By Ken Waghorne, VP of Global Packaging
While the COVID-19 pandemic has cut demand for many forest product segments, packaging paper and board is a notable exception.
As seen in Asian markets in January, and then in European markets as the virus spread, the immediate impact of the US response to the pandemic has been a shock to the supply chain. Panic buying led to a run on items in many retail stores, and images abound of store shelves empty of merchandise. However, consumer go
ods remain abundant further up the supply chain, and it seems that retail outlets will once again have plenty of merchandise once the panic buying abates.
There is the potential for shortages to develop later this year, especially as many manufacturing facilities curtail production. However, a more significant factor could be delays in deliveries of intermediate goods from around the world, especially China, which was the first country to take draconian steps to control the virus.
A notable effect of virus control efforts is a steep drop in away-from-home (AfH) consumption, in favor of at-home consumption. Many state and local governments have begun to implement bans on large scale gatherings to restrain the spread of the virus. Closures of sit-down restaurants are expected to have the most significant impact on packaging demand, since a considerable amount of packaging is used in the transport of goods to away-from-home food establishments.
However, people still need to eat, and any losses in the away-from-home segment will be offset by increased spending on food consumed at home. The chart at right shows our preliminary projections of how spending patterns may shift during the next year.
We anticipate that overall consumer spending on foods, and consequently industrial production of processed foods, will contract modestly during the middle of the year. One reason is that meals at sit-down restaurants tend to be higher-value than foods consumed at home. Another is that the sharp reductions that are occurring throughout the service sector of the economy are going to lead to reductions in personal income, which traditionally lead to reductions in spending. The most severe reductions are typically in luxury products, including some of the service sectors that are being forced to close, but consumers also shift to more modest food consumption patterns when they are tightening their belts.
Empty store shelves, and long periods of work-at-home, may lead to accelerating penetration of e-commerce into traditional retail outlets. Food in particular shows substantial room for online growth, as people seek some alternative to the food they normally splurge on at restaurants.
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