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Uncertainties in the global value-adding chains during the COVID-19 pandemic

Six months following the outbreak of COVID-19, we are still dealing with great uncertainties. The characteristics of the virus, the possible duration of the pandemic, the risk of a renewed outbreak and the time required to develop a vaccine are all questions that still remain to be answered. Despite all of these imponderables, it is already becoming clear that sectors that were not well positioned beforehand are being hit particularly hard and are fighting for survival. There can therefore only be one outcome for the food industry: increased resilience and the implementation of an early warning system to detect risks and the establishment of a risk management system that is independent of individual interests.

In the meanwhile, the extent to which the pandemic and the measures that are being implemented around the world to prevent the spread of the virus are changing all areas of our lives is becoming increasingly clearer. And one thing is certain: this pandemic will not be overcome any time soon. We will have to become accustomed to the fact that we have a long road ahead of us, with the continued risk of infection, economic recession, possible social unrest and fundamental changes in economic and personal relationships.

It has also been shown that, so far, the global food system has proved to be stable – in complete contrast to the 2007/2008 price crisis and the social unrest in over 20 countries at that time. However, nobody can state at present whether this situation might change quickly and fundamentally as a result of unilateral measures. Added to this is the circumstance that the boundary conditions are difficult to assess; severe storms and plagues of locusts are being seen on a regional basis. The situation in some African countries is particularly alarming. A high number of factors are coming together there. Where nothing can be sown, there will be no harvest – as yet, we do not have any idea what awaits us in the autumn.

So far, the risks to functioning food supplies have assumed different developments: at local and regional level, the lockdown has led to restrictions on the freedom of movement of workers. Seasonal workers were only able to reach their places of work after a period of delay and in lower numbers; the continued development remains to be seen. In many countries without established social security systems, people are going hungry, demand and purchasing power are declining, markets are often closed and both sales and supply problems can arise. The effects on agricultural production, on demand structures and business models cannot yet be assessed.
Hungry people cannot and will not adhere to the necessary isolation measures. If national governments and the international community fail to take countermeasures, stability and security in entire regions will be placed at risk – with consequences for us all.
It has also become clear that there are weak points in the food industry – within Germany as well. The working conditions in the slaughterhouses and the prevailing subcontractor system have led to the occurrence of hot spots that have proved to be extremely problematic in successfully getting to grips with the pandemic.

At the economic level, the 'transmission paths' from the massive global recession to the food system will have to be analysed. Will demand change – including for agricultural machinery, will there be (downwards?) price adjustments, what will be the effects on solvency and creditworthiness? Might a new structural transformation even be heralded in during the pandemic? The low oil price could also lead to very low prices for energy crops and a significant reduction in demand.

Initial changes are already making themselves felt in the trading sector. Far more than ever before, reliability, resilience to (global) crises and constant availability will become essential characteristics. The criteria of efficiency and price that were previously predominant in the supply chain will no longer be the sole determining factors. This will therefore raise the question of regionalisation in certain production segments. The German economy is internationalised to a particularly high extent. Whether the debate surrounding regionalisation will ultimately lead to the introduction of a significant change in the international division of labour, which can be further fostered through shifts in geopolitical power such as in international trade policy, cannot be conclusively answered either. However, the question of what form a sustainable globalisation paradigm will take must be answered – for political reasons amongst others.

All of these questions can only be outlined here. Nobody can say which scenario will ultimately become reality, but it has been shown time and again in risk management in recent years that merely hoping that things will not become so bad can cause the greatest damage. Being prepared for the unknown means establishing new, resilient structures! This also encompasses adjusting to the next known challenge, the climate change crisis.