Australian industries which will take on more responsibility during the COVID-19 pandemic

The reality of the current pandemic has hit us incredibly hard, and incredibly fast. As we adjust to social distancing, remote working and the fact that life will likely be different for some margin of time, we simply move forward with our adjusted reality and adapt.

With this in mind, a lot of investors are looking towards the market and estimating that initial panic should subside and an ‘adjusted reality’ will present itself, like in crises before it. In similar instances of economic downturn in the past, there have still been high performing sectors, born out of economic necessity.

With many sectors losing in the current crisis, longevity is something that people are naturally concerned about. However the reality of our economy is that people must continue to trade for goods and services, and at the moment, some of those are more in demand than ever.

While in some cases, entire industries find themselves at a crossroads, others may see themselves presented with an opportunity in the next 12 months to consolidate their position. 

Not all sectors are equally exposed to risk. Many businesses will make it to the other side, and some might find a way to grow and prosper through the crisis. 

According to an IBIS World Special COVID-19 Report for Australia, “Some subdivisions, such as the Grocery, Liquor and Tobacco Product Wholesaling subdivision, are set to see an increase in demand from the effect of the COVID-19 outbreak. Similarly, operators throughout the food, beverage, sanitary and cleaning product supply chain have seen a significant increase in demand for products, as a result of COVID-19.” 

The impact of COVID-19 and opportunity for food and beverage

The Food Product Manufacturing sector will likely be severely impacted by the pandemic, with falling demand from China. Major food service chains such as McDonalds and Yum China have temporarily closed, and there are delays in supply chains as well as a shortage of workers. But it’s likely going to be short term only.  

According to the report, agriculture might suffer initially from the pandemic. Sheep, beef and dairy cattle farmers have benefitted from growing chinese demand. The outbreak of the African swine fever increased China’s demand for meat as their own pig herd was cut in half. 

But since the COVID-19 outbreak, demand has fallen again. 

“However, in the long term, this is likely to benefit agricultural producers, as demand for Australia’s high-quality produce is forecast to increase. Consumers in China have already begun avoiding the traditional wet markets in favour of online businesses and supermarkets,” the report says. 

Grocery sector, sanitary and health struggling to keep up as consumers stock up on essentials

One of the most obvious impacts the COVID-19 outbreak has had on daily life is the way consumers behave. The threat of lock down has driven many to panic buy non-perishable items including pasta, other pre packaged foods. Even though it has certainly been frustrating for fellow consumers it has also increased demand and given the sector a lot of business. Major supermarkets Coles – who recently broke its all-times highs – and Woolworths have reported empty shelves and had to hire staff to handle the workload. 

Covid-19 has caused an increase in demand for sanitary products such as toilet paper, tissues and hand sanitiser. With most people and businesses acquiring additional hand sanitisers to combat the virus, on top of an elevated demand from hospitals and health care services, manufacturers are struggling to keep up. Some companies have taken the opportunity to enter agreements for selling bigger batches of these types of products. 

China and other parts of the world are interested in Australian health products in particular, such as tea tree oil, hand sanitiser and vitamins. One company that is already benefiting from this is Zoono (ASX:ZNO). 

The antimicrobial company secured a five-year distribution agreement with Beijing Youmeng Technology and Development, to supply their products to the Chinese childcare and hotel sectors. The deal includes a minimum purchase volume of $NZ 1.5m ($1.4) in the first 18 months alone. 

As a response to the pressure the health sector is under at the moment, the NSW government recently introduced a $700 million health stimulus package to spend on improving health services such as conducting extra Covid-19 testing, purchasing medical equipment and establishing acute respiratory clinics. It was part of a $2.3 billion stimulus package. Some of that money was designed to go to employ additional cleaners of public infrastructure, and bring forward maintenance. 

Health care is one of the cornerstones of society. People will continue to need care, and as it is now, will likely continue to be a priority.  

Sources:

• IBISWorld COVID-19 Economic Assessment
• nsw.gov.au: $2.3 billion health boost and economic stimulus
• Stockhead: Bug killers: Zoono has become a 13-bagger in 4 months as China seeks a coronavirus solution
• Stockhead: Coronavirus spurs China’s appetite for our tea tree oil, hand sanitiser, honey, medicine, technology

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