An Economic Report: Covid-19's Impact on the UK Food Supply Industry

This report provides an economic analysis of the UK food supply industry's response to the Covid-19 pandemic. It examines the impact of the outbreak on the demand and supply dynamics of retail foods, explaining key economic concepts such as shifts in supply and demand curves. The report details the market failures that arose and explores the governmental and economic policies implemented by the UK government to address these challenges. These policies include poverty programs, tax measures, and subsidies aimed at stabilizing the economy and ensuring food security. The analysis covers disruptions in the supply chain, changes in consumer behavior, and the overall economic consequences of the pandemic on the food sector, offering a comprehensive overview of the situation and the measures taken to mitigate its effects.

Economics

EXECUTIVE SUMMARY
This report presents about the impact of Covid-19 over the UK food supply industry in
the economics terms. It describes the impact of the outbreak on the demand and supply of the
retails foods in eth UK economy. It explains the key concepts of economics. It addition to this,
economic and governmental policies which is being implemented by UK government in order to
overcome the challenges faced by the economy.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Movement of supply curve..........................................................................................................5
Shift in supply curve....................................................................................................................5
Movement of demand curve........................................................................................................7
Shift in demand curve..................................................................................................................7
TASK 2............................................................................................................................................9
UK governmental and economic policies for addressing the market failure.............................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Economics plays a crucial role in regard to the everyday life and gaining an
understanding about the economics helps in understanding the past present, future and enhances
the ability to apply it to the society and the nation as a whole. It is the study about the human
decisions in respect to the scarcity of the resources. Macro-economics is the brand of economics
which undertakes the study about the overall economy which involves the inflation, price level,
economic growth rate, unemployment and so forth. This report deals with the understanding the
concept and theory of economic in regard to the UK food supply industry after the immediate
effect of Covid-19 on the food supply system. In addition to this, it covers the various initiatives
taken by the UK government in order to control the food supply and demand within the
economy.
TASK 1
The economic is based upon its core theories and laws and the most important of it is the
law of demand and supply. The law of demand states about the change in demand in respect to
the variation in the price of the product considering other things to be constant. As the price of
the good increases, the demand of the same falls and vice versa (FERNANDO, 2020). While in
contrast to it, is the law of supply under which the change in the supply is evaluated on account
of change in price while other factors remain the same. It is opposite of law of demand, as the
price of product increases, then the supplier of the product rises the supply with the objective of
earning higher profits at higher prices.
Sometimes, economics is also referred to as the subject that works on the human
behaviour. It involves the psychology, ethics and so forth, under the definition of it. It is
considered to be social science as it works on one of the aspect of human behaviour pertaining to
how humans deal with the scared resources (HAYES, 2020). It basically accounts for the
activities of the human beings living in a society and how these activities are related to the
earnings and creation of wealth. In the modern economics, there are 2 branches, one is positive
economics which mainly deals with the economic phenomena and is relied upon the facts. It tries
to establish a cause and effect relationship. For instance, govt. funded healthcare surges
expenditure. In contrast to it, the other is normative economics, which focuses on what
economics should be and deals with theoretical situations. For example, govt. should make
available to every citizen important healthcare system.

By the application of the economic theories on the situation of UK food supply market
will help in effectively analysing the situation due to Covid-19 on the economy.
Movement of supply curve
It refers to movement along the supply curve due to the changes in the quantity supplied
of the good due to the variation in the prices while other factors remaining the same. In regard to
the UK food supply amid Covid-19, it resulted into increase in the price of the products
especially the food product which are essential commodity at that time.
It can be interpreted from the above that as the price of the food commodity increases
from 10 pound to 20 pounds, the supply of the same increases from 10 units to 20 units which is
because of the reason that the supplier wants to gain higher profits because of charging higher
prices. In this way, the movement of the supply curve took place under the Covid-19 situation.
Shift in supply curve
It accounts for the change in the supply due to the change in the factors other than price.
In the context to the UK food supply situation, these are the following factors that resulted into
shift in the supply curve.
Government policies
This factor can affect the cost of production and the cost of manufacturing s well. For
example, UK government imposed sugary tax on the food products which is treated as the cost
by the businesses which has resulted into decreasing the supply (Shifts in Market Supply. 2020).
This results into shifting the supply curve to the left. The below graph represent the leftward shift

in the supply curve due to imposition of government policies resulted into increase in the cost of
production causing reduction in the supply. It can be seen that the as the cos increases from 10
pound to 20 pounds, the quantity supplied declines from 10 units to 7 units causing supply curve
to shift from S1 to S2.
Government subsidies
This is opposite of the above point, in order to control the situation where the
unemployment increased due to loss of jobs, the UK government comes up with initiative of
providing essential commodities at the subsidized prices (Krugman and Wells, 2017). This
happens when the firm reduces the firms tax or the pays directly to the them which results into
deceasing the cost of production and in addition increases the supply at every point leading to
rightward shift in supply curve. As depicted, in the below graph, the government subsidy
resulted into lowering the cost production and increased the supply leading to shifting the supply
from point S1 to S2.

Movement of demand curve
The movement in demand curve takes place when there is change in the price of the good
affecting the demand of the good. Under the situation of UK food supply during Covid-19, the
prices of food products increases leading to reduction in the demand non-essential food products.
The above graph depicts that as the price of the goods increases, the demand of quantity
declines leading to movement in demand curve from point A to B.
Shift in demand curve
It happens because of the factors other than price of the product. Following are factors
which affected the demand of UK food.
Fall in income and the increasing unemployment

The fall income resulted in decline in the demand of the food products causing inward
shift of the demand curve (Shifts in Market Demand. 2020). The reduction income is also
because of the reason that there was an increase in unemployment in the UK economy due to
Covid-19. It can be seen that as the income decreases from I to I1, the demand also decreases to
Q1 from Q.
Substitute goods
During the pandemic the demand of substitute goods increased as price of the other
similar product increased. The substitution effect lead to rightward shift in the demand curve
because of increase in demand of substitute goods as shown below.

Consumer surpluses and shortages
The situation of consumer surplus arrives when the amount that producers wants to sell
do not match with the amount consumer wants to buy. If surplus remains, producers may not
have enough cash to pay their workers. In contrast, is the situation of shortage in which at the
price there is excess demand of the goods and was the situation faced by the UK food supply
during Covid-19.
TASK 2
The emergence of Covid-19 has resulted into market failure as it has shocked all the
major segments of food supply chains which also resulted into affecting the farm related
production, food processing, logistics and in meeting with the final demand of the goods. All the
sectors have not been affected in the same way and in addition, different products have also
experienced different type of disruption at various stages of the supply chain. The outbreak of
Covid-19 caused unexpected stress over the food system resulted into creation of various
challenges. In March, UK government announced lockdown which resulted into layoff of the
employees along with loss of income. It has resulted into impacting the retail groceries with the
panic among the people to grab as much as possible at one time as there were chances of future
shortage of food products. As in the month of April, even the grocery and food shops were
facing the problem of shortages of dairy products along with the farmers whose main customers
were in the food service supply chain. Due to the lack of demand and inability to transport
resulted into dumping of excess milk. In addition to this, it has led to disruption in the food
processing industries which was majorly affected due to the concept of social distancing in

addition to the shortage of the labours due to sickness or lockdown pressures. Apart from this,
confined spaces like the packing plants in respect to the fruits and vegetables or meat processing
bases, the implication of social distancing affected the efficiency of the operation which requires
adequate protection for workers.
Bottlenecks pertaining to transport and logistics have highly affected the movement of
the goods along with the supply chain. In broad way, there were basically the 3 main modes of
transportation in regard to agricultural and food products are – ships, barges, containers like
boats, truck or rail and other sources of road transport and air freight. The effect of COVID-19
on these transport modes differs like the bulk shipments have not seen any crucial impact but the
air freight has been severely disrupted. The disruption is majorly because of steep fall in the
passenger air travel which mainly involves the majority of air cargo capacity. The transportation
and logistics issues has been mostly in the context of the perishable food products which are high
in value such as fruits and vegetables. Apart from this, it has also been impacted due to the
quarantine measures and delays in border check-ups.
Along with the above crucial point, it is important to note that the Covid-19 has resulted
into drastic shift in the consumer behaviour as they have started consuming food at home which
results into requiring changes in the way the supply of the food is earlier being done.
UK governmental and economic policies for addressing the market failure
There were various initiatives taken by eh UK government in order to overcome the
market failure due to Covid-19. Following are the few strategies being implemented by UK
government for controlling the situation.
Poverty programmes
The emergence of Covid-19 has caused increase in poverty among the UK population
which was almost 700,000 involving 120,000 children who were dragged into poverty because
of the economic crisis. On an overall basis, the pandemic has pushed nearly 15 million people in
poverty which accounts for 23% of the population (Coronavirus: New rules to protect British
firms amid virus. 2020). The UK government has placed a stimulus package which will help in
speeding up the economy and this focused on stimulating the demand majorly hit by the
pandemic. It involves the policies for the ‘Plan for Jobs’ which would cost around £20 billion. It
will help in bringing out people from the poverty line and help in restarting their business or
work in a better way.

Taxation
The emergency tax measures were undertaken by the UK government but were limited,
majorly comprising limited deferrals of VAT along with the income tax payments, in addition to
1-year business rates holidays pertaining to few of the sectors like the retail, hospitality sectors.
HMRC is in place which is a “Time to Pay” scheme to be utilized on a case basis and after this
scheme, it has been reported that more than 70,000 new tax deferrals arrangements were been
agreed (Tax the wealthy for coronavirus. 2020). Apart from this, there were other measures taken
by UK in regard to providing support to the businesses in respect to revenue. It involves various
loan funding schemes along with the employment grant schemes which also involves the
coronavirus job retention scheme. In addition to this, the government has also announced the
temporary VAT rate reduction on the supplies of food and the drinks which are non-alcoholic
from the restaurants, clubs and the other similar premises which was otherwise, subjected to
standard rate of 20% which was reduced to 5% for the 6 months ending to 12 January 2021.
Fiscal policies
Pertaining to fiscal policies, the UK government has taken measures for supporting the
households and the families during the pandemic. It has made additional funding for the NHS
and charities amounting to £48.5 billion. The government imposed 3 loan schemes for
facilitating business’ access to credit. The government adopted the package for the purpose of
protecting and supporting the economic recovery. On November the UK government had
published the expenditure limits for FY2021-22 and for FY2020-21, COVID-19, the support
measures are estimated to be at £280 billion (Coronavirus and the impact on output in the UK
economy. 2020). The businesses, which were closed due to the government restrictions, will pay
2/3rd of the salaries of the employees up to the maximum of £2,100 per month and the employers
will cover social contribution as well. the grant scheme for the self employment was even rise to
40% from the 20% limited up to £3,750. In addition, the grant was provided to the businesses to
£3,000 a month in respect to the businesses in England. The firms in the high alter areas such as
the hospitality and accommodation along with the leisure sector will be given additional grant
limited to £2,100 (Spending Review. 2020). In January 2021, the government implemented the
most toughest Covid-19 restrictions and has also announced a £4.6 billion fresh financial support
package pertaining to the struggling organizations. This amount has been divided into two
parts, £4 billion is the top grant which is for estimated 600000 hospitality and retail industry

which can claim to the amount of £9,000. Also, there will be additional £594 million
discretionary fund for supporting the other firms not eligible for these grants but were impacted
by the government restrictions.
Social welfare strategies
The government under the social welfare had announced £750 million of funding in
respect to the frontline charities which also involves the domestic abuse victims. In addition to
this, £360 million has been directly provided by the governmental department for
the social welfare and charities for the purpose of supporting the people during the crisis. In
addition to this, £370 million of charity will be given to small and medium charities. Along with
that, the organization which are having less than 250 employees will be obtaining a refund
directly from the government for Statutory Sick Pay (SSP) paid for the time frame up to 2 weeks
because of Covid-19.
It can be said that the government with the help and support of stimulus packages and the
taxation policies has been able to effectively handling of the market failure due to Covid-19 and
the initiatives of the government helped in getting job and supported in starting new business.
CONCLUSION
It can be concluded from the above that the UK retail food supply had been greatly
affected by the pandemic which resulted into market fluctuation and failure. This has also
affected the lives of the people. In addition, this also lead to increase in the price of the food
product which are essential. In order to overcome the market failure situation and recover the
economy, UK government has implemented various measures and policies pertaining to it such
as the fiscal policies, social welfare policies, taxation policies and so forth. On an overall basis,
these policies have resulted into effectively responding to the UK market failure.

REFERENCES
Books and Journals
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