COVID-19 Stimulus and Agriculture

The agriculture sector is one of the cornerstones of the economy. It encompasses a broad range of activities, from small-scale farming to large research and development. The Covid-19 pandemic has hit across all sectors of the economy, and agriculture is no exception. Across the world, governments have rushed to include agriculture in their COVID-19 stimulus packages.Unlike other industries, agriculture is of an indispensable nature. It provides food security, maintains an ecological balance and sustainable development while also contributing to the overall health of the economy. In many countries, the agriculture industry also serves as a means for poverty reduction, especially among the rural population.Since early March 2020, governments and central banks have pumped trillions into their respective economies, both on a fiscal and monetary level. Many sectors, ranging from airlines to financial services, were recipients of these measures, and the ag industry is among them.The Organization for Economic Cooperation and Development (OECD) defines government support for the agriculture sector as monetary transfer from consumers and taxpayers to agriculture businesses and their benefactors. Financing in the agriculture sector is primarily categorized into private and government (or public) financing. Financing can also target various actors across the supply chain.Let us analyze some of the steps governments have taken to safeguard the ag industry during these difficult times.

Ag and COVID-19 Stimulus

The pandemic has particularly hit the demand side of the scale in the agriculture sector. This includes food exports, biofuels and farm labor shortages. Despite the impact, the agriculture sector has benefited from the run on grocery stores, which managed to offset the falling demand from restaurants.But the pandemic situation is forcing a change in consumer habits triggering, peaks and troughs amid supply chain disruptions. Grocery stores are going from empty to overstocked for some produce such as dairy items. There have been reports about how excess dairy produce is being laid to waste, not just in America, but elsewhere such as France.Many governments are already labelling the agriculture industry as being critical to the overall health of the economy, and crucial for the success of recovery efforts.Many sectors affected by CVOID-19 stimulus efforts (airlines, hospitality services, and so on) have already received a lot of coverage. But here’s a closer look at how global government initiatives are supporting the agriculture sector.

Fiscal and Monetary Response to Covid-19

The table summarizes some of the major players in the global farming and agriculture sector and how their governments are boosting efforts to revive their respective economies.[caption id="attachment_9936" align="aligncenter" width="640"]

Fiscal spending as a percentage of GDP (Source: IMF)[/caption]United States: The US is of course leading the way, announcing $9.5 billion in support to the farming sector on top of an additional $14 billion set aside for borrowing.Canada: The Canadian government announced $252 million COVID-19 stimulus package to support its farmers and the food supply chain. The package includes support for automation and equipment modernization while pledging support to the industry to adapt to these changes.Brazil: Brazil’s government stimulus package amounts to $30 billion, from which $100 million BRL is allocated to the agriculture and farming sector.The European Union: The European Union is taking a different step as it prepares to present a new initiative entitled Farm-to-fork strategy. The focus is on transforming the distribution routes, making them shorter, while also stressing on sustainability. Countries such as France are already adopting many of the measures laid out in the plan.India: The Indian government propped up its economy with close to $22.6 billion in relief packages, covering all sectors of the economy. The government is currently considering additional measures especially targeting the food and agriculture sector. This comes on top of already existing schemes for farmers.Vietnam: The Vietnamese government launched a series of measures, including tax deferrals and extending credit. However, the agriculture industry hasn’t been that hard hit. On the contrary, Vietnam’s agriculture ministry is going all out to attract foreign investment. But on the flipside, the stimulus package has been impacting its currency. This has prompted Vietnam’s central bank to be more active in the currency markets to smooth out the effects of exchange rate volatility.

The importance of the agriculture and farming sector

Worldwide, the food and agriculture sector is often subject to the government interventions. And this is true across both developed and developing economies.Governments are taking whatever means necessary to combat the economic impact of the pandemic. This might look like a government handout, but it is important to underscore the fact that COVID-19 stimulus financing in any form is not a charitable activity.The bottom line for any form of financing is profits, which can be hard to realize at times. This means that the respective sectors must be viable from an investment perspective. It is important to manage the risks and also to understand the opportunities in the agriculture sector. Going forward, one could see the financial support pushing the agriculture sector towards modernization and efficiency. It might just turn out that the Covid-19 disruption is just what the agriculture and farming sector needed.Read more from Farmfolio.