As a result of its economic depth and breadth, the COVID-19 black swan dirty bird is impacting everyone around the globe. A webcast participant recently asked,
“COVID-19 has changed many aspects of farm businesses. Which shifts do you see as permanent changes?”
First, everything in the long-run is variable and the term “permanent” has too much finality. However, I feel there will be some interesting debate and discussions concerning this sudden impact event bestowed upon agriculture.
Exports and trade
For those producers who are dependent on export markets, times will be changing. While the recent trade sanction constraints provided a preview, expect much more intense negotiations in the next few years. Moving forward, China's role in agriculture trade will be extremely volatile. The trend from globalization to selective globalization for products ranging from agriculture commodities to technology and manufactured goods is going to be one of the outcomes. The United States-Mexico-Canada Agreement (USMCA) will most likely be honored as the North American strategy with an emphasis on Canada and Mexico as strong agriculture trading partners in the future.
As a result of the COVID-19 pandemic, economic power struggles may occur between large global and national companies and small businesses in the future. Will the “bigs” gobble up the “smalls” and fuel rapid consolidation? Heated discussions will occur in mid- and late 2020 and beyond concerning government stimulus and grant programs, and how these funds changed the balance of power. Small businesses and entrepreneurship have built America, and this includes farms and ranches. Consumers, society and political leaders will be pivotal in maintaining the balance of power between big and small businesses. An analysis of history finds that black swan events can often lead to a concentration of power and more government control.
Continued black swans
A game changing black swan event has occurred in every decade since World War II. Oil embargoes were experienced in the 1970s which led to oil shortages and increased prices. These increased prices and rampant inflation brought a rapid rise in interest rates in the 1980s. Excessive speculation in internet-related companies led to the dot-com bubble of the 1990s. The 2000s were fraught with uncertainty due to 9/11. The Great Recession began in the late 2000s and its effects were carried over into the next decade. Now, we have the big dirty bird called COVID-19.
The importance of building and keeping working capital and cash as a management skill will continue to be extremely important in the future for both farm businesses and personal finances. When preparing for future black swan events, financial literacy and a rainy-day fund to prepare for future adversity are the fundamentals that will stand the test of time.