Ag economist says COVID recovery will come in three stages
Virginia Tech's David Kohl says entrepreneurial spirit will be important in emerging from pandemic.
Traders refer to an unprecedented occurrence like the COVID-19 pandemic as a "black swan event" and the recovery in the agricultural community could go through three more bird-like phases. That is the prediction from Virginia Tech Ag Economist Dr. David Kohl.
He sees the event playing out in three stages with the general and agricultural economy currently experiencing the dirty bird, which is associated with the shock of the event. He says that will be followed by an angry bird phase lasting from May 1 until the end of 2020. During that time, Kohl predicts the nation and agricultural community will move into a period of bickering.
“Which will get nasty and emotional. We’re going to start really questioning do we want to get everything from China? We are going to kind of question any of the plans that come out of Washington D.C., the state or even the local government,” he says.
The final stage will occur in 2021 and according to Kohl will be the rising of the mythical Phoenix.
“What will happen is once we get past this current environment, we will move into the creative part; in other words, we’ll take a lemon and turn it into lemonade," he says.
This is where he thinks agriculture will have the most positive recovery of any segment of the economy, especially among younger farmers and ranchers who are very entrepreneurial.
“They’ll have the solution for this," he says.
Some economists say the recovery in the U.S. economy will be either V-shaped or U-shaped. However, Kohl is predicting more of a Nike swoosh or gradual recovery, especially in the ag economy.
“You see 70% of the Western countries, including us, are driven by a consumer. However, 40% of that consumer has been taken right out because they are at home. They are not traveling, and I am not on the airlines,” he says.
He says until the U.S. consumer gets enough confidence back in the medical system to resume normal life, recovery will be slow. In fact, he predicts a major shift from globalization to de-globalization.
Kohl says the recovery in the stock market off the lows is not an accurate reflection of the health of the economy.
“Think about this: a lot of the stimulus funds are going to the big companies which has propped up the stock market, but when it starts, you have a lot of small businesses going under. Until you have confidence in the job sector and small business, you’re not going to see this economy come back,” he adds.
The $19 billion Coronavirus Assistance Program that the U.S. Department of Agriculture rolled out will be helpful to the agricultural industry according to Kohl. However, he says the $16 billion of direct payments will not be enough, especially the $9.6 billion for livestock and dairy producers.
“The program provides a bridge, but the livestock industry probably needed double or two and a half times the amount in the package to just cover the minimum losses," he says.
Regardless, he recommends farmers keep good records because documentation with these programs will be extremely important and may help build the case for more assistance in the future.
Kohl adds that the COVID-19 pandemic has uncovered the weaknesses in the supply chain, especially the meat packing industry. He thinks as a result, agriculture needs to question or reexamine the amount of consolidation.
“I can pretty well spot the rural areas where these plants are just by how the cases are distributed," he says.
He says looking back in history you see a power struggle to go to more concentration.
"So, we’re going to have to be really careful of that and the power players taking out small businesses," he says.