This is the sixth in a series of essays exploring the economic, social and cultural effects upon the daily lives of persons living in the United States, western Europe and more broadly around the world, as we emerge from the global Covid-19 lockdown pandemic.
By Matthew Parish
You can’t eat the internet. As the desolation of European agriculture begins to become apparent by reason of the Coronavirus pandemic, the clarity of this truism becomes ever more apparent. We have been building up the internet economy in the west over the last several years, but in it does not always provide material benefits to the populace in a time of crisis in which the priorities are food and healthcare. It might be averred that the internet provides several supply chain management efficiencies. Amazon is cheaper than the high street because internet retail reduces the need for real estate overheads: suburban warehouses are cheaper than city centre shopping malls.
Nevertheless these efficiencies are obtained at the cost of washing out our metropolitan real estate retails spaces in favour of anonymous wholesale depots on the edges of cities and towns. That aside, the internet does not produce more food for us to eat. Instead, during a time of crisis, its efficiencies have caused us to need less of it. Food ordered on the internet tends, it turns out, to involve less over-consumption because food is so straight forward to order and have delivered: easier than it is to undertake a weekly shop.
Although its collapse started in early 2020 and even in 2019, well before the current pandemic, European agriculture is has fallen into a state of contemporary despair and Coronavirus has exacerbated the problem. A substantial part of the problem is that restaurants typically pay higher premiums on agricultural orders than supermarkets, because supermarkets buy in greater volumes and therefore can demand heavier discounts. The restaurant trade has collapsed as a result of the pandemic, whereas supermarket purchases from farms increased Hence high margin sales have been replaced with low margin sales. Food prices have been falling, and consumption has been falling too. The result is that a lot of agricultural producers – from farms to fishermen – are at risk of insolvency.
The problem is not just the straightforward one that the dead do not eat. It is also that people afraid of death eat less, as do people who have lost their jobs or are afraid of losing them. We may be shortly to revert to the developing world paradigm that girth is a sign of wealth, health and absence of anxiety.
The current agricultural crisis developed not just from a movement in eating from in restaurants to in the home. Coronavirus also caused an artificial spike in demand. Anxiety led to hoarding of food, resulting in increased demand. The agricultural sector has a substantial amount of excess capacity. European agriculture has been locked in a plight for some decades, uncompetitive on base price with US and developing world agricultural producers and sustained principally by subsidies and restraints on trade such as tariffs and artificial quality prescriptions. As an illustration of the latter consider British tirades against the possibility of imports from the more agriculturally efficient United States of chlorinated chicken. The complaint against chlorination of chicken, a safe method of preserving it, has its origins solely in anti-competitive urges.
Therefore the agricultural sector eagerly obliged the hoarders’ whims from its domestic reserves, using excess capacity to supply what they wanted at the beginning of the crisis. At the beginning, consumers’ eyes were bigger than their stomachs. But over time their actual consumption of food has gone down, not up, as they participate in self-imposed austerity by reason of their uncertainty about future incomes; they buy in bulk to achieve volume discounts; they buy cheaper food from discount brands and discount retailers; they avoid throwing away food.
It soon followed that in late March and early April 2020 agricultural producers (i.e. farmers), traditionally operating upon low margins, increased production only to see demand subsequently fall and indeed fall away all together in their higher margin sales to restaurants. Moreover supermarkets, suddenly in competition with one-another in respect of newly anxious and impecunious customers, started lowering their prices to appeal to the bargain and discount markets. It transpired during lockdown that even wealthy consumers were prepared to spend an hour waiting in a socially distanced line to get into a supermarket.
Once this has happened, there is little value left in the high quality / high price sector. Every supermarket becomes a discount vendor of the deepest kind, as has been seen in more expensive supermarkets offering to price match cheaper ones. Supermarkets pass on their discounts to consumers in substantial part to their own suppliers: the agricultural sector. Already subsidised in Europe with instruments such as the Common Agricultural Policy, relatively few further government subsidies emerged as they did for other market sectors.
The consequence is that consumer demand is now low down, while agricultural supply is high up, and the middlemen (supermarkets) are being forced into deflationary patterns by their customers, thereby pushing losses up the supply chain. The obvious result of this will be dramatic contraction in the agricultural sector by reason of insolvency, because government cannot print still more money to help the agricultural sector continue operating as it has done in the past. Governments have placed their subsidy bets elsewhere in the economy. So European agriculture is in deep trouble.
Underlying all of this is the problem that western economies no longer produce things that people want to buy. Global trade talks have stalled upon reduction of agricultural tariffs for yeas because western markets do not want to open their agricultural markets to full international competition. This would have the consequence that western agriculture has no markets left. Out-priced by emerging market agricultural competitors, in the absence of tariffs or imagined quality restrictions preventing market entry by those competitors western agricultural producers would lose their consumers.
At some point the margins for agricultural producers in western Europe become so low that farmers start to go bankrupt. This results in a substantial reorganisation of the agricultural sector into larger conglomerates, at the expense of the individual landholders and the rural economy. Inevitably, substantially less land is cultivated because the only way to drive up prices such that farming can turn a profit is to cut supply. Assuming governments maintain the tariff- and quality-based restrictions upon foreign entry to agricultural markets, we need to produce less food in order that domestic farmers can continue to turn a profit in the face of declining demand, particularly for high-end goods. In other words, we force ultimate consumers to pay a higher price for foodstuffs at the discount end of the market, by restricting supply through agricultural insolvency.
This will have a dramatic effect upon rural life. Farms and agricultural land will be put up for sale, and pressure will arise to permit agricultural land to be used for other purposes. Villages may either be transformed into metropolitan commuter belts, or they may whither away in their entirety as the jobs available to village workers dramatically shrink. In the meantime, consumer pressure gradually builds to relax agricultural trade tariffs and quality restrictions, in order to reduce food prices that have been inflated to meet global norms.
This pressure will eventually succeed, because newly impecunious consumers will threaten to exercise their votes adversely to a government that maintains trade restrictions causing people to be unable to buy as much food as they want. Hence international restrictions upon trade in agricultural products will be gradually degraded, and we may find a new round of World Trade Organization negotiations designed to bargain a reduction in agricultural trade restrictions against easier exports from the west.
The net result of all this will be that global agricultural markets will develop to a mature phase in which the majority of our food will be sourced from low-price agricultural jurisdictions. African economies will blossom as a result, as agricultural land in Africa is cultivated to meet demand in newly opened western markets. High-price western agricultural nations will continue to urbanise at the expense of their rural economies. Hundreds of millions of people in Africa and other new agricultural export nations may be lifted out of poverty. Food will become higher quality and cheaper as a result of the abolition of trade tariffs and other restrictive measures on agricultural exports. In the interim period, however, domestic food will increase in price and quality will be reduced, as a result of contraction of competition after a domestic agricultural restructuring process.
Domestic European agriculture will ultimately be confined to sales within the luxury market, which in due course will re-establish itself. The recession caused by Coronavirus lockdown will not last forever. But the recession may well result in many of the protectionist agricultural rules we are so used to being swept away. We will need to find something else to do with our countrysides. If home working is maintained at anything like the levels seen during European lockdowns, and if a universal basic income is introduced (see a subsequent essay in this series), then moving to the countryside may become more attractive for many people as it will be cheaper for the unemployed to live there on a universal basic income; and people find that they can live in the countryside without needing to commute to cities.
In the long term, the effects of the home working phenomenon may revitalise our countrysides with sometime metropolitan residents tired of city life. The last vestiges of old fashioned feudal traditions in rural areas, where they still exist in Europe, may be swept away as a result. Or, if we are not careful with our urban planning policy, our countrysides might be unpleasantly transformed into vast tracts of lazy suburbia. Either way, these trends may disrupt European voting patterns, as city dwellers tend to hold political opinions further to the left. The washing out of our metropolises may drive European politics ever further towards the right, encompassing conservatism and/or populism.
The global market in agricultural commodities, once unleashed, will cause a range of social disruptions. Our politicians will need to take great care both to ensure that those who lose their jobs in redundancies due to decreased western European farming output transition in the least painful manner to other spheres of economic activity; and that our rural traditions and culture are, at least in some form, preserved as best they can be. The consequences of the Coronavirus crisis for every aspect of western life, and indeed the lives of those working in developing markets and seeking to grasp new trading opportunities, may be more far-reaching indeed.
Matthew Parish is an international lawyer and scholar of international relations based in Geneva, Switzerland. He is an Honorary Professor at the University of Leicester; was elected as a Young Global Leader of the World Economic Forum; and has been named as one of the three hundred most influential people in Switzerland. An expert in UN reform, he is the author of several books and over three hundred articles. www.matthew-parish.com
The views expressed in this article do not necessarily reflect those of TransConflict.