Selected impacts of the COVID-19 pandemic and responses on U.S. agriculture and agricultural product markets: FAPRI-MU Report #06-21

ABSTRACT

The following text examines some impacts of the COVID-19 pandemic on U.S. agricultural and agricultural product markets, producers, consumers, and related indicators. We outline reasons why reviewing events in isolation in 2020 might not give reliable estimates of the impacts of the COVID-19 pandemic and might result in misleading expectations about a future pandemic. Next, we explore the effects of three key aspects of the shock in the United States (1) lockdown impacts that reduced liquid fuel use dramatically, (2) disruptions in the livestock-meat sector supply chain, and (3) changes in overall economic activity, household income, and total expenditures. For these experiments, we use the FAPRI-MU stochastic model to simulate the impacts of a hypothetical future pandemic. This is not a study of the entire COVID-19 pandemic. The full impacts of the COVID-19 pandemic are large and complex. Factors include effects on health and mortality, a broader economic shock with its employment and income effects, lockdowns and reduced socializing, supply chain disruptions, policy responses, and similar shocks to other countries. The negative effects were experienced differently by each country. We focus only on the U.S. experience. We draw some conclusions from this and related work. * Market outcomes in 2020 were driven by factors other than the pandemic, such as a surge in crop exports and weather disruptions, so year-over-year changes alone are probably not good indicators of how the pandemic affected the sector. * Three of the largest direct impacts of COVID-19 on the agriculture sector were on fuel markets, meat supply chains, and consumer demand patterns. Demands for fuels fell by 5-10% after taking into account price and income effects. Margins between meat retail prices and livestock prices widened after considering other factors. * The loss of economic activity as measured by the falling U.S. GDP could have been expected to cause weaker demand for agricultural goods, lower prices, and sharply lower farm income than what was observed in 2020. * U.S. policy responses included payments that increased disposable income, boosted consumer demand, and mitigated the impacts on farm income from the drop in the size of the national economy. Greater payments directly to farmers also help explain why farm income rose in 2020 relative to 2019. * The impact of COVID-19 is partly a story of policy responses, including sector-specific actions targeting agriculture, fiscal policy, monetary policy, and lockdowns. A future pandemic might be set in a context that limits or disallows some of these options, or a setting that has - perhaps by design - new options. * A future pandemic's impacts would differ from recent experiences because of disease characteristics and also new individual, firm, and policy responses. If one assumes that a future pandemic is an exact repeat of the 2020 pandemic, then that implicitly requires that the disease is equally contagious and harmful, individuals and firms respond to a new pandemic the same as they did in 2020, and policy responses repeat the responses to COVID-19.