By Matteo Marchisio
March 18, 2020.- Last week’s OECD Interim Economic Outlook confirmed, as predictable, that the impact of the COVID-19 outbreak on China’s and the rest of the world’s economy is going to be extremely severe.
Restrictions on the movement of people, goods and services, as well as containment measures such as factory closures, have cut manufacturing and domestic demand sharply in China. As a result, OECD lowered its forecast on China’s GDP growth for 2020 – from an initial 5.7 per cent growth estimate in November 2019 to a much lower 4.9 per cent in March 2020. Similarly, because of China’s weight on the global economy and the rapid expansion of COVID-19 globally, OECD suggested that global GDP growth could drop from an already weak 2.9 per cent in 2019 to an even lower 2.4 per cent in 2020.
While the economic impact of COVID-19 on China’s and the world's economy is being carefully monitored and assessed, at the moment little is known about the impact of the outbreak on other "non-economic" sectors such as development.
As an IFAD staff member based in China, I will share some personal reflections on the possible impact of COVID-19 on the achievement of the Sustainable Development Goals (SDGs), particularly on SDG 2: food security – both in China and globally.
Let me state beforehand that the very limited data currently available make such assessment extremely difficult. My considerations are thus mainly based on my personal observations in China.
Considering that the agricultural sector contributes to about seven per cent of the GDP in China, the impact of COVID-19 on China’s overall economy would equally affect the agricultural and food security sector. In this regard, we can anticipate a shorter-term, or immediate, impact, and a longer-term impact – which could potentially have global consequences.
The restrictions on the movements of people and the factory closures implemented by the Government of China have had an impact on the circulation, and thus availability, of food and agricultural products, and have also interrupted several value chains, with a potential impact on prices.
Counterintuitively, however, what has been observed so far is that, despite the limited circulation of food, the food supply has overall remained stable, and – with limited exceptions – food prices in the country have overall remained stable as well. This can probably be attributed to the large availability of food stocks at the time of the outbreak, when movement restriction measures began to be implemented.
However, the longer the situation persists and the longer the restrictive measures continue, the more stress will be exerted on the whole system. If the circulation of people is not re-established soon, food stocks are destined to decline, and prices to increase.
Obviously, the most impacted would be the poorest and the most vulnerable segments of the population, who have less capacity to deal with the prolonged negative effects of the restrictive preventive measures, especially those affecting labour/wages and production and – ultimately – household income.
Medium- to longer-term impact (and potential global impact)
Beyond the short-term impact of these measures on the food supply, if the situation persists and restrictions on movements continue, there is a risk that agricultural production would be impacted, with consequent longer-lasting and deeper impacts on food availability, prices and – ultimately – overall food security.
March is in fact the beginning of the planting season in many provinces of China. If, because of the movement restrictions, the planting season is missed or delayed, this year’s production would likely suffer, internal food demand would likely not be met, and pressure on agricultural imports would increase – with consequences for global food availability and food prices. The risk of ending up facing a situation similar to that of the food crisis in 2008 is, although currently remote, a possibility not to be completely overlooked. State leaders are aware of the potential risk and are prioritizing the early resumption of agricultural production.
Even in the likely case that China will not experience food shortages, global food security could be challenged if, as a consequence of the global spread of COVID-19, other countries begin experiencing stress on their agricultural production capacity and the circulation of food – particularly developing countries.
Possible solutions – and dilemmas
China needs to restart their economy – including the food industry, from production to distribution – as soon as possible. The immediate constraints on the movement of people and goods need to be removed where possible, so that farming can restart and the food supply chains can be re-established without major delays.
The Government of China is encouraging resumption of normal activities, particularly in those areas that were least affected by the outbreak. However, local governments will be facing a dilemma: on the one hand, the need to restart the economy; on the other hand, the risk of a sudden resurgence of a second wave of the epidemic, if the well-implemented preventive measures are relaxed too early.
Second, China needs to put in place a safety net system to reduce the impact of the outbreak on the most vulnerable segments of society. These groups of people may have suffered disproportionately from prolonged reductions in income, increased health costs and limited access to food. Measures may include paying for health care; extending the terms for payment of loans, bills and taxes; providing paid sick leave; and providing other forms of economic support, such as one-time cash transfers.
Obviously, low-income countries would have limited fiscal space to implement safety nets that could reduce the impact of COVID-19 on the most vulnerable, thus increasing their exposure to the impacts of COVID-19 – including the possibility of limited access to a sufficient quantity of affordable food. As a result, the potential impact of COVID-19 on food security in low-income countries could be higher.
Hence, these challenges underscore the importance of investing on the poorest and most vulnerable people, notably the rural poor, strengthening their resilience and enhancing their capacity to cope with shocks, and of supporting developing countries in anticipation of the impacts of COVID-19.