Covid-19 & Food Supply Chain: Why You Don’t Have to Worry About Food Shortages by, D.R.Barton, Jr.

 

Over a month ago, we saw the first and the most visible sign of the pandemic in our daily lives – bare shelves in the grocery store. First to vanish was toilet paper, then canned & frozen foods, then rice. Amid these rolling shortages, we’ve rightly come to understand that farmers, truck drivers, and grocery store employees are indeed “essential workers.”

My home state of Delaware was one of the last three in the country to register a confirmed COVID-19 case and on March 22nd, our governor issued a “stay at home” order. That very afternoon, I was at the local grocery store and sent two pictures to my wife’s phone. The first is the chicken section of the store.

And this section contained the eggs.

Here’s what my wife saw on her phone:

That joke is age-old but the pandemic has made it funny in an entirely new context.

Fortunately, the bare shelves were restocked within a day or two, however, since certain product categories have been disappearing from shelves all over the country.

Many people have asked me a question I never thought I’d hear:

Will we run out of food?

Recent headlines about meat processing plant closures across the country have only elevated this concern (more on that below).

Don’t worry. Even in the middle of the pandemic and amid economic problems, our food supply remains safe and plentiful.

Here’s why…

The Real Reason Grocery Store Shelves Have Been Empty

Look, there’s no denying that grocery stores have been struggling with restocking. Especially in larger cities, stores on some days will run out of eggs, flour, rice, and other staples – but a lack of food from the source is not the cause. Instead, stores are unable to restock some shelves because our supply chains are having trouble adjusting to the massive shifts in demand we are experiencing.

In early March, restaurants, cafeterias, and schools across the country started shutting down. Even in states that didn’t close non-essential businesses like restaurants, people stopped eating out in fear of the coronavirus. In the span of a weeks, the supply chains that had long steadily supplied food to restaurants, schools, universities, hotels, and convention centers lost most of their demand-side pull.

While many restaurants still accept takeout or delivery orders, the number of total restaurant orders during St. Patrick’s week dropped by 34% compared to 2019 according to NPD Group. St. Patrick’s is usually a great week for restaurants so takeout and delivery orders clearly can’t fill the gap left by the absence of any sit-down service.

The decline in restaurant food needs has been countered by an increase in food people buy at grocery stores. In a paradox, however, some grocery store shelves are empty while in other cases, we have too much of some foods – like bacon. About 60% of U.S. bacon went to hotels and restaurants but people aren’t eating in those places now so demand has dropped drastically while the supply remains robust. Bacon cheeseburgers just don’t seem as appealing when you have to make them yourself.

And it’s not just bacon demand that has been dropping. In fact, total meat demand in North America is down by about 30%. Even while grocery store sales of comfort foods like ground meats have increased, they haven’t made up for the absence of restaurant sales of beef and chicken wings. Same for milk – where much of the supply is no longer being consumed at schools. Some farmers are letting vegetables rot in the fields because there’s no one to buy them.

I found one particularly striking food statistic: Americans consume 70% of the seafood in the country in restaurants – which of course, are mostly closed right now.

Food processors are now trying to adjust to these demand shifts by freezing more produce and by shifting food that was originally meant for restaurants over to grocery stores now. That means changing the packaging and an initiating a process where consumers have to become used to seeing new brands in stores – where generally, the supply of frozen meats and vegetables continues to be more than enough.

Why then, were headlines recently claiming the US food supply was “perilously close to the edge…”

Pandemic’s Effect On A Hidden But Crucial Player in the Food Industry

When we think of the food supply chain, usually the two endpoints come to mind: the farmers or ranchers who provide the food and the grocery stores where you buy it. But actually, there’s a vast middle industry of food processing plants which convert raw materials into ready to prep or ready to eat products. These activities include chopping and packaging meat, freezing and bagging vegetables, pasteurizing, processing, and packaging raw milk into dairy products like milk, ice cream, cheese, and so on.

It’s within this crucial industry where coronavirus cases have been spreading. It’s such a crucial topic that even the President talked about it in his Friday briefing on the pandemic.

You see, in food plants, workers stand “elbow to elbow” for efficient processing, cleaning, and packaging our food. Efficient processing minimizes the distance the product travels between workers. These same workers have also been lacking protective equipment much like other essential workers across the country. As a result, workers with the highly contagious COVID-19 virus could readily transmit it to their nearby coworkers.

Could the virus actually spread in such environments? To help minimize the chances, the world’s largest pork processor, Smithfield Foods announced recently it would close its Sioux Falls, South Dakota plant for cleaning – temporarily. The town’s mayor and South Dakota’s governor both appealed to Smithfield to keep the plant closed for longer to stop the spread of the virus. This plant generates 4-5% of America’s pork so closing it would be a big revenue hit for Smithfield – which was reluctant to close the plant. That is until the coronavirus test results started coming back in. South Dakota’s governor announced last week that 238 of the 3,700 plant employees tested positive for the virus. That’s a whopping 55% of the state’s total coronavirus positive population. Smithfield then announced it would close the plant indefinitely.

The national headlines that followed have been alarming – especially since that wasn’t the first meat processing plant idled by the virus. JBS recently closed a plant in Pennsylvania. Cargill closed their plant (also in PA) that processes steak, ground beef, and ground pork. Tyson has idled a pork plant in Iowa as more than 24 workers there tested positive for coronavirus.

Before we go on, let me just provide some reassurance in case you have eaten meat recently. According to both the Department of Agriculture and the CDC, you will not catch the coronavirus from meat or from meat packaging. Keep washing your hands (as you should be doing any time you handle raw products) and keep cooking your meat completely (which kills all pathogens)
and you’ll be fine.

These processing plant closures are going to cause some issues for farmers in the near term. First, fewer places are serving meat (restaurants, convention centers, and cruise ships are big purchases of fresh meat) and now fewer plants are buying meat to process so raw meat prices are dropping. Since March 25, lean hog futures have dropped by 35%, while live cattle prices are down 15%.

Solutions To The Problem

The administration is trying to help in several ways. It could help food companies with testing and PPE. The administration has also pledged to help farmers who worry there will be too few farmworkers for the spring planting season. Seasonal farmworkers mostly come from abroad under a seasonal guest worker program. The White House is currently considering reducing the minimum payment allowed under this program although some opponents don’t want lower wages for these workers and others don’t want cheaper guest workers competing with American workers. Probably most importantly, the Secretary of Agriculture has plans to give at least $16 billion in relief to U.S. farmers.

In processing plants, industrial engineers are working on spacing alternatives for workers in processing plants which will help reassure workers wary about going back to work. This will slow down processing and companies are exploring ways to make up for this by switching to less labor-intensive forms of meat. For example, poultry processing plants may switch from boneless chicken cuts to whole chickens.

Meanwhile, frozen meat in storage remains plentiful and the supply chain is slowly adjusting to moving more ground meats and frozen meats.

So don’t worry about a food shortage – there’s plenty of food still frozen to tide us over while the supply chain switches over from supplying foodservice wholesalers over to direct-to-consumer sales in grocery stores.

Meanwhile, better safety precautions in processing facilities will reduce coronavirus worries and closures, which will see workers coming back to process food again. In the short term, we may have to sacrifice some of the variety of foods that we’ve become used to stores stocking . . . but food will still be available.

Trade Opportunities

As food processing workers have proven to be essential to the economy so have the companies that employ them. My favorite pick in this area is Hormel Foods Corp. (HRL), which has been strong throughout the coronavirus market crash and is almost back to its February highs. Smithfield, the company that closed its pork plant in South Dakota, may also be a good play for when it inevitably reopens that facility. Currently, WH Group Ltd. (WHGLY), a Hong Kong-based meat packaging and processing company owns Smithfield though this is less of a pure-play, and the symbol trades lightly on U.S. exchanges.

Great Trading, stay safe out there, and God bless you,

D. R.

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