Keith Woodford says the implications of coronavirus COVID-19 have become much starker for New Zealand as the virus goes global

Keith Woodford says the implications of coronavirus COVID-19 have become much starker for New Zealand as the virus goes global

It’s only fifteen days since I wrote about the coronavirus black swan. In that time, both nothing and everything has changed.

In that time there has been no scientific breakthrough of a treatment or vaccine. Shockingly high transmission rates in the absence of strict quarantine were evident both then and now. Mortality rates have not changed greatly.  However, the outbreak has now progressed along its global path. Consequently, the evidence is now much starker and closer to home.  

Fifteen days ago, I said that we were understating the effects that this COVID-19 virus would have on daily life. In part that was because many people were trying to compare the early-stage incidence of COVID-19 with the all-of-year situations from common types of influenza. Also, there was a void between those who understood something of epidemiology and those who understood something of how economies work. 

Quantitative economists have been caught like possums in the headlights. Their econometric models are unsuited to an event like this. The problem for these economists is that we have never in the past seen a similar disruption on which they can base their models. In contrast, supply chain specialists are better skilled to see scenarios for supply chain disruption. However, transferring that knowledge through to employment and economy-wide effects requires another skill-set that few if any people possess.

Fifteen days ago, the coronavirus focus was on China. In the background, the cases of Hong Kong, Singapore and Japan were signposts to how things might or might not play out. I pointed to those in my article. At that time, the remarkable success of China in reducing disease transmission was less evident than now.

Back then no-one was thinking about South Korea, Italy and Iran. How could one predict that it was in those specific countries where the next coronavirus black swans would emerge?

The closing of schools across Japan, the cancellation of major sporting events in many countries, plus the exponential growth of the epidemic in South Korea, Italy and Iran, have all changed public perceptions in recent days. There is increasing acceptance that a global mega-event is apparently bearing down upon us.

Increasingly it looks like Germany, France, Spain and even the USA all have internal community transmission occurring with no clear back-traces as to source. Where do we go from here?

There are still lots of unknowns. Will this virus have the same exponential growth in tropical countries as in countries still coming out of winter? I see indications that it does not transmit as freely in tropical countries – for example Vietnam, Malaysia and Singapore have not experienced the same exponential growth rates as Italy, South Korea and Iran, or even Japan. But any hypothesis about winter versus summer transmission could be easily blown away in the coming days.

The key experiential message to date is that ultra-strict quarantine, linked with diligent tracing of transmission pathways from the outset, is the only way to stop or at least slow down the pandemic.  Does that mean in New Zealand, for example, that all international arrivals should be able to demonstrate support networks to self-isolate? That would largely restrict arrivals to residents.  How can any other approach hope to break the transmission pathway?

It now seems inevitable that New Zealand as well as most of the world will head into recession. The key issue becomes rapid support for those who lose their employment. This is much more important than the specific number of the GDP decline.

There is considerable risk that the Government and Reserve Bank will use the wrong macro tools. Adjusting interest rates looks like the wrong medicine. The priority should be to get cash into the hands of those who currently live week-to-week.

The idea of bringing forward new infrastructure projects might sound great but such things cannot happen quickly. A ‘helicopter approach’ of getting cash directly into the hands of those who need it might well be the best approach.

Two weeks ago, I anticipated the major agricultural industries would be more resilient than many other industries. This was because I expected the exchange rate to drop and that has indeed been occurring. Also, as long as the coronavirus focus was on China, I was confident that the Chinese Government would keep food imports flowing. That is still the case.  I am advised that dairy exports to China are indeed flowing but beer exports are stacked up. How that might now play out in other markets is less clear.

Although China has now passed the first hump of infection, China’s path forward remains opaque. My China networks tell me that there are a lot more people out on the streets, but the specifics vary by province and even county. In reality, China has always operated a decentralised system.

The problem in China is the likelihood of pockets of coronavirus just waiting to burst forth as soon as people start using public-transport systems. Also, many Chinese factory workers live in factory dormitories where there is minimal personal space. From today’s data, it looks as if new cases might be starting to creep up again.

I now expect the forestry downturn here in New Zealand will be for many months and may well go beyond this year. It is very hard to see a rapid bounce-back in Chinese demand for logs.

China has other options to radiata logs from New Zealand. European spruce that has died from bark beetle is now being logged. It fits the same formwork market niche as our radiata logs. This was disrupting the market even prior to coronavirus.

The New Zealand meat industry faces a real conundrum with complicated logistics. The meat companies lack the financial power to purchase large quantities of stock without clear visibility as to where markets are going. They may well need bridging finance from Government. Many farmers are already stressed by the effects of drought and lack of feed.

In recent weeks the Chinese Government has advised its citizens that they should consume the equivalent of 300 ml of milk per day to help with their immune systems. If Chinese citizens tried to do this there would be a huge shortage of dairy products which neither China nor New Zealand could fill.

As for tourism, the effects for New Zealand look like being disastrous. The notion from a few weeks back that new tourists could be sought from regions of the world other than China was always more than a little naïve. Planning of overseas holidays by nearly all global citizens is now on hold. Perhaps some real Aussies might still come, as well as the deportees.

What we now need from our Government is clear communication of strategies and required behaviours if and when the epidemic should really strike here. At what point would schools be closed, sporting events cancelled, and people asked to work from home?

Whatever is decided it may well be too late and our health facilities will be overwhelmed. The global evidence is now very clear that health workers are particularly at risk.

It is all about the stitch in time. That might be right now.


*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. Previous article on Fonterra’s challenges can be found at https://keithwoodford.wordpress.com/category/fonterra. You can contact him directly here.

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84 Comments

I suggest a snap election as i have lost confidence totally in this current set of twits to do anything positive in the face of this emergency for the country, bring back Helen !

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No point having an election if there is no one better to vote in...

woke vs joke

This lot are proving poor, there nothing to compare to, unless you think earthquake.

PM, pm dept and health minister, poor. COL thrives on climate crisis, not so good on health crisis.

Who from private sector, or military should step and lead?

Would have a joint "war cabinet".

Yes when the flock realise it was the Nats and their laughable "double agriculture by 2025" that got us into a one trick addiction to China they will feel a bit stupid.

Both as bad as each other

There is pretty 5/8 of sweet FA can be done about this, other than attempting to minimize any effect here from the disease itself, and I think both Labour and Nats would do much the same, as there are few options. Until this is over, we are hunkered down, and possibly a bit pleased that we are a food providing nation (so long as we remember we have to eat as well).

Well we all know National would have re-opened the borders by now to appease their CCP paymasters.

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Well done Keith, saying it like it is and not spinning it. It's bloody grim...grimmer than grim. Survival time, not road projects time for sure. The narrative needs to change reflecting what we need to do. Proper planning so we don't end up in chaos when the truth dawns.

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Agreed - great analysis and commentary.

I agree too, no need for all this massive fiscal spending as most of that money ends up in the construction company accounts and with their shareholders. We are going to have to support alot more beneficiaries

We still need projects so people will have jobs, but lets just pick what is really important

Another excellent piece.
Any thoughts on what the economic emergency response is?
It will probably be lower the OCR, which will have minimal impact.
It will probably also be targeted assistance to tourism operators etc.

I know some really capable CCP officials who may lend their experiences in managing this crisis.

No value judgment pls. We hope the best of NZ.

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ha ha ha, hilarious!

Is Presitator Xi eyeing up a new job, in a country without an extradition treaty?
Head for the hills you little honey loving bear!

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Funny I had my comment deleted this morning for no reason? And this clown still is allowed to push the party line...my days on this site are numbered.

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Yes. It was me who deleted that comment. The reason was it was nothing more than a very personal attack on another commenter. Criticisism of their post is ok, but not when you make it personal without any mention of what the idea they posted..

On reflection fair enough, I will do my best to behave from now on and wade through the propaganda posts.

Good on you, David. It seems these days the interest.co comments section far too often descends into personal attacks with an absence of intellectual discussion or economic reasoning.

Yes that's what Stuff is for.

Economic Reasoning?

The oxymoron of all time

all nationalities are welcome to stand up a candidate, anythings better than what we have got

Please ready your donations for your list MP spot.

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During the collapse of the NZX and the introduction of a deadly virus to NZ via an open pathway from Iran JA was busy in Australia attacking Scomo as he is sending NZ citizens back to NZ, even though she is happy to recieve his unwanted refugees from god knows where? Mental!!!

What would you have her be doing instead? Hand delivering face masks (which do nothing)?

That was almost a week ago - the narrative has changed drastically in a week.

Sorry meant to post his article from today

There goes the budget surplus. Welcome Helicopter Money. More QE. More asset inflation. Welcome to 2008.
#BlackSwanVirus.

SmoKey
Targetted help to those who need it does not need to be associated with QE. NZ is fortunate to be running surpluses and has the capacity to fund targetted assistance. Although a major recession could change that. It is all about applying measures that can actually be efective without asset inflation.
KeithW

Keith, targeting now would sure be taken as an election gimmick. Don't think that will wash now.

Andrewj,
There has been some evidence around for a long time linking milk to breast cancer, but the evidence has never been considered conclusive. Yes, there have been suggestions that it is linked to A1 beta-casein but no-one has investigated that properly.
KeithW

My usual comment: Chinese infection data is massively under-reported. Politburo is using reporting stats purely as a tool for propagandizing - they need the sheep nice and calm and compliant so that they will get back to work propping up the economy regardless of the cost in lives. I don't doubt that the rate of spread has decreased but the numbers are orders of magnitude higher.

Doesn't really matter anymore, there are now enough cases in countries with reliable reporting that the truth will become apparent shortly. And its beyond containment, so now its down to slowing the spread and dealing with the sick.

Do you think a country with strict quarantine enforced by speedy execution will have more cases than a country with voluntary isolation without repercussions?

The Chinese communists have a lot to answer for regarding coronavirus. Notwithstanding the suspicious origins of the virus, they castigated doctors, squandered opportunities by holding mass gatherings and celebrations. They did nothing to slow the flow of people around the world. The did the opposite by working with their puppet WHO to keep up international flights. I'm hopeful that the rest of the world can do better than the Chinese at slowing the exponential growth rate. But then again... if the R0 is actually around 6, as some scientists believe, then we're screwed.

The R0 is closer to 7 we are screwed. Why we are really, really screwed is that 90% of the population here think this is a non event. The thought of a 2 week isolation for many people is like giving them a 2 year jail term when all most of them do is just tap away on a keyboard or look at their phone all day anyway. This was always going to be a disaster with the current leadership in this country. Helen Clarke would have had us in lockdown weeks ago.

R0 is 7? Where is your evidence for this?

That's the rounded upper estimate from the Los Alamos National Laboratory.

Thanks - that number is significantly higher than any other estimates.
This is interesting: https://www.statnews.com/2020/02/14/disease-modelers-see-future-of-covid...
"The Los Alamos researchers are still wrestling with their Covid-19 model, which is showing — incorrectly — the outbreak “exploding quite quickly in China,” Del Valle said. It is overestimating how many susceptible people become infected, probably because it’s not accurately accounting for social isolation and other countermeasures. Those seem to have reduced R0 toward the lower range of 2-to-5 that most modelers are using, she said."

There's a bit of word play there. The question of whether there was explosive growth depends on whether you believe the official Chinese data. The LANL scientists used their own empirical data, satellite imaging of traffic flows, translated health commission documents. Yes the R0 can be lowered by taking precautions, quarantine, contact trace etc, but that's missing the point. The R0 can also measure the rank order of infectiousness. For example how do AIDS, Spanish flu, smallpox, etc compare on a level playing field. That level playing field is people living their everyday lives.

I like the "speedy execution" bit

Recent coverage of Hong Kong suggests the CCP is actually pretty good at speedy execution.

I reckon it already is beyond containment. I personally don't see any way out of it economically and the *only* solution I see is a vaccine. Until that comes, it's going to be a nightmare.

Little to no chance of containment. Unless we have strickter quarenteen rules than Chuna...

ICYMI: China’s Decision to Leave Asymptomatic Patients off Coronavirus Infection Tally Sparks Debate https://www.caixinglobal.com/2020-03-01/chinas-decision-to-leave-asympto... [registration required]

Mr T,
I am cautious of that article. The Chinese don't hve the resources to be testing people who are asymptomatic, and there will be very little of that sort of testing occuuring anywhere in the world. The exception could be South Korea where they have a particular demographic (religious) group of concern and they do have an excellent health system. Even the US lacks the facilities to be testing asymptomatic people.
KeithW

Leaked official instructions to province to destroy all data and evidence on outbreak. So definitely nothing to hide then.
https://youtu.be/MRagZsnEc2Q?t=42

Foyle,
We should be careful not to ignore the Chinese statistics without evidence. I have been studying China for more than forty years - it is now more than 46 years since I first went there. There is a tendency for low level officials to hide bad news but that can happen in all societies. The Chinese medicos are publishing a lot of good data in the international medical journals and it seems to stack up. It is higly likely that the disease level in Hubei is grossly underestimated on account of the authorities being overwhelmed. The Chinese themselves have said that they don't know the true level there but that is also occurring in other places including Italy. But I see no evidence of that for other Chinese provinces.
KeithW

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I've spent years there too and have had family and business connections going back 80 years. Chinese are individually nice but have an evil top-to-bottom corrupt govt who are careless of human life. There is a tonne of evidence from myriad sources that they have been lying about the numbers and working hard to cover up going right back to the huge contradiction between early December first case, known rates of spread in ignorant populace, and official numbers since mid Jan. Media give them a patina of legitimacy by reporting them - I understand why (financial consequences of challenging vindictive and powerful PRC) but they should not be serving PRC as defacto mouthpieces.

No. The endemic dishonesty in China is not something that 'can happen in all societies'. It depends on a level of individual fear and mass coercion that happens only within tyrannies. And such a tyranny as the CCP presides over deserves no such apology. This is exactly the language the United Front agents and fellow-travellers use amongst our political and business class. It is the language that has corrupted many of the foolish, those with their eyes fixed on the money, and those whose bellies are full of banquets. The disappeared deserve our honesty.

I should also add Keith, that I really appreciate the work you do, and that you take time to engage with the hoi polloi. Even when I hold a different opinion.

China still looks to be almost completely shutdown.

https://www.theepochtimes.com/nasa-satellite-images-show-significant-dec...

RB is in the mode of "If anything happens anywhere, we lower the OCR". This can be anything from "Employers having a bit of a whinge about their future, but they are still doing fine and pipelines are robust" to "Oh poop the housing market looks a bit wobbly" to "Worldwide virus" to... well, insert anything else. Basically they need it to be constantly reduced to keep the growth mantra alive. They will use any reason and probably are just making up new ones half the time anyway.

Universities now looking at job cuts, just as everyone else will be too. Tourism operators will be at the front of that as well, which will likely mean heaps of temporary visa holders leaving and permanent staff layoffs. Expect some big unemployment numbers coming up... helicopter money will be inbound. What happens after that is the real question.

In a normal market, inflation would jump and we would be into a mini death spiral for a while as the RB will be forced to increase rates to deal to inflation, but this will cause more pain for businesses, who will then lose more staff, round and round, until we hit somewhere between 7-15% interest rates and all the chaff is removed from the economy, leaving only productive enterprises. Rates can then be reduced to stimulate spending - just like the last dozen or so crises.

In "the new paradigm" (which nobody admits they are in), they may just break their inflation rate targets and say they only care about a "growing economy" (which hasn't really happened for a long time anyway). If multiple central banks decide this is going to be the way forward, what happens next is anyone's guess. Likely mass money printing, which will lead to runaway inflation and queues for basic goods, followed quickly by riots and a general reset.

Check out powder's posts, he is illustrating what we are really up against here. We have gone beyond planetary limits (energy production/resource allocation) with our economic system and until we resolve this, expect calamity.

In "the new paradigm" (which nobody admits they are in), they may just break their inflation rate targets and say they only care about a "growing economy" (which hasn't really happened for a long time anyway). If multiple central banks decide this is going to be the way forward,

At some point they'd almost have to admit openly that it's more about preserving certain folks' asset wealth.

Jon Cunliffe, deputy governor of the Bank of England, said on Thursday that since coronavirus was “a pure supply shock there is not much we can do about it”.

https://www.ft.com/content/58410fea-5a30-11ea-a528-dd0f971febbc

Ht M Riddell

Andrewj,
I agee strongly with that perspective. Giving the wrong medicine for a supply shock would seem a waste of time and with inevitable confounding effects.
KeithW

This is serious, not just because of the threat itself, but how we prepare and react to it.

We are not well prepared for much of anything in NZ, whether it's being able to build enough warm, dry, affordable homes, or the expected big earthquake, or a Pandemic. It's much more fun to be seen as the 'battler', 'the underdog' reactionary against adversity, rather than proactive boring stable steady as she goes type.

And we might be affected more than most, as our indoor living environments are in such poor condition, and promote the growth of bacteria and the spread of viruses.

If a house has good ventilation with a temperature of 20C to 23C and relative humidity of between 40 and 60 %, then bacteria and viruses find it almost impossible to survive.

Most NZ houses do not have these conditions.

Care to share your evidence for these claims?

The fact the majority of our housing stock was built before 2007(?) when a reasonable level of insulation actually became a requirement?
And having lived in a dozen or so pre-2000s houses over the years. Stonking hot and humid in Auckland summers, and cold and damp in Auckland winters. And from what i've seen, the rest of the countries housing stock isn't much better. MAybe chch is a bit better because of the post quake building?

what you say might be true, but anecdote is not evidence

Hahaha, you think the building code is a reasonable level of insulation.

Thank you

From Page 359:
"The fresh air ventilation rates found in older leaky buildings may dilute the concentration of pathogens, allergens and noxious chemicals in the indoor air and offset some of the health problems associated with relative humidity"

I'm not sure what you are implying by this cherry-picked one sentence,but it sounds like you are making a case for th benefits of leaky homes?

To put some context around this, what they are saying, which is true, if a building is leaky enough ie highly ventilated, then this may mitigate problems that may be associated with relative humidity in a poorly ventilated building, leaky or not.

But both these options are the two worse options out of a number of combinations that a house can have. And which one they have is largely determined on how they are built.

The best option is a house that is water, wind and airtight with a high degree of insulation but has matched vapour permeability so any vapour movement through the wall/roof is keeping the insulation within its own humidity safety levels. This will keep the insulation R-value its optimum performance rated level.

The internal conditioned living space should between 20 to 23C with humidity between 30 and 60 degrees relative humidity with a controlled ventilation rate via a heat recovery unit of approx 3 air changes an hour. In theory, you can control the ventilation rate manually, but it is difficult to do, so most people don't, and even if you come close it is always at the expense of the R-Value.

Uncontrolled ventilation via leaks in a building cannot guarantee correct R-value, humidity and health levels.

The point of my original post is that between 30 and 60 degrees relative humidity then it is almost impossible for a virus to be active. If a leaky home is ever in this phase, it is by chance, temporary and hard to control.

"I'm not sure what you are implying by this cherry-picked one sentence,but it sounds like you are making a case for th benefits of leaky homes?"

yes, irony. Like goldy and bronzey, but made of iron.

On your last para: it should read "almost impossible for a virus to be active on a surface. If someone is coughing or sneezing or talking for that matter, relative humidity is not gonna help"

Apologies for cherry picking just one sentence....

Another well-written article, thank you Keith.

It's amazing how the whole thing can evolve from bad to worse in less than 3 weeks. It looks like a pandemic is inevitable. I think China's efforts have proven two things: 1. Strict quarantine can only slow down the spreading of the virus but cannot contain it fully 2. Strict quarantine is not sustainable as it paralyzes the country. I suspect NZ might have shifted to the Singaporean response model whereby the authority acknowledges that they cannot contain the virus, hence they are treating it as a more contagious flu: Mild to moderate patients will get over it by their own immune system, and the hospitals will treat the seriously sick. I still believe the population density, primary residence and commute style are in our favour. Tho I hope Mr David Clark is no Phil Twyford in his space...

Au contraire. After early exposure Singapore is right on top of it. Their active case numbers are diminishing over time. They are a model of aggressive competent management ferreting out infected that no where else is coming close to matching. They are the one country that might actually beat it. The west won't because we lack sufficiently decisive polticiians (more concerned about looking uncool than they are of killing tens of thousands)

NZChinese: that is a sensible summary of our situation. My 96 year old mother with tottering health will definitely be a goner. I'm an active 72-year-old so I guess that puts me 3/4s at home and 1/4 in hospital. My sister is 67-year-old with some health problems so that puts her 1/2 in hospital and 1/2 at home.
But levity aside, I think you and Keith have both acquitted yourselves very well with your admirable and insightful grasp of the situation.

Tend to agree this has been underestimated or simply down played intentionally.

We (the collective of sheeple & our sheppards) have as consumers, lenders & leaders caused what looks to be a pending economic sh*t storm. We have been greedy little pigs (or sheep I suppose) yet again. Lapping up the proceeds from the QE slush funds (over $4 trillion on the Feds books, it's still buying $60 billion in bonds per month....we're junkies), tax cuts (nice move Trumpy), historically low interest rates (it's the cool thing to do if you're a central banker) & juicy bank deals for that extra house, mega mortgage or industrial block. We have our pants down, this black swan will expose the risk in the govt, banks, personal & corporate balance sheets. Should've played the safe game since 09.

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The down draught from this swan as it lands will blow away a number of beliefs. Among them, that globalisation offers the most beneficial of national economic strategies; that it provides the greatest international or geo-political security; that the CCP's China is moving inexorably towards becoming a more benign state and is thus a worthy strategic partner; that conditions for New Zealand's prosperity are best linked to the CCP's China; and that our commodity industries are the best judges of strategies for economic well-being and our trading future.

Keith. The issue with "helicopter money" is having the framework in place to ensure the money gets to its intended destination.
In NZ the PGF fund has had , amongst others, the noble intention of helping the rural provinces who have previously missed out on investment with an added focus on supporting Maori development and employment.
The reality to date is the powerful city consultants and advisers are getting paid six figure fees for a few months work. What money to date has actually reached a local's hands?

Wilco,
I have similar concerns
KeithW

Will it get worse before it gets better ?
Italy is the wild card with Europe in the back drop.
It is good that highly populated countries like India, Indonesia, etc are not affected much. Hope it stays that way.
But heard that the testing was faulty in the US and the number of positives may increase soon.

There is a big difference between what the governments are reporting as official figures and what is actually happening on the ground. There are governments even reclassifying patients with this so its not Coronvirus. Most of the official figures are complete rubbish and they are in the denial phase still. America is hardly testing anyone so therefore it doesn't exist. The next phase for them is likely to be the undeniable stage, the numbers go through the roof and its all over social media.

Evidence please

If there is going to be a big cleanout on our already over populated globe it will be in those countries that have the maximum population density and the minimum health infrastructure. There are plenty of candidates; think Egypt, Ethiopia, the whole of East Africa, India, Sri Lanka, Bangladesh, the Philippines and Indonesia to name but a few. But if everything comes to a standstill, including airliners, at least carbon emissions will decrease. What was that catchphrase from the Vietnam war? "we had to destroy the village to save it"

I am absolutely disgusted how our primeminister and Govt is handling the Corona virus.Reading in the media about how other passengers of the flight have no idea what to do so take action into their own hands.Unbelievable!Come on we need strong intelligent leadership.Please Jacinda !thousands of peoples lives our at risk!

Tiny anecdote from a FOAF. I'm in Tassie atm, so story is Oz focussed. Son of said friend returned to Australia on Saturday, from Singapore. Total pax on the flight: 3.

I suppose Tassie is like voluntary self-isolation, better than Stewart Island.

And a very intelligent and well written article Keith