The short and mid-term Covid-19 impact on agriculture: food supply chain

The domestic and global food supply chain — from the farm to grocery shelves — will look different than it did before the COVID-19 pandemic. Especially as the world continues to implement safety measures to adapt to the virus. Most of those changes will happen gradually, while others have accelerated industry trends and are already underway. Either way, the COVID-19 impact on the food supply chain will continue to evolve as it relates to production, processing and distribution.

When COVID-19 grew into a headline-grabbing health danger in the U.S. back in March, knee-jerk reactions happened everywhere. This included panic buying of products deemed essential. Household items such as toilet paper and food products like ground beef, bread and dairy were suddenly in short supply. Stark images of empty grocery store shelves prompted widespread conjecture about the sustainability and viability of the food supply chain.

Beyond basic supply and demand — disconnected farms and grocery shelves

The scenario that unfolded connected people’s innate motivation to provide essential food and nutrition needs to concern about whether the virus would impede our ability to sustain the food supply chain in the future. Questions emerged about whether there would be enough food and household products. The answer accounts for much more than basic supply and demand.

“We expect when we walk into a grocery store to find anything we want any time of the year,” according to Purdue University Agricultural Economics Department Head Jayson Lusk. “The food supply chain has done a remarkable job of dealing with an incredible disruption. It doesn’t mean that consumers can’t sometimes find exactly what they want. But there’s been food available; we just have to be realistic about the different ways this situation has challenged the supply chain.”

Empty shelves don’t indicate a food shortage in the U.S.; there’s ample food supply. Images of empty grocery dairy cases were shown alongside video clips of dairy processors dumping tankards of milk. The juxtaposition naturally led to questions about the divide between the two sides of the supply chain. Our nation’s food system is seasonal in nature and very specialized. This means that decisions are made throughout the year to pivot processing capabilities. Similar to decisions that auto manufacturers had to make to quickly begin producing ventilators instead of vehicles. It’s simply not feasible.

“There’s a surplus of milk on the farm side and a shortage on the consumer side. But, there are people in the middle who need to get that milk moved and packaged into how we’ll consume it,” Lusk said, adding the closure of schools and restaurants has contributed to the difficult dairy situation. “What’s the form of milk in schools? Little cartons, very different from the gallon jugs we buy at the grocery store. A restauranteur might buy a 50-pound block of cheese instead of a small bag of grated cheese. Processing plants have capital invested in these kinds of packaging, and it’s not like they can flip a switch and start packaging things differently.”

Knee-jerk reactions sometimes get in the way of food market fundamentals

Consumer food supply chain pricing is typically a function of supply and demand; the products that experience price spikes in times like the COVID-19 pandemic are usually staples that see aggregate demand climb and supplies decline, even after initial knee-jerk panic buying. In the case of the virus, however, Lusk said pricing has not tracked supply and demand because of the logistics of processing food products such as eggs and different cuts of pork, beef and poultry.

“Not all meat is created equal in the face of this virus. Changes in primal beef prices reflect how different products are used, and what is used more often away from home,” he added. “Some of it is due to differences in the supply chain, but you can see the extent to which different products are used in different markets.”

Food supply chain vulnerabilities exposed — particularly in beef processing

COVID-19 and its human response have exposed vulnerability in the food supply chain and around the world. The meat processing sector embodies that vulnerability. The sector has become incredibly efficient; economies of scale have some of the nation’s largest facilities capable of sustaining the beef, pork and poultry supply chain with ease. But when stressed by a virus trimming the workforce, the efficiency plants become the industry’s Achilles heel.

“This is a ‘just in-time’ production system. If one of these largest plants has to shut down, there are aggregate impacts. We’ve had three plants that represent 15% of the total U.S. pork processing capacity shut down, and beef plants that slaughter at least 1 million head/year apiece account for 56% of the nation’s total beef slaughter,” Lusk said. “We have workers not showing up or getting sick, and we’re slaughtering many fewer steers and heifers because of plant slowdowns and shutdowns. It’s brought us down significantly from where we were this time a year ago.”

Though he said he expects livestock producers — more so in the beef sector than pork and poultry — will take steps to cut back on the number of animals sent to processing, such a move will take time to manifest itself broadly on the consumer level. “Hopefully we’ll be okay on the consumer side. It’s a very fluid situation to keep an eye out for in the days to come,” he added.

COVID-19 outcomes in the food supply chain down the road

The COVID-19 pandemic will lead to more structural changes on how food is produced and distributed to consumers. Today’s supermarkets will look a lot different in the future, regardless of whether safety measures like social distancing are part of the post-COVID-19 lexicon. Just as in other sectors of the food and agriculture industries, evolving will be a matter of accelerating trends previously in place, Lusk said.

“E-groceries was already an upward trend that’s likely to continue as people try these services for the first time out of necessity. They just might stick to it, and home delivery may change a lot in the future as people think about whether it makes more sense to have some products delivered from a warehouse instead of walking around a big grocery store,” he said. “We’ll eventually have warehouse robotics available at a scale that it makes sense for workers to be accompanied by robots. Trends like that will increase. We’ll have another longer-term trend of grocers focusing on fresh fruits, vegetables and meat and scaling down in size. With all the rest of the stuff that’s more homogeneous, packaged and processed, we’ll rely on Amazon and other delivery services.”

COVID-19 food supply chain outcomes down the road

In the restaurant sector, dining out may look entirely different in the future. Some restauranteurs may meet changing consumer demand to provide prepared foods. The same dishes they could enjoy in a restaurant — just in their own kitchen and delivered to their door.

“It makes sense for places to open [standalone] kitchens, just not the same types of places where you go in and sit down to dine. We’ll see some more interest in that sort of thing,” Lusk said. “This will add to current curbside pickup and things like that, and these will be the first toes back in the water. It’s hard to predict, but I think those trends will further accelerate as we emerge from this situation.”

On the production side, automation to make the food system less reliant on a smaller number of processors may help. It can contribute to a more sustainable food supply chain in the event of future events like pandemics. But that’s easier said than done. Current regulatory hurdles, like USDA inspection of meatpackers, must be resolved to help production of the supply chain evolve. At the same time, local food systems will see a surge in popularity. Consumers will be likely to connect more directly with the farmers, ranchers and other suppliers.

“What do we do about issues with processing plant issues? I think it will further efforts to invest in automation. The thing about processing food and animals is they’re not uniform, like a car. That makes it tough to automate the process. There are developments out there and there will be further calls to introduce automation into meat processing,” Lusk said. “Even in some big processing companies, there are questions about geographic differences.  Will they be willing to operate slightly smaller plants with similar economies of scale? We will have to lower regulatory barriers and challenges to companies setting up regional plants that aren’t quite as large.”

Editor’s Note: This is part five in our series of the effects of the COVID-19 impact on agriculture. Explore other articles here.

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