Covid-19 Update: Retail Fresh Produce Demand Soars, but Landmines Remain

What was once a run on items like toilet paper, hand sanitizer, and bottled water has now become a run on all grocery items, including produce. As foodservice and school closures have become more widespread, at-home menus have expanded, and retail food demand has rapidly increased. Foodservice demand for fresh produce and tree nuts – and all other food – has virtually stopped, but produce industry suppliers claim that retail purchases are making up for it. According to IRI, overall fresh produce sales at retail grocery were up 34% YOY for the week ending March 15. Sales of fresh fruits and vegetables were up 27.3% and 40.6%, respectively, YOY for the week. Covid-19 control measures have become even more stringent since then, and we expect that the surge in produce sales has continued.

Table 1: Fresh produce sales at retail surge in mid-March

Fresh retail item	Weekly sales YOY increase (week ending March 15)
Potatoes	71.6%
Oranges	60.9%
Onions	59.2%
Mandarins	50.2%
Tomatoes	43.2%
Apples	36.9%
Berries	31.8%
Lettuce	29.1%

Source: IRI, HortiDaily 2020

The ‘healthfulness halo’ around fruits, vegetables, and tree nuts could also be a positive factor that lasts longer than the Covid-19 outbreak. Online sales and grocery delivery business have also risen significantly. This scenario will likely lead to retailers permanently ramping up investment in their online marketing channels to meet what could be a more permanent shift for some consumers.

Export Demand, Trade, and Logistics – The Stronger US Dollar Is a Problem

While border closures and human travel restrictions continue to expand, the functions of the food value chain are considered essential and are exempt from such restrictions. However, logistical complications have arisen, and other economic forces are at play. There have been reports of a slowdown in container transport of goods over the last three months, particularly due to backlogs in China. Recent reports suggest that logistical constraints have already peaked and are now improving.

US tree nut exports have been mixed. In February, almond exports were up 7% vs. February 2019. Walnut and pistachio exports were down 21% and 22% respectively. However, pistachio supplies this season are down 21%, so sales as a percentage of supply are tracking well. Walnut supplies are down only marginally, and exports were already lagging before the Covid-19 outbreak. Increased competition from Chinese walnuts this season is likely the biggest reason for the weaker US walnut shipments.

A potential drag on US exports is the rapid strengthening of the US dollar. The USD index has risen 7% since March 9. As a global recession is now imminent, money is flocking to the safe-haven currency. This will have impacts that outlast the coronavirus. Tariffs and a strong US dollar are powerful forces in hindering export demand.

The key concern is the safety and availability of farm employees, particularly as California is beginning to ramp up production of vegetables and berries on the Central Coast, which requires a significant amount of hand labor. The US embassy in Mexico announced that it has suspended processing many types of visas. The US Mission to Mexico (who processes most H-2A visas) is still planning to process H-2A visas. They are giving priority to returning workers who do not require interviews. We do expect a slowdown/delay in H-2A workers arriving to the US, because procedures are having to adapt to provide for recommended social distancing.

The US agricultural industry has already had a general shortage of farm labor for years, so this is all happening against an already challenging backdrop. The labor challenge is not just a California issue. The Southeast and Pacific Northwest tend to use more H-2A workers than California does, in both absolute terms and as a percentage of farm labor. As spring is now here and summer will quickly approach, regional fruit and vegetable production will be occurring in every part of the country. Any increasing constraint on labor will impact the entire US.

In an attempt to help rectify the challenge, the USDA is working with the Department of Labor to allow H-2A workers who are already in the US and whose visas are about to expire to remain in the US and transfer into other agricultural jobs as needed. Additionally, agriculture groups are aggressively working with the government to ensure that even H-2A visas that require interviews can be efficiently processed.

Due to the global Covid-19 outbreak and subsequent government responses around the world, there is an increasing likelihood that purchasers of agricultural goods – and many goods for that matter – will claim a force majeure event that excuses them from contract performance. Product already shipped and/or delivered, but not paid for, obviously creates the biggest risk. Increased incidents of force majeure claims are most likely to arise in international trade, particularly in light of government restrictions on global foodservice industries.

The overall impact of Covid-19 on the produce industry is generally more positive than negative right now, but things are changing daily. Retail demand is strong, but potential drags are looming. We will continue to update our clients as the situation unfolds.