficiently and specifically designed to cut process and package those products in commercial quantities, not in the type of packaging that would make it easier to go to retail. And so you have, again, food bank lines, empty grocery store shelves or taking a longer time to restock them, but food that can't get into a channel that would better serve either retail customers or those in need. And there are lots of efforts in place to try and reroute that food, but transportation, refrigeration, retooling those packaging lines is not as easy as it may sound.

At the same time, you also have economies around the world that are in various states of shutdown and reopening. And so global commerce as a whole has greatly slowed. We're looking at up to a third of global trade really declining over this next year. And what that can mean is that there are simply no containers to put exports into, to help move food across borders, trucks, shipping containers. Ships themselves used to be in more constant motion back and forth between China that was closed for a long time and is now trying to reopen. But if China isn't consuming and containers aren't going there or now the US isn't consuming as China opens up scheduling the logistics and again increasing the cost then of moving product. It's part of our problem.

And then there are restrictions or just re-prioritization of global trade. Rightly so, a number of countries have created green lanes or reduced restrictions or increased processing or faster processing times to get essential medical supplies across borders. But that may actually slow the movement of other products. And certainly we've seen some countries implement trade restrictions to try and limit offshoring or export of products that might be in need domestically. And for some countries that has included food.

And fourth is the problem of labor, and the fact that we were already in the United States, very low on the number of laborers needed to pick and pack and process our food supply. But COVID-19 has thickened our borders when it comes to migrant laborers as well. Our embassies and consulates are closed overseas. So processing H-2A visas for example, has slowed as those workers see the spread of Covid throughout the United States. Some of them are choosing not to come. And then of course we've all been watching very closely the cases of COVID-19 in our meat packing plants and other ag facilities where workers work very closely together and where that has had some public health consequences. And so of course processing and packaging has slowed. Some of those plants have at least temporarily closed to try and get a handle on the health situation in those facilities too.

Jill O'Donnell: Thank you, Darci. So several different points to pick up on there. And certainly the second and third order effects of the efforts to contain the spread of the virus have really impacted food trade. And I want to follow up on one point here, which is you talked about countries that have created green lanes in order to perhaps prioritize the flow of medical supplies. How has that impacted the flow then of food shipments that say may have been destined for US markets and are now disrupted? And then on the flip side, which US food and ag exports from the US have been most effected by this crisis?

Darci Vetter: I think it's hard to tell unless you are actively engaged and trying to move those products, whether we are seeing delays because of customs on bringing food products in or whether it is again a result of the logistical issues and just the slowing overall of the economy. Some of the labor problems we're seeing in the United States to be able to pick and pack and distribute products are happening in other countries as well as their workforce is affected by COVID and as they put in place restrictions on the movement of people across borders, they're seeing similar issues. I'm sure you may have seen articles about many European countries trying to recruit those who are temporarily out of work to go into the fields and do farm work where they can't get their normal migrant workers to the field. So some of those shipments that might be coming to the United States may be delayed in the countries where they were coming from. They may be having trouble figuring out shipping.

But I think you're highlighting here what is a critical point, which is that even for major food exporters like the United States, almost every country is also at once a food exporter and a food importer. And so the variety, the affordability of food that we depend on here comes from the fact that we are not only good suppliers of food, but we're big importers of food, and during different seasons of the year we're of course sending more out or bringing more in of particular products. And so what it looks like on the grocery store shelf where we're used to a lot of variety and abundance might actually change if we continue to see some of those bottlenecks or disruptions in supply either from US suppliers or foreign ones.

Jill O'Donnell: So that brings up a point here about food security that I'd like to get your thoughts on as well. Throughout this crisis so far, you hear calls from some quarters to bring back supply chains, so to speak. And when that comes to food, can that really be done? You've mentioned that most countries are both importers and exporters of food, including the United States, but a crisis like this can certainly prompt a lot of protectionist actions by countries in a quest for their own security, which is an understandable instinct. But is a secure food supply, is that something that really requires a diverse supply chain? Does food security require diversity in its supply chain really is the question that I think I'd like to get your thoughts on here.

Darci Vetter: Well, I think that it does. I think when you think about the elements of food security, there is accessibility. Can you simply get that food? There's affordability, and then it's nutrition and does it provide in fact the nutrients that the body needs? And trade is really a big element of providing all three of those things, making sure that it is available, particularly for import dependent countries who couldn't create sufficient calories for their own populations because of deficit of land, etc. But affordability, it isn't always the most, depending on domestic supply and storage and domestic transport even in a big country like the United States, doesn't always lead to the most efficient or available supply of that food. And then of course there is variety. I mean, we're just coming off of our winter, where in the United States we wouldn't be able to produce a lot of the fresh produce that we depend on and is so important for a nutritionally balanced diet.

So, I do think that real food security is dependent on for your global movement of food and that really maintaining that movement is important for importers and exporters alike. But you mentioned earlier that it can be understandable that countries may want to take moves to ensure supply and the supply that they control. And I think that is somewhat understandable, although counterproductive. I think it's hard for governments when they see empty grocery store shelves or they feel they're receiving complaints or some panic buying from consumers to want to be able to say that they took action to at least secure what supply they could control. But again, as we talked about in the case of the US market, those empty shelves are in many ways not a reflection of lack of supply, but rather a system to deliver that supply where it's needed, and preventing or restricting exports won't solve that problem. It really takes a focus on connecting the dots and the internal supply chain.

But you can understand why governments would be tempted to take measures that give them some element of control. And that's where I think the role of international institutions and leadership by countries to provide transparency is so important. When we really were seeing concerns about supply constraints in 2008 where we had a real run-up in global prices of food, the G20 came together and created AMIS, the Agricultural Market Information System, which was a place where governments around the globe could go and really get up to date information about global stocks and what food supplies, particularly in key grains and cereals, were available, where they could be accessed. That brought down some of the hoarding behavior, the export restrictions that ultimately were driving up prices even further so that people could make fact based decisions around what available supplies really were globally. And of course we saw the G20 ag ministers just earlier this week reaffirming the importance of that Ag Marketing Information System, or AMIS as they call it, and reaffirming the need for transparency and information sharing as this Covid crisis continues.

Jill O'Donnell: You've anticipated a lot of important questions and points here. And so I'm going to summarize just for a moment and follow up on that as well. So we discussed how it is very understandable for countries to act on the instinct to secure food for their own population in a crisis like this. And you mentioned AMIS, which I wanted to ask you about as well. And what the question is, where do you think we are in the story of this crisis? I mean we're still very much in the middle of it. The WTO just released a report I believe yesterday noting that 80 countries and customs territories have imposed export restrictions on medical and food supplies mostly as well as other goods. So we certainly see leaders of various countries acting on that instinct to secure what they need for their populations.

But then as you noted, the G20 ag ministers created AMIS a number of years ago and AMIS is actively putting out statements, one that I just saw earlier this week, noting that there are global food supplies that are adequate right now and emphasizing the role of transparency and information sharing to help take pressure off of governments to take restrictive actions. So we're in the middle of this crisis. Where do you think that we are in terms of AMIS really functioning the way that it was intended to, and when will we start to see countries maybe backing off some of those restrictive measures that for example, the WTO is now documenting this week even?

Darci Vetter: Well, and I think it's hard to anticipate how governments might respond as their economies and their populations move through different phases of COVID itself. But I think that again, this call for transparency and the reminder of the availability of good information is important. Having the G20 re-emphasize those tools I think is important. The WTO's paper that you mentioned, really urging those 80 countries that have imposed some form of export restriction, really reinforcing that those measures should be targeted and temporary and transparent and proportionate to the domestic need. In general, the WTO frowns upon and does not allow for export restrictions, but in times of crisis, there are some exceptions. I think the important thing here is to continue to encourage countries to notify where those restrictions exist so that those looking to procure a product or trying to trade in food stuffs know where those are, but to notify them to the WTO to make sure that they are transparent about them, but to also adhere to those principles that they be temporary in nature.

The European Union put in place export restrictions around certain medical supplies and equipment, but as they've moved through the COVID process or that first wave of COVID infections and are looking at how they might provide humanitarian assistance in those same products, how they have better gotten a handle on supplying their domestic needs, they're now moving to loosen those restrictions and see what helpful role they can play for other countries who need it. And I think that cycle of taking stock, providing needs at the national level, and then again, making sure that those measures were in fact temporary and continuing to participate then in the international commerce where needed. I think it's important.

I noted earlier that most countries are both food importers and food exporters. Many, many countries are also both importers and exporters of medical supplies and equipment as well. And so if each country says, "I'm only reserving my supply for here," no country will likely have all of the things that we need. And if you've looked at the US press, certainly masks, gloves, swabs, those things are all coming from different countries that have specialized in the production of particular pieces of medical equipment.

Jill O'Donnell: Okay. So I'd like to segue just for a moment and bring this home to Nebraska a little bit more. We talked at the outset about changes in the food supply chain and due to, for example, restaurant closures and food that is packaged and sold to restaurants really is not intended to be sold to consumers in the grocery store. However, the FDA has granted restaurants the flexibility to sell packaged foods to customers without nutrition labels temporarily right now. And in the state of Nebraska, the state government has followed through on that with its own order allowing restaurants here to do that. Do you think that regulatory changes like this are actually providing the intended supply chain relief and benefiting agriculture producers, restaurants and consumers or are there still barriers to its reach?

Darci Vetter: I think all of those steps are important and I think they are providing needed relief for consumers who need access to things like flour or ingredients that restaurants may have, where in general consumers are going to know what's in them. They're trying to procure basic ingredients. I think that's a way to keep commerce moving, get consumers what they need with really limited risk to the public. But I think it's probably every little bit helps, probably a drop in the bucket of really realigning supply chains and getting more of those products to end users. USDA just announced $19 billion in aid, including, I believe it's a hundred million dollars a month to directly purchase products that they will then try to re-allocate into the nonprofit supply chain to give to folks in need. And I think that's great. And certainly, every bit of that is helpful for particularly as so many Americans are currently out of work and are looking for that food assistance.

But I think it really has illustrated that USDA is really good at getting payments out to farmers, but they have much less experience trying to reactivate that middle of the supply chain. So re-purposing those distributors who used to be in a commercial market to help them repackage that produce or dairy that they're going to purchase and put it into consumer ready or consumer portion sized packages and they're kind of building the plane while they're flying it. They've said they're going to make those purchases, they're going to work with the existing infrastructure we have that could provide places to store and package, but they're still figuring out how they're going to transport it, often in trucks that need to be refrigerated and really get it to those nonprofits at the time they need it and help them store it when many of our food banks or other nonprofit entities that are trying to give away food don't have that specialized storage for perishable product.

So I think all of those efforts are really important for the farmers who need to get some value out of these crops when their markets have evaporated and for people in need. And I'm pleased to see USDA jumping in the middle there, but they really are inventing a new program and it may take some time to work out the kinks.

Jill O'Donnell: Okay. Thank you, Darci. Another question here on some of the trade issues that were capturing headlines more often before this pandemic broke out, for example, USMCA implementation, US-Mexico-Canada Agreement. There are some reports they may be moving forward, the three countries with implementing that agreement this summer. However, a private sector advisory committee has urged the Trump administration to delay implementing USMCA until January 1 of 2021. How do you think this pandemic has impacted some of those ongoing US trade negotiations or other US trade issues that had been very much at the fore before this pandemic? Where do those stand now? For example, we can start with USMCA implementation in light of everything that's happening now.

Darci Vetter: So I think it's important to remember when it comes to USMCA implementation, that this is a trade agreement where almost all products between and among all three countries were already moving duty free. So, "implementing" USMCA doesn't actually change the ability for most products to move across the border. If it were the case that this was creating new, lower tariff access to help medical products, food, etc, move faster, I think that would make this more of a priority. But the major changes required to really implement USMCA are changes to the automotive rules of origin, and the new rules for reporting those rules of origin are frankly pretty onerous on the automobile industry, which is also trying to keep its head above water in the wake of the changes to our economy from Covid. And so I frankly have some sympathy with asking for delaying implementation so that those who would otherwise be focused on new reporting and requirements can focus on the health and safety and job security of their employees.

And I think when we look at what's happening with Mexico and Canada right now, my biggest concern is really how Mexico is classifying what are essential industries that can keep producing as they are looking at their own lockdown measures for COVID. And because Mexico's definition of what is essential is right now narrower than the US definition, and because our economies are so closely linked, there are critical inputs for the food and other manufacturing sectors that are not coming out of Mexico now that the US economy needs to continue to operate. And similarly, we would want to define what are those essential industries and look at how our industries are intertwined in North America to make sure that we can still supply health and medical supplies can keep essential services running knowing that our three economies are so dependent on one another. And so if I were to say where should we be focused on that trade relationship with Mexico and Canada, I would say in the short term. That's it.

Jill O'Donnell: Really important point there. Thank you for that. How would you also assess the US-China Phase One Deal? Of course, China's economy has really taken a hit from the pandemic as well with reduced projections on GDP growth and reduced external demand for a lot of things that are produced there. Do you see that implementation or China's ability to follow through on those commitments being impacted here?

Darci Vetter: Well, I have not been shy in past comments about the fact that I think the level of emphasis in the phase one deal on specific volumes of purchases were somewhat misplaced. Obviously farmers were hurting from the absence of purchases, and wanting to jumpstart or reinvigorate that relationship is certainly a laudable goal, but I think getting rid of the retaliatory tariffs on US products and really allowing US removing the other technical barriers, and many of them SPS barriers, to products that were included in that phase one deal. If you get that part right I think US, purchases from the United States would rebound rather quickly because we happen to be very high quality and affordably priced providers of these products, and so desirable trading partners. So I do think it's highly unlikely that given what China's economy has gone through and continues to go through with both African swine fever and COVID, that they really need US ag products at the level that they have promised.

We are seeing, however, that they have made exceptions to tariffs on key products like poultry. They've removed some of the retaliatory tariffs on our pork, although we still face retaliatory tariffs from our steel and aluminum tariff actions. They have started to make some purchases. Soybeans I think have seen a little bit of action. Not as much as maybe they would like, but this is the season when Brazil is generally predominant in the market and we see that now. Again, pork still has a retaliatory tariff, and while purchases have gone up we're competing with efficient producers in the EU, Canada and elsewhere who don't face that.

So, I think if you're measuring the success of the phase one deal on whether those purchase amounts are made, it is unlikely to be successful. But I think you are seeing some products return to trade with China, and the key right now is to really ask ourselves what trade is realistic given the constraints that we face, the constraints that China faces in the wake of a global crisis? Where should we be focusing on that cooperation? And China does seem to be following through on some of those SPS issues, which again requires closer cooperation and coordination of our regulators who are responsible for human, animal and plant health, which to me seem to be the issues where we should be focusing given that we're dealing with a global pandemic.

Jill O'Donnell: Okay. Last question, Darci, which is one that I ask every guest on this show. And that is what have you read lately about trade, whether it's a book or article or report, that's been particularly interesting or striking to you?

Darci Vetter: There's really two articles that have been sitting in the tabs of my browser this week that I keep going back to. One of them was a New York Times article on the impending global food crisis from COVID-19, and that's something that I think really is going to require ingenuity and global cooperation and resolve. And I hope governments are already starting to position themselves to respond. And that is, you've seen the size of food lines in this country where so many people don't really have the reserves to be able to pay the rent and get groceries when they see job loss. But that effect is magnified in a number of developing countries where you have refugee populations, people living in poverty or just on the edge of poverty, where the shocks of these economic shutdowns have very quickly led them into hunger and there's not a clear path back to employment for them to be able to feed themselves. So that's not necessarily a food supply issue. It's again, broad lack of resources to be able to purchase food that is hitting very quickly.

But at the same time, the article really highlighted, and again the G20 ag ministers did focus on this in their declaration. If you have people in the countryside and many of these countries getting sick and if trade routes are being disrupted because of the change in global commerce where logistics aren't working, will farmers have seeds and fertilizer and chemistry that they need to plant and be successful in producing a crop for the spring? And if not, how might that really deepen and lengthen the hunger crisis that we're already starting to see? And so I've been thinking a lot about the longer term effects of this and that cycle of poverty that could continue.

The other article that I keep going back to was one that focused on, "Sadness and disbelief from a world missing American leadership." And really was an article saying that for the first time, you have a massive global challenge and countries are not even looking to the United States to lead. Not only is Covid so devastating the US economic and employment and public health situation where other countries have fared better. So, we're very focused on just getting the situation under control here at home. But we've very actively pulled away from leadership in international institutions, whether that's the WTO or the WHO or the UN or others and are not playing the role we once did, which was to use those institutions and pull people around the table to organize a more common response. And I think that lack of US leadership which is typically there, a larger focus on nationalism, not just in the US but in other countries as well, have left our institutions somewhat unprepared to face a crisis of this magnitude and really align resources in a way that will be necessary for us to move forward.

Jill O'Donnell: Thank you for sharing that, Darci. I recall in past conversations I've had with you, you've talked about or shared your observation from all of your experience as a US trade negotiator, that it was always clear to you that the US negotiators around the table during a negotiation were negotiating not only on behalf of the United States, but also on behalf of the system that this country led in creating. And so I think that that's something that's been interesting to keep in mind in light of the article that you just mentioned and what we're seeing here with these institutions around the globe.

Darci Vetter: It's sometimes hard, I think, to put a clear value on relationships and structures that sometimes seem bureaucratic or they take a lot of energy. But I think something like the coronavirus shows us when and how those relationships can be really important to be able to fall back on.

Jill O'Donnell: Yes. Darci, thank you again so much for sharing all of your time and insights with us today. We really appreciate it.

Darci Vetter: Thank you. I enjoyed the conversation and it was a pleasure to join you.

Jill O'Donnell: That's it for this episode of Trade Matters. Thanks for listening. And a big thank you to Bryce Doeschot, Brianne Wolf and Jacy Thoman for helping produce this podcast. Please subscribe to Trade Matters on iTunes, Spotify, Stitcher, or wherever you get your podcasts. If you have ideas or topics you would like to hear about on Trade Matters, we'd love to hear from you. Send us an email at yeutterinstitute@unl.edu or follow us on Twitter @YeutterUNL. Opinions expressed on Trade Matters are solely those of the guests or hosts and not the Yeutter Institute or the University of Nebraska Lincoln.