Rabobank, the Dutch bank that specialises in global food and agriculture, has published a report on what it believes the long-term effect of coronavirus will be on the development of the food and agriculture industry in China.

All sectors of the supply chain from production through to distribution are operating at between 40% and 70% of capacity, mainly due to labour shortage. While the number of outbreaks are falling, the report predicts that it will take at least four months before the supply chain can return to normal.

Trade

From an international trade perspective, it is disruption at ports that seems to be the main issue, with shipping companies charging a congestion tax of between $1,000 and $1,500 per container. Demand is expected to be significantly lower for all protein imports, with consumption of cheese predicted to fall by 26%, which would cause a corresponding reduction in imports by a similar amount. The foodservice channel, or out-of-home eating, which is the strongest importer of agri-food produce, is predicated to recover slower than retail.

According to Rabobank, the outbreak will cause particular problems for small and medium enterprises (SME), and many will struggle to survive. It is likely that business will consolidate around larger suppliers, who often have their own dedicated distribution chains.

Post-virus

Rabobank predicts that post-virus, the Chinese agri-food sector will change significantly. A shift has already been under way at farm level in the pigmeat sector, which has been hugely damaged by an outbreak of African swine fever (ASF), which began in August 2018 and has caused the halving of China’s pigmeat output. Half of the country’s pigmeat came from small farms with just a couple of sows, but these are giving way to larger commercial units.

China has already been investing in agriculture outside its borders and the report forecasts that this policy will continue to expand. The problems caused by the virus are also leading to a reconsideration of moving from the “just in time” strategy of carrying minimum stocks to a “just in case” strategy where more stock is carried to deal with supply chain disruption.

Consolidation

Industry consolidation is also forecast, as increased enforcement of hygiene will bring additional costs and the disruption caused by coronavirus will have caused financial pressures.

Larger companies enjoy financial resilience through economies of scale and e-commerce giants like Alibaba and JD.com have benefited during the crisis from being able to provide reasonable, reliable service, helped by their size and integrated logistics. Rabobank suggests companies like these could have even greater influence in the supply chain and develop a transparent farm-to-fork chain.

It is also predicted that all areas of the supply chain will become more digitised as they return to normal with coronavirus demonstrating where the weak points in the chain were identified.

Rabobank also suggested that the bricks and mortar structure of food retail will be further challenged. China’s growing middle class are already leading users of online shopping in retail and food service and it is predicted that this will increase further, likely at the expense of the traditional physical retail structure.