As the world begins administering a COVID-19 vaccination, hope lies waiting on the horizon for a return to a more balanced state of business for the second half of 2021. For agriculture, that includes global trade. Before market participants reach that future, however, there will be the lingering impacts of the pandemic to tackle. Here are the challenges and opportunities for agriculture in terms of global trade in 2021.
Lingering Labor and Logistics Issues
As the COVID-19 virus first took hold last year, we saw ripples up and down the agricultural labor force. The shortage began with a cessation of work visas but soon extended into packing plants, family farms and even retail establishments, as employee illness forced closures and interrupted supply chains. Even as 2021 rolled around, a cresting wave of viral spread increased fears that employment shortages would continue throughout the year. A reduced workforce may seriously impact global trade prospects as producers are forced to pull back on crop production.
Of equal concern for trade is the situation at the ports. Late last year, as China recovered from the virus faster than the rest of the world, the country began increasing its exports. As a result, demand for containers in China outstripped supply. Since shipping rates are 10 times higher for the China to U.S. journey, carriers began shipping back empty containers, making it increasingly difficult and expensive to send agricultural products overseas.
Rising prices and a lack of containers seems likely to persist, as carriers continue to send three out of every four boxes back to Asia empty, compared to a normal rate of 50%. Labor issues have also played a part at foreign ports, as lingering viral spread reduces workforce capacity, leaving containers to sit full for longer periods of time before they can be repacked and returned.
Unfortunately, the shipping crisis hits the industry at a time when demand for American agricultural exports is high, leaving producers unable to get products to the overseas markets that want them.
What to Expect in 2021
On November 15 of last year, China joined 14 Asia-Pacific countries in signing the Regional Comprehensive Economic Partnership (RCEP) agreement to create the world’s largest free trade area. The agreement is expected to simplify supply chain and customs processes for countries bound by the agreement, eliminating an estimated 92% of tariffs. According to Betty Berning, analyst with the Daily Dairy Report, this could make some U.S. exports less attractive for trade with Asian Pacific countries and increase competition for U.S. agricultural products overall.
As we roll further in 2021, it is unclear how the current U.S. administration plans to handle trade. While the world continues to battle the COVID-19 pandemic, particularly as new variants emerge, government actions are likely to focus more on problems at home than on expanding trade agreements or issuing beneficial regulation. However, a bright spot for agriculture this year will likely be North American markets, where the U.S.-Mexico-Canada Agreement (USMCA) signed last year, helped to send 29% of U.S. farm and food exports to these countries in 2020. The USDA anticipates that the USMCA will “make a good trade relationship even better” in 2021, providing preferential market access to American farm and food products.
Agriculture and access to food supplies have remained a priority throughout the pandemic, a factor that could result in trade opportunities for some suppliers if they can get their products shipped to locations where there is high demand.
About the Author
Michael Salerno joined the bank in 2002 and currently leads the Global Banking team, which includes business development, international payments, foreign exchange risk management and trade finance solutions for corporate and correspondent banking customers. International issues can present challenges for organizations, and Michael enjoys creating simple and transparent solutions that reduce the complexity of doing business internationally.