How COVID-19 crisis impacts food industry producers?
By originalsThe virus outbreak is a worldwide tragedy and has a lasting effect on the producers of the food industry. Because the rumors revolved around more than facts in the pandemic, people were worried about food security. Food security is the availability of food items to all people, and it was questioned everywhere. Consequently, the general population rushed towards panic buying and started storing canned foods and long preservable food items.
The supermarkets and grocery stores were emptied out as a result, and a sudden rise in demand troubled many local food industry producers. With the closure of international borders, imports and exports are out of the equation. There is a dire need for local food producers to fill the gap. Many governments continued with the life-aiding products even in the lockdown. Grocery stores are open with limited operative approval. This creates a huge opportunity for local food industry producers.
Whereas the international food industry has seen a disastrous impact amid the crisis. As the epidemic is completely unprecedented, it moved every corner of the business world. The transportation restrictions, shipment bans have affected every profession. Russians have proposed the idea of keeping their grains’ production inside the country and not exporting the product. These crises are impacting food producers.
Although we empathize with the persons affected and their families by the virus, the financial crisis it has brought to the food industry is immense. We could have a food-crisis at our hands in no time. There are huge losses in incomes for the Food-Industry- Producers. Meat processing plants are closed in some countries, hence impacting the supply chain.
The producers who relied heavily on exporting their food items are suffering the worst with the border controls, and pandemic tensions. People are avoiding the use of food products coming from other locations, as it might contain virus imprints along. COVID- 19 pandemic has impacted the food industry producers who only, or mainly, exported their goods. Now, they are either closed or smart business persons who are looking to utilize the opportunities in the local markets.
Hoarding by consumers resulted in sudden empty shelves with no demand in the coming days from those buyers. Since the panic purchasers have stocked up the food items for weeks to come, they will not be buying those food items again in the coming weeks. Do not take empty shelves as a huge demand for granted, before storing excessively in your warehouse after filling the shelves, consider the actual demand.
Since eat-in at all restaurants is prohibited in most countries around the globe, there is a huge decrease in commercial food items. The food industry producers who were manufacturing commercial food items have been hurt badly. Products such as potatoes and milk have seen a sheer decline in the market’s demand.
Price gouging has also impacted the food industry negatively. Merchants have increased the prices above the agreeable rates without rationalization. This has gained them short-term profits but it has impacted the food industry in the long term categorically.
How to mitigate currency risks during the COVID- 19 crisis
World economics is rapidly changing around the globe because of the on-going COVID19 crisis. Currency rates are fluctuating rapidly and creating global unrest. Many countries and experts have sat together in dismay to work out the solutions to the resultant economic crisis. Currency risks during the COVID-19 crisis are alarming.
Only recently, the world economy had seen the Oil crisis due to COVID19. The money matters were brought under questions as the next possible victim of the virus. Patients are put in quarantine, and the populous at large is observing self-quarantine and social distancing practices to avoid the spread. There are border restrictions, travel bans, hotels and restaurants are closed. This unforeseen situation has created a demand shock for currency. Every corporation knows the currency risk could hurt their sales. Still, they are somewhat secretly hoping everything will turn out for the best in the future.
The worldwide supply chain is disturbed, and the end-to-this crisis is nowhere to be seen as of now. People are concerned and threatened by the endemic. Every businessperson is worried about what is going to happen soon. Outlets are closed; people are reserved about spending and going out. This situation has created a supply disruption for bills and notes. Also, the virus is supposedly spreading through hard cash. People are getting affected when they touch a contaminated currency note. Cashiers at banks are getting infected, banks are being sealed, and it is going out of control.
One can mitigate the currency risks during the COVID19 crisis by using a hedging instrument called forward contract. This contact locks the currency rate once agreed upon by both parties. This instrument is used by organizations when currency fluctuation is evident, and the deal is created to alleviate the currency risks.
The contracts made amid COVID-19 could carry additional risks as the customer might not be able to pay on the due date. The financial institutions will charge penalties for that delay, and both parties could suffer from it. Even after considering these risks, a Forward Contract is still the best practice to carry out in the pandemic.
Another hedging instrument provided by banks and other financial institutions is the FX options, and it is more flexible in its’ nature. There is one demerit to that with many demerits. The disadvantage is having to pay an upfront fee. However the advantages come in numbers, such as flexibility is phenomenal when comparing with Forwarding Contracts. The choice of FX options is another benefit, as many institutions provide FX options for the sales and purchase of your goods.
A business could reduce the currency risk if they don’t have to lock up their capital in the dealings. There are guarantees provided by your banks and you will not need to put up with collateral. These guarantees are Forex Facility Guarantees (FXG). Apart from these documented strategies, one can learn to predict currency risks when developing budgets for your company. You could lock the currency rate internally for your financial budget, to avoid unforeseen risks involved. Keep the predictions on the lower side as it is better to prepare for the worst.
