Agricultural imports around the world is a multi-trillion dollar business.
Much of this trade is conducted using the US dollar. According to the World Trade Organization’s (WTO) statistical review for 2019 (which looks back at 2018), exports of agricultural products in 2018 grew by 5% year-on-year.
The top three exporters of agri-products were the European Union, the US, and Brazil. The share of soybeans in world exports of agri-products was 3.3%, valued at $60bn, and soybean exports grew a little faster than agri-products overall (3.1%).
The UN’s Food and Agriculture Organization (FAO) says world agricultural trade increased "more than threefold in value" between 2000 and 2016, from $570bn to $1.6 trillion, driven not least by population growth and the rising demand for food.
Slower growth now: but still growth
The continuing global panic over the Covid-19 virus is distorting all manner of markets but one certainty is that the world’s population is still growing and thus food demand will continue to grow.
Many media outlets are publishing statistics regarding Covid-19 but their reliability and guidance are questionable.
In the UK for example the latest figure suggests there have been 2,626 diagnosed cases of Covid-19 and 104 deaths. This bald statistic needs a context - which could be, for example, that around 1,800 deaths happen every year from road accidents in the UK.
Meanwhile as panic buying of food and other goods, and the closure of all kinds of public venues gathers pace, financial markets have seen a rush into the US dollar, seen as a ’safe haven’ right now. As the world’s ’reserve currency’, the US dollar has gained against all major currencies.
The Australian dollar has touched its lowest since 2001, the Canadian loonie touched a four-year low, Sterling has lost more than 12% against the US dollar, the Indian rupee has touched an all-time low, South Korea’s Won fell to a ten-year low. Norway’s krone has lost 20% of its value against the US dollar in the past two weeks.
The spectre of the 2008 financial crisis has appeared, with a fear over the availability of sufficient US dollar liquidity.
The US dollar’s strength is a mixed blessing
The US dollar is a vital lubricant for all the world’s trade, including agriculture. Its strength against just about all other currencies will inevitably make agri-imports more expensive for nations paying for those imports.
This will have a contradictory impact - US producers may well hope for higher prices for their exports, but a higher cost for importers could well dent demand.
It will certainly induce a hesitation among non-dollar importers before contracting at these exchange rates. A swift return to calmer markets - and a weaker US dollar - is to be hoped for.