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CHAMPAIGN, Ill. — Do we have enough food and are we going to have enough food?
Jayson Lusk, professor and head of Purdue University’s Agricultural Economics Department, said that is the single most common question he’s being asked as the impacts of the COVID-19 pandemic spread across the nation.
“The answer is, yes. It may not mean that we have it in the places we need it and it may not mean that we have the workers always to get it to us. But just in terms of pounds of food or gallons of liquid that we want to consume, we certainly have enough to support us for the time being,” Lusk said during an April 21 University of Illinois farmdoc webinar.
Concerns were brought to the forefront in mid-March when there were significant short-run disruptions at grocery stores due to a spike in food sales as the stay-at-home recommendations were unveiled.
There is plenty of food in storage. For example, there is quite a bit more total commercial cold storage of pork than there’s been in the last three years.
Temporary Disruptions
The short-run disruptions were caused by a combination of increased purchases at grocery stores and challenges in logistical changes.
Grocery stores saw a large demand spike in mid-March that has since leveled off to the point shoppers are making fewer visits to those stores than they were in March 2019.
Data from point-of-purchase scanner data on meat purchases show a 100% increase in pork sales from a year ago, a 90% increase in beef sales for the week ending March 22, and they have since fallen off.
“So, that peak demand buying, stocking up phase where people were worried about mobility and whether there was going to be enough has really leveled off and we’re at maybe 30% to 40% higher sales in grocery stores than what we were seeing the same time last year,” Lusk said.
“Sales at supermarkets on net are up a bit, but there are some categories that are up a lot. Online grocery spending increased nearly 80%. Gaming has increased (by about 75%). Food delivery sales are up about 50%.
“Also, a lot of things have taken a hit. Fast-food spending is down about 30%, and there’s been a cratering of sales in movie theaters and airlines. So, there have been widely different impacts throughout our food economy.”
Supply Chain Shift
Another question that Lusk has heard is since restaurants are closed or have limited curb service, why not just move that food over from that system to grocery stores.
“We could do that in some cases, but in many cases it’s a lot more complicated than just that. There are some real constraints in the system that sometimes prevents us from just switching from one supply chain to another. Some of that is regulatory,” he said.
“One example, there have been cases on the farm side is milk having to be dumped on the field. So, there’s surplus on the farm side, but then scarcity on the retail side. That seems paradoxical until you realize there are people in the middle. There are processors that have to move that milk through the system. Then we have to think about how we consume milk and dairy products away from home.
“One of the big markets that were shut down was schools. Children drink milk at schools from those little cartons. That’s very different than the gallon jugs we buy at the grocery store.”
Another example is cheese. A restaurant may buy 50-pound blocks or 40- or 50-pound bags of shredded cheese for making pizza. Grocery stores sell half-pound bags of cheese.
“The processing plants that deliver food away from the home market have capital invested in filling those small milk containers for schools or creating those big blocks of cheese and it’s not like they can flip a switch and suddenly start cranking out gallon jugs,” Lusk explained.
“This same story played itself out to different extents in different markets around the country and some of the price fluctuations and stocking out that we saw was related to these capital investments. We have processors that are geared and have capital designed to deliver to a very specific system.”
Prices, Demand
Food prices reflect demand and increased, but are now leveling off.
The wholesale meat prices generally mirrored that stocking up phase that consumers experienced. There were increases in beef and pork prices in mid-March, but then it began leveling off.
“Wholesale chicken prices increased, but curiously prices have been lower for chicken now than was the case last year, and that’s true for pork, as well, and beef is approaching 2019 prices,” Lusk said.
“So, in aggregate, at least at this moment, we’re not as worse off in terms of scarcity on the consumer side of things than we were this time last year.”
Egg prices are an exception having hard tripled in week.
“In some of the supply chain logistics shell eggs that go into restaurants typically get sold on big pallets and you from an asset in materials perspective you need more of the dozen case cartons to put those eggs in and there just wasn’t enough of that available,” Lusk said.
“There were also regulatory issues. Once eggs were labeled for sales to be packaged in those pallets to go to restaurants there were laws that prevented people from reselling those eggs into other markets. Some of those laws have been relaxed, but there’s been a combination of issues that have prevented the flow of products from one distribution system to another.”
Vulnerabilities
While there is plenty of food in storage, Lusk pointed out some vulnerabilities in the processing system that could throw a wrench into the supply chain, particularly the meat packing industry.
The 15 largest pork packing plants in the country account for about 60% of all the hog processing capacity in the United States. Eleven of those plants are concentrated within a 300-mile radius of Des Moines, Iowa.
“The vulnerability to the shutdown at one or two of these plants is potentially high because these plants are large and at times that means they have economies of scale. They can efficiently process pork and get it to us in an affordable manner as consumers, but one of the potential downsides is if one of these plants has to shut down that could have aggregate impacts just given the size of these plants, and that’s what we’re starting to see,” Lusk said.
Three of those plants were closed down April 20 and a fourth was closed down one day for cleaning and that represented probably 10% or 15% of total U.S. pork processing capacity.
“Beef is similar. One statistic I’ve seen suggests that plants that slaughter at least 1 million head a year account for 56% of all U.S. cattle slaughter. We’ve seen some stories of plant closures there as well,” Lusk continued.
From a real numbers outlook, there were large cattle inventories going into 2020 and an increase in slaughter. However, few steers and heifers are now being slaughtered due to plant shutdowns or slowdowns. The daily cattle slaughter was 87,000 per day in mid-April compared to 114,286 per day 12 months ago.
The pork industry also saw large processing numbers early this year with the high inventory.
The April 20 pig slaughter number was about 370,000, reflecting the three or four plant closures. The daily slaughter number a year ago ran around 430,000.
“This is a really significant challenge for the production side of this. This is a close to just-in-time production system and you can slow down animals on feed, you could put cattle out to pasture,” Lusk said.
“It’s a little harder to do the same with hogs. You can slow them down a little bit, but at some point, and it’s disheartening to think about, are discussions of euthanasia or some other things. All the cards are kind of on the table. It’s really a concerning and distressing, mainly on the farm side of the equation.
“I think on the consumer side we’re not seeing big price run-ups yet, particularly for pork. We have these large inventories and storage at least for the moment, according to last month’s data. Hopefully, we’re going to be OK on the consumer side, but I think it’s very fluid and volatile situation to keep an eye out for in the days to come.”