Some of its largest customers are shut down because of COVID-19, but the agriculture industry is proving ever resilient, finding new ways to get produce to market and feed the nation, even as health concerns and social distancing rules erect one barrier after another.
Few industries are as experienced as agriculture at dealing with the unexpected. Drought, floods, unseasonable weather and other events too frequently upend even the most careful projections, forcing producers to become adept at surviving even the toughest conditions. Here, Bank of America specialists who work closely with agriculture businesses share insights into how the industry is responding.
What are the greatest challenges facing agricultural businesses right now?
As grocery shoppers clamor for dairy products, fresh vegetables and meat, many farmers and ranchers have surpluses they can’t get to market because of disruptions in their normal supply chains. If you’re a cattle rancher accustomed to having your choicest cuts of prime rib end up on the tables of high-end restaurants, that market is suddenly gone. Hotels, resorts, cruise ship companies and shopping malls have closed, eliminating key markets indefinitely. And switching to new buyers and transportation routes amid a fast-moving global pandemic is a monumental logistical challenge.
Food processing plants—another key market for farmers and ranchers—are operating with reduced staffs and stringent new health protocols. Companies are slowing their production lines and spreading people out to maintain social distancing. Despite these steps, some plants have been forced to shut down—sometimes for days—to disinfect when a worker comes down with COVID-19. All of these have created bottlenecks for agriculture.
And while many industries have been forced to lay off workers during the coronavirus crisis, most farms are struggling to find workers and to ensure their safety. One challenge: School closures have left many farmworkers homebound, caring for their young children. Some crops, such as nuts, can be mechanically harvested with small numbers of workers, yet picking delicate produce such as avocados remains labor-intensive. To attract the workers they need, farmers are offering higher wages or even paying for day care for workers’ children.
To help ease the situation, the U.S. government has dropped its requirement of in-person interviews for H-2A guest visas for migrant workers. Yet it remains to be seen whether such steps will generate enough workers at a time when millions of families are isolating at home. Over the longer term, the COVID-19 crisis may speed the transition to automation, with more farmers turning to robots to harvest crops.
What key internal and external factors should they be reviewing?
Farmers should be carefully reviewing their “burn rate” for cash—how much they’re using, what they’re spending it on, and how quickly. Those who are harvesting now or who have dairy cows producing milk every day already feel the pressures of COVID-19 and a disrupted economy. Those still in the planting or growing phase may have a bit more time to prepare.
Either way, it’s important for any operation to ask questions such as: In a worst-case scenario, if business disruptions caused us to shut down temporarily, how long could we sustain ourselves? It’s also a good time to review crop insurance and other policies to see whether and to what extent any losses related to the coronavirus may be covered.
Farmers who switch crops from year to year must plan months in advance what to plant. That’s a tough task during an ever-changing pandemic and an economy so full of uncertainty. Major warehouse stores and grocery chains base their orders on sophisticated analysis of economic trends and consumer tastes and spending trends. Keeping close tabs on industry news could help farmers make key decisions. A deepening crisis could mean leaning toward staple crops, while more optimistic projections about restaurants reopening and jobs returning could suggest focusing on higher-end specialty produce.
What steps should agricultural businesses consider now?
Many farmers have begun selling directly to consumers through improvised retail operations and community supported agriculture (CSA), where members buy shares of a harvest. With social distancing rules curtailing traditional farmers markets and “pick-your-own” agritourism, businesses are offering drive-through options. Such approaches won’t compensate for traditional sales volumes but can keep cash flowing through challenging times.
Communication with key partners is essential. Farmers who speak frequently with key suppliers and customers may be able to anticipate supply chain disruptions and how they could affect business. Meanwhile, farmers with concerns about liquidity, credit and debt may want to speak with their bankers about options before problems develop. Their banker may also be able to provide information on access to government CARES Act stimulus programs.
At the same time, it’s important to remember that while the pandemic presents unique challenges, the agriculture industry, with its long history and extraordinary production capacity, is well positioned not just to endure the crisis but also to help the country endure.