The coronavirus outbreak continues to worsen, damaging China’s economy and raising fears of a global epidemic. The virus – officially dubbed Covid-19 on Tuesday – is now “public enemy number one”, according to the World Health Organization.
So far, 99% of cases have been in China, but it poses “a very grave threat to the rest of the world”, according to the WHO. Indeed, more than 60,000 people across 25 countries have been infected so far, with health experts warning this could be the “tip of the iceberg”.
While the biggest concern is undoubtedly the serious risk to public health, fears are also mounting over the potential impacts on global trade. Food and drink exporters believe disruptions at ports could hit UK sales to China, worth £596m in 2018, while importers are worried UK supply chains could eventually be hit.
”We are too dependent on China in a multiplicity of areas ranging from packaging to vitamins,” says one industry source. “I think the food supply chain will already be coming under strain.” So what’s the latest situation? And what could lie ahead for the industry?
What’s the latest situation in China?
Chinese employees began to trickle back to work this week after the government extended the new year break to try and contain the disease. But the country is still sluggish. Factories have delayed restarting production, transport links are fractured and the amount of traffic in and out of Chinese ports has tumbled.
Last week, the number of ships calling at Shanghai and Yangshan was down by almost a quarter against the same period last year, according to Lloyd’s List Intelligence data.
“All shipments to China are currently suffering long delays as all carriers have stopped movements due to the Corona Virus [sic],” advised third party shipping provider World Options, in an email seen by The Grocer. The company works with major shipping companies including FedEx, DHL and UPS.
Although the ports themselves continue to operate as normal, a lack of staff is impeding typical procedure.
Most local authorities in China have imposed a mandatory 14-day quarantine period for workers returning from other provinces after the holiday, leaving many businesses understaffed or closed entirely.
Internal logistics are similarly affected, with about half of Chinese lorry drivers observing the 14-day isolation, said Allport Cargo Services in a briefing note.
Meanwhile, reports in Nikkei Asian Review claim the country’s land borders with Thailand, Vietnam and Myanmar are under lockdown, resulting in fruit being left to rot.
James Lindop, international trade partner at Eversheds Sutherland, believes British exporters should prepare for a situation in which orders are unable to be fulfilled.
“It is possible that more governments around the world may unilaterally introduce restrictions or face practical difficulties which could have a negative impact on trade,” he says.
“Companies who anticipate, or are currently experiencing disruption, would be prudent to consider carefully the terms of key contracts underpinning the movement of goods and the provision of services which are likely to contain ‘force majeure’ clauses.”
What’s the long-term outlook for China’s economy?
Many forecasters are looking to the SARS outbreak in 2002 to predict the long-term impacts of the outbreak. The parallels are imperfect, largely due to China’s increased role in global trade, but they have led many to find optimism in the ongoing situation.
New data from Kantar released this week shows China’s fmcg market initially tumbled when SARS broke out, only for it to recover entirely within a matter of months. Financial markets also underwent a similar pattern in 2002.
But others are less hopeful. Deutsche Bank predicts global growth will fall 0.5% in 2020, while HSBC expects a similar-sized effect on China’s economy, even if the virus is quickly contained. The International Energy Agency says oil demand this year will see the slowest rate of growth since 2011.
Agricultural commodity traders will be following China’s economic status closely, with the country now one of the world’s most voracious consumers of products such as palm oil, soy and vegetable oils.
Stefan Vogel, global strategist at Rabobank, believes for the time being at least, these markets should be largely insulated from wider economic forces.
“As long as the scale doesn’t get more severe then the impact on demand for agricultural commodities should be relatively small,” he says. “People and animals are still going to need feeding.”
The greatest changes to the Chinese market are in the way people are eating rather than the amount, says Vogel. Although coffee shops, restaurants and supermarkets are seeing reduced footfall, the presence of online shopping has so far ensured most people are not suddenly going hungry.
But Vogel warns: “If the virus breaks out around the world, we will have a very different situation.”
How likely is a serious outbreak in Europe?
The spread of coronavirus throughout Europe is the greatest concern to both British businesses and individuals alike. And medical experts remain gloomy on the prospect of containing the virus in China.
Professor Neil Ferguson, director of the MRC Centre for Global Infectious Disease Analysis, told Radio 4’s Today programme that the current global numbers are “the tip of the iceberg”, while Hong Kong’s leading epidemiologist, Gabriel Leung, believes the virus could spread to two-thirds of the world’s population if not controlled, according to the Guardian.
Health secretary Matt Hancock said the virus “will get worse before it gets better” in the House of Commons this week.
The situation has led Richard Ballantyne, CEO of the British Ports Association, to call on the government to “beef up” port health authorities in preparation for greater checks at sea and airports.
Although he does not expect it to be necessary unless the number of infections in Europe hits the tens of thousands, he argues action should be taken sooner rather than later.
“Now is the time, rather than waiting weeks or months, to secure the border from potential health and environment threats,” he says.
What would that mean for food and drink?
Physical checks will likely focus on people rather than animal or plant products, but their implementation at cargo ports such as Dover, Holyhead and Portsmouth could have a dramatic effect on food imports.
Research carried out for the Department for Transport as part of no-deal preparations in January 2019 showed trucks would face a six-day queue to board ferries at Dover if new customs checks delayed each vehicle by just 70 seconds, while 80 seconds could lead to permanent gridlock.
“That’s not something we want to see,” says Ballantyne, “but if extra checks are in place then that’s the sort of thing that could happen.”
For now, the impact of the coronavirus on food and drink supply chains remains minimal. But should infections continue to spread, contracting global trade and driving further uncertainty and volatility, the effects may soon become unavoidable.