Summary
Smaller scale ACP fruit and vegetable exporters are being more severely impacted by the economic effects of the Covid-19 pandemic than larger ACP fruit and vegetable exporters. This suggests smaller ACP exporters may well need financial assistance in surviving and bouncing back from the trade and economic consequences of the pandemic. There could potentially be a role for the EIB in providing bridging financing for smaller ACP fruit and vegetable exporters, provided mechanisms can be found for the early delivery of such support and reliable repayment. The EIB could usefully review its existing programmes to see which of these could provide a vehicle for the swift extension of support to the worst affected ACP fruit and vegetable exporting enterprises, which would otherwise be driven out of business by the export market disruptions they currently face.
The small occasion Ghanaian exporter of air freighted mangoes, pineapples and papaya, MakolaHub has seen the Covid-19 pandemic stop all its shipments to Europe. MakolaHub is a newly emergent yet expanding exporter of horticultural products which finds its recent efforts to establish commercial contracts for expanded exports being undermined by the Corvid-19 pandemic. Arrangements established for test shipments are being cancelled in the face of falling orders as catering demand collapses and logistical challenges are faced in getting products to customers by truck across internal EU borders (1).
Ghanaian Exports of Papaya (08072000), Mangoes (08045000), Pineapples (08043000) to the EU28 (2018)
| Volume (Tonnes) | Value € | |||||||
| Papayas | Mangoes | Pineapples | Papayas | Mangoes | Pineapples | |||
| EU28 | 1,057 | 3,816 | 12,474 | 1,592,365 | 29,773,457 | 5,059,725 | ||
| – Belgium | 312 | 144 | 6,940 | 372,484 | 1,162,269 | 6,097,003 | ||
| – Luxembourg | 519 | – | 207 | 876,529 | – | 154,685 | ||
| – Netherlands | 159 | – | 223,443 | – | ||||
| – UK | 67 | 2,748 | 1,010 | 119,909 | 21,108,208 | 3,830,451 | ||
| – Austria | – | – | – | 213 | 248 | |||
| – France | – | 231 | 3,907 | – | 1,710,233 | 4,607,170 | ||
| – Germany | – | 502 | 308 | – | 4,243,018 | 167,820 | ||
| – Italy | – | 191 | 102 | – | 1,549,454 | 202,292 | ||
| – Portugal | – | – | – | 62 | 56 | |||
Source: EC Market Access Bata Base, https://madb.europa.eu/madb/statistical_form.htm
While collapsing market demand is the primary concern for high quality air freighted cargo direct to target markets, for sea-freighted cargoes, the imbalance in the global allocation of reefers and escalating short term leasing costs(with increases of up to 200% (2)), alongside intra-EU freight movement delays pose further challenges (see box).
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The Growing Intra-EU Freight Movement Constraint As the Corvid-19 pandemic gains ground and EU governments introduce social distancing measures to try and curb the spread of the virus, out of home demand for food products is decreasing while growing challenges are being faced in both delivering cargoes to the EU and moving cargoes across internal borders once they have entered the EU. While the greatest problems are faced on the periphery of Europe the situation is changing daily as more and more countries go into ‘lock-down’. Truck drivers are increasingly reluctant to take freight to infected areas for fear they would first be delayed in returning and subsequently subject to quarantine (3). While in most EU member states these fears would currently appear largely baseless with cargo transport still being allowed across most internal EU borders (with the exception of Hungary, where unrealistic health certification for drivers in transit are being imposed), this could rapidly change. With cross border freight movements increasingly being impacted and substantial traffic jams across international borders in the worst affected countries (e.g. Italy), the functioning of the EU single market coming under serious threat (3). This is leading to calls for a concerted EU wide response, with the European Fresh Produce Association (Freshfel). Freshfel is holding discussions with public authorities to guarantee a ‘fresh corridor to fast-track trucks transporting highly perishable fresh fruit and vegetables to guarantee timely supply’. These discussions are focused on: a) ensuring vehicle and driver availability corresponds to evolving freight b) ensuring protocols are in place to ensure trade in essential goods flows (4). The EC is now seeking to coordinate a pan-EU response aimed at keeping essential medicine, food and other goods flowing, along what are being referred to as ‘green corridors’. |
This is seeing MakolaHub looking for alternative markets in the Middle East, although the impact of the virus is also being felt in this region, with flight restrictions being likely to further limit the opportunities for finding new markets.
For a company such a MakolaHub the current crisis could fundamentally undermine the business model being developed, which involves a movement away from working with smallholder farmers (where problems of quality assurance are faced) to leasing on a multi-annual basis (3- 5 years) farms and taking over the complete management of the production process (1). The exporting company thus carries all the risks associated with the Covid-19 pandemic.
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The Reefer Challenge While the initial congestion in Chinese ports resulting from movement restrictions and a national wide lock down in response to the Corvid-19 outbreak is now easing, this has given rise to a serious imbalance in the global distribution of refrigerated containers (3). This has seen a sharp rise in freight rates charged on refrigerated containers (reefers), generally of around 30-50% (8), but in some instances, for short term leases, amounting to increases of 200% (3). This situation could continue for up to 4 to 8 weeks if no further movement restrictions are introduced (3). However, the disruption to the availability of reefers could be prolonged if further movement restrictions are introduced (e.g. the recent announcement by the EU of the closure of its external border for 30 days to non-EU citizens) (5). |
In contrast to the experience of a small Ghanaian exporter, the South African fruit sector with its long established logistical infrastructure and commercial networks, alongside the sheer commercial muscle generated by the size of its export trade, is better placed to respond to the market and logistical challenges arising as a result of the Covid-19 pandemic.
Apple exporters are reporting no direct disruptions of trade to date, with existing logistical arrangements being able to address the problems arising from the imbalance in the global distribution of reefer containers (6).
The citrus sector was slightly more pessimistic arguing ‘those exporting fresh produce at the moment are feeling the effects of delays in ports around the world’, with delays not only resulting in additional storage, surcharges and other costs, but also impacting on the shelf life of the finally delivered cargo (6).
The South African fruit industry is seen as being ‘better positioned to weather the storm than other industries’. This is in part linked to its extensive use of electronic cargo tracking systems as opposed to paper-based system, with this serving to reduce physical contacts and delays linked to personnel shortages. However, it is also in part linked to the pre-existence of ‘multiple back-up plans’, given the sectors long experience of responding to periodic traded disrupting emergencies (6).
| Comment and Analysis The very different experiences of the large South Africa fruit and vegetable exporting sector and newly emergent non-traditional fruit exporters in Ghana, highlights the importance of scale in dealing with the market disruptions, rising transportation costs and border clearance delays arising from the Corvid-19 pandemic. Smaller newly emergent fruit and vegetable exporters will need support in surviving and bouncing back from the economic consequences of the Corvid-19 pandemic.The scale of the economic consequences of the Corvid-19 pandemic is such that across Europe there is a recognition of the need for financial support to not only small and medium sized enterprises but also whole industries. It is clear many African governments are poorly placed to provide such assistance given the projected fall in African export revenues and GDP and the scale of additional health expenditures which will be required (7). While past EU agricultural export stabilisation schemes such as STABEX and FLEX have fallen out of fashion in recent years, there could be a role for the EIB in providing loan financing instruments to provide bridging finance for ACP export orientated enterprises during the economic downturn the Corvid-19 pandemic will give rise to. Many of these enterprises are financially viable and have simply been severely impacted by the unprecedented turn of events in recent weeks. The challenge faced will be how to organise such ‘bridging finance’ arrangements so that the necessary funds can be made speedily available on a basis which secures their repayment. In this context the EIB could usefully review country by country the existing programmes it has in place to determine which of these could potentially provide a vehicle for the extension of bridging loan financing to those export orientated enterprises which while seriously affected by the Covid-9 pandemic would other-wise be commercially viable. In the longer term such instruments could also be used to assist those ACP small and medium sized export orientated enterprises which are most dependent on the UK market, in adjusting to the economic disruptions which a ‘hard Brexit’ is likely to give rise to. For the worst affected ACP countries this could form part of a broader EU policy initiative to revalorise the existing economic partnership agreements, the value of which for certain ACP countries will be profoundly undermined by the UK’s departure from the EU customs union and single market (e.g. St Lucia, Belize and even Kenya). |
Sources:
(1) freshplaza.com , ‘The coronavirus has stopped all of our shipments’, 17 March 2020
https://www.freshplaza.com/article/9199986/the-coronavirus-has-stopped-all-of-our-shipments/
(2) freshplaza.com ‘Refrigerated container rates soar’, 16 March 2020
https://www.freshplaza.com/article/9199142/refrigerated-container-rates-soar/
(3) fleet.ie , ‘Freight Movements Curtailed as COVID-19 spreads’, 16 March 2020
https://fleet.ie/freight-movements-curtailed-as-covid-19-spreads/
(4) freshfruitportal.com, ‘EU fruit and veg industry boosts efforts to ensure continuous supplies’, 18 March 2020
https://www.freshfruitportal.com/news/2020/03/18/eu-fruit-and-veg-industry-boosts-efforts-to-ensure-continuous-supplies/
(5) schengenvisainfo.com , ‘EU Decides to Close All Schengen Borders for 30 Days’, 17 March 2020
https://www.schengenvisainfo.com/news/breaking-eu-decides-to-close-all-schengen-borders-for-30-days/
(6) freshplaza.com, ‘Coronavirus in South Africa: fruit exports continuing as usual’, 17 March 2020
https://www.freshplaza.com/article/9199922/coronavirus-in-south-africa-fruit-exports-continuing-as-usual/
(7) un.org, ‘ECA estimates billions worth of losses in Africa due to COVID-19 impact’, 16 March 2020
https://www.un.org/africarenewal/news/coronavirus/eca-estimates-billions-worth-losses-africa-due-covid-19-impact
(8) COLEACP, ‘Impact of COVID-19 pandemic on international trade in fresh produce’, 19 March 2020
https://eservices.coleacp.org/en/actu/impact-of-covid-19-pandemic-on-international-trade-in-fresh-produce