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COVID-19 Effect: From Oil to Food and Beverages Companies

The coronavirus outbreak was first reported in Wuhan in December 2019. Wuhan is a city in China with ~11 million inhabitants and it is a capital of the Hubei Province. The outbreak of COVID-19 has spread across China and other worldwide parts with confirmed cases of ~119,132 worldwide—with maximum cases in China.

Coronavirus Disease (COVID-19) is a novel global issue and effecting major regions apart from China including Italy, Iran, Republic of Korea, France, Spain and Germany at top among others. As per the updated facts from John Hopkins, till 11th March 2020, 119,132 confirmed COVID cases were recorded with 4,284 deaths globally. The communicable disease is majorly affecting the global markets and highly responsible for tumbling economies. The dramatic financial volatility owing to spread of the coronavirus led the Organization for Economic Co-operation and Development (OECD) to cut the global growth to 1.5% in the year 2020.

With continuous increase in coronavirus cases, it is difficult to estimate the economies losses close to accurate which were already witnessing the slow-paced growth. But studying about the impact of epidemics on economies in past may shed some light on the current situation. Companies are taking various strategic initiatives to maintain the strong withhold in the market in this situation globally.

The Aviation Industry is the most effected business, due to temporary bans on international travelling by regional governments around the world. As per the International Air Transport Association (IATA), the airline industry will witness a loss between $63 billion-$113 billion this year due to outbreak of novel coronavirus— a decline of 19% if compared with the year 2019— calculating this financial loss equivalent to the loss faced during the global financial crisis. IATA have added that airlines business in the Asia-Pacific (APAC) region is estimated to witness highest loss with ~$57 billion in passenger revenues this year. China Southern, China Eastern, Hainan Airlines, Cathay Pacific, Singapore Airlines and All Nippon Airways (ANA) & Japan Airlines among others are some airline companies dominating the loss-incurred list of airlines.

Limiting travel and long weeks shutdown in China, a region which hold second position in oil demand—as per the U.S. Energy Information Administration— is influencing the oil and gas industry. Covid-19 outbreak coupled with failure of OPEC to cut down the Oil Production is stemming up the negative sentiment on oil prices which is predicted to directly impact the domestic oil and gas companies. Due to the impact of Covid-19, China’s oil demand anticipates a loss of ~3 million barrels/day. As per Dan McTeague— President of Canadians for Affordable Energy, the COVID-19 outbreak has probably accounted for a 40% drop in oil prices.

Food and beverage companies have not been witnessed any direct economic impact of the coronavirus emergency yet. As of now, there were no incidences reported due to infection from imported goods— said by the Food and Drug Administration (FDA). As per the International Dairy Food Associations, the FDA and other regulatory bodies establish protocols and processes to ensure food safety for consumers. As per the safety procedure, all milk and dairy products must undergo multiple quality, sanitation and safety procedures at every stage such as farm, in transit and at processing plant. Considering business segment, the companies dealing in the food and beverages segment are impacted due to demand fluctuation and barriers in operations, if production plants of companies are situated in China or other infected-prone regions. For instance:

  • Diageo, the alcohol drink manufacturer based in Europe reported decline in consumption rate in Thailand, Japan and South Korea. As per the current financial forecast by the company, coronavirus is responsible for significant loss since the end of January month and can cause loss of $259 million in sales this year.
  • Danone, the beverage company based in France announced that it has closed its Wuhan-based factory due to COVID-19. Wuhan-based factory is the major supplier for Chinese market which is the second largest market for the company.

Apart from these major sectors, other directly or indirectly related sectors are impacted due to this epidemic communicable disease.

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