Direct and Indirect Effects of the COVID ‐19 Pandemic on EU Agri‐Food Trade

ABSTRACT Introducing and lifting COVID‐19 restrictions caused significant disruptions throughout the world economy, including in international trade. This study employs a panel gravity model to examine the impact of the pandemic on the agri‐food trade of EU countries. Specifically, we estimate the direct effects of the intensity of lockdown‐type policies on bilateral trade across country, product, and time dimensions, and the indirect effects of those policies as they work through domestic market impacts. We also decompose the indirect effects of COVID‐19 between the domestic demand side and supply side impacts. We provide insights into the sources of pandemic disruptions by comparing a ‘no‐COVID’ counterfactual scenario from March 2020 to February 2022 to the COVID‐19 reality. Our data analysis reveals a loss of 162 billion EUR in agri‐food trade due to direct and indirect effects of COVID‐19, equivalent to 11.3% of imports over the period. Approximately half of this total is comprised of intra‐EU bilateral trade. The COVID‐19 effects were proportionally greatest in the trade of fats and oils, and animal‐origin products, while vegetable‐origin and processed food products were affected only about half as much. Reduced intra‐industry demand was a dominant source of indirect effects in the trade of non‐processed food. In turn, the weakening of consumer demand was the main factor behind trade losses in processed food imports. The proportional trade impacts differ greatly across EU countries.