Our food system has weathered an unprecedented demand shift and shock over the past month. Overall, we have come out of it reasonably well. We have seen short-term shortages on grocery store shelves (flour and other products) and some rationing when product was there (milk, eggs). At the same time, we have heard stories of milk being dumped in Canada and produce being ploughed down in Florida. These challenges are mostly expected to be short-term as we make adjustments and catch up to the high level of demand. At the end of this crisis, we will have to reassess our priorities for the food supply chain and decide if changes are required. These decisions should be made carefully and with consideration for more than just the issues that arose in the past few weeks.
One suggestion I have heard is to shorten supply chains and enhance regional or local food systems to improve resiliency. While there may be some supply chains that will benefit from shortening, there is also some associated risk. This highlights the need for careful consideration and for balancing different factors when making final decisions and applying them universally.
Integration of our supply chain provides diversification of supply chains which increases resiliency. We are hearing today that the union representing workers at the Cargill beef processing plant south of Calgary is calling for a shutdown as several workers have been diagnosed with COVID-19. This plant represents approximately 40% of the processing capacity in Canada. If our system was not integrated with the United States (cattle and beef flow in both directions across the border) a long-term closure would be catastrophic for both producers and consumers. As it is, any closure or capacity reduction would be painful, particularly for producers, but capacity in other areas of North America is likely to buffer the impact on both consumers and producers until production scales up again. This is more difficult to do in cases where markets are isolated. There may be value in adding processing capacity and lowering the volume in individual plants, but this also increases the cost of processing. These factors need to be considered.
Agricultural production is a biological process. It depends on weather conditions during the growing season. While localized food systems provide insurance against border closures or interruptions in international shipping, they are much more susceptible to adverse production seasons which are becoming increasingly likely as climate change advances. Diversified regional production buffers world supplies of food by reducing the risk associated with weather-related yield losses in local markets.
Lastly, Canada is an exporter of food. We export $56 billion a year in agriculture and food products and the plan is to grow this significantly. The Canadian Agriculture and Food Trade Alliance highlights several key points relative to our exports (quoted directly):
We export half of our beef/cattle, 70% of our soybeans, 70% of our pork, 75% of our wheat, 90% of our canola and 95% of our pulses.
Over 90% of Canada’s farmers are dependent on exports as well as about 40% of our food processing sector.
1 in 2 jobs in crop production depend on exports, and 1 in 4 jobs in food manufacturing.
Export opportunities help us grow: over the last 10 years in Canada, agriculture and agri-food exports have grown by 103%, boosting farm cash receipts by 46% over the same period.
If we insulate our domestic market, we will lose some diversity in our diet (produce in winter, for example) and also risk alienating other markets that buy some of our exports. Trade has been a significant driver of economic growth in Canada and also improved food security around the world.
There is real value in doing an evaluation of food supply chain performance after our current crisis. That evaluation may even suggest increasing both domestic production and processing in some value chains to increase resiliency. It is, however, dangerous to draw these conclusions in the absence of both analysis and consideration of other supply chain risks.
Recommended citation format: von Massow, M. “In a COVID-19 world, is local better?”. Food Focus Guelph (81), Department of Food, Agricultural and Resource Economics, University of Guelph, April 15th, 2020.