Impact of Coronavirus on Indian Food & Agribusiness

The spread of the coronavirus started relatively late in India, compared with other countries. With a 21-day lockdown announced by government, the impact on Indian food & agri has started. The impact varies in the different sectors. Food-services and poultry, for example, are affected severely (poultry was affected even before the lockdown due to rumors around the coronavirus). Other sectors, such as packaged food and grocery retail, have not been impacted much so far, but potential severe supply-chain disruption will impact most sectors going forward.

Introduction

The number of coronavirus infections in India increased significantly over last two to three weeks, forcing the Indian government to come up with containment plans. The government has announced a 21-day lockdown, starting March 25. Movement of essential services, such as groceries, milk, and medicines is allowed. Visa operations and international/domestic flights have also been suspended. Indian ports have declared force majeure, which will also be a major disruption.

The lockdown is expected to impact the food and agribusiness industry in India, with disruption in logistics and restricted movement of labor. Workers are migrating back to their hometowns from the cities. This will impact raw material availability, operations of manufacturing facilities following possible shutdowns, disruption of imports/exports from ports, availability of workforce during the coming harvest season for example, and a slowdown in the pace at which grocery stores are stocked, leading to supply-demand imbalances and increased price volatility. The lockdown will also significantly impact informal small businesses and will result in job losses, including the daily wagers. Combined with an economic slowdown, the income of farmers/consumers will certainly be affected. We provide some more detail on the various Indian food & agri sectors below:

Impact on Indian Food & Agri Sectors

Animal Proteins

In February, social Media rumors about the impact of the coronavirus on chicken health led to a drastic reduction in the consumption of chicken. Subsequently, the Indian government clarified that there is no link between coronavirus and chicken health. However, with the escalating coronavirus situation, consumers are still not consuming chicken and the Indian poultry industry will see a significant reduction in revenues, with possible losses for the next two to three months.

With the worsening global situation, seafood exports (e.g. shrimp) will be impacted due to trade disruptions. The closure of restaurants is impacting the food services segment, which, in turn, affects seafood/poultry sales.

Farm Inputs

The lockdown in India affects the movement of goods and labor and therefore impacts the farming sector. While agri-chemical companies are prepared to combat the situation with a favourable preceding rabi season, a prolonged lockdown leads to an apprehensive outlook.

If the lockdown persists, there might also be some reduction in upcoming kharif cropping area due to the unavailability of labour and agribusiness inputs. The procurement of imported raw material like potash and phosphates will also be impacted by logistics issues at international locations.

Packaged Foods, Grocery Retail and Foodservice

Foodservice is the worst-hit sector in India, and globally. Dining-in for all foodservice establishments has been closed due to the lockdown. While food delivery is available sparingly, it accounts for less than 5% of foodservice sales.

The closure of foodservice business will result in a decline in B2B demand. With consumers resorting to stockpiling and cooking at home, demand for packaged food, particularly staples, has benefitted. However, supply challenges are expected during the lockdown, with disruption in logistics and labor movement impacting raw material availability, and the slow movement of finished products to stores leading to low inventory and possible stock-outs.

In retail, modern trade1 (2.4% of grocery retail in 2019) has been a short-term beneficiary with consumers resorting to hoarding. Although grocery stores in malls continue to remain open, with stocked-up pantries and restricted movement, consumers will likely resort to topping-up shopping in their neighborhood grocery stores. The limitation to sell only essential commodities will negatively impact the revenue and margins of the modern trade. Online retailing remains a negligible contributor in India, accounting for less than 1% of total grocery sales in 2019. Although demand has increased exponentially, the limited infrastructure of online grocers is restricting them and they are only able to service their existing customers.

Beverages

On-premise closures will affect beer and packaged water (bulk and bottled) volumes significantly. The impact on spirits will be relatively small, as on-premise comprises under 20% of the annual volumes, and with summer being the low consumption season for spirits. Further retail spending has shifted to food, HPC and healthcare versus recreational beverages (beer, spirits, soft drinks). Packaged tea/coffee is least affected, although there will be lower on-premise (tapri/tea stall) consumption.

For the full year, the recovery in beverage demand will depend on the fiscal measures taken and the wider, macro environment. Premium brands are likely to recover ahead of the economy brands, but smaller, local manufacturers with limited cash buffers (one to two months) would suffer disproportional impact in the event of prolonged disruption.

Grains & Oilseeds (G&O) and Sugar

Household consumption of G&O in India is expected to remain resilient as consumers resort to stocking up and cooking at home, thus offsetting the reduced demand from foodservice. This will result in healthy demand for staples like rice, pulses, edible oil and wheat-based products (instant noodles, biscuits, etc). Restrictions on the movement of trucks, however, might limit the availability in grocery stores. A drop in poultry consumption will result in lower demand for animal feed like corn and soybean meal. Trade disruption will impact import/export of some commodities like rice, pulses, edible oils. Indian sugar production should not be impacted by Covid-19, given government support and the fixed prices for cane. Rabobank anticipates a return to 33m tonnes of production in 2020/21, up 16% YOY. However, there are still potential risks including labor availability and logistical disruptions.

For domestic consumption, Rabobank anticipates a reduction in Indian sugar demand growth through 2019/20, as the lockdown will reduce foodservice and out-of-home consumption. However, domestic demand should remain resilient as in-home purchases of food and beverages continue.

Dairy

Liquid milk comes under essential commodities and the government is ensuring its supply chain, with milk delivered at households and also available at nearby grocery stores. The supply chain of other dairy products is certainly affected. Products like cheese, UHT milk etc. are out of stock at many of the grocery stores and online platforms. Restaurant closures are also impacting the B2B sales of dairy products. Limited labor availability and disrupted logistics due to the lockdown are also impacting the dairy supply chain.

Packaging and Logistics

Lower crude oil prices will lead to reduced feedstock (by-product) prices (MEG/PTA/PP) and will be good for film (BOPET/ BOPP) manufacturers. However, a negative impact on the demand of packaged foods and beverages will also impact packaging demand. Film exports are impacted by disruptions in global trade. The lockdown is expected to impact manufacturing operations due to labor unavailability and logistics disruptions.

All in all, it is clear that the 21-day lockdown will disrupt distribution and logistics. The impact on foodservice will also impact cold logistics. Global trade disruption also negatively impacts general business due to the non-availability of containers and the increase in transportation costs.

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1 Modern trade includes hypermarkets, supermarkets, convenience stores, discounters and forecourt retailers

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  • Ping Chew

    Head of RaboResearch Food & Agribusiness - Asia
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  • Shiva Mudgil

    Analyst - Dairy
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  • Umesh Madhavan

    Analyst – Consumer Foods
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  • Ankur Raj

    Analyst - Farm Inputs
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  • Sudip Sinha

    Senior Analyst - Beverages
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  • Oscar Tjakra

    Senior Analyst - Asia
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  • Charles Clack

    Commodity Analyst
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