By: David Geller, CPCU
As COVID-19 emerged into a generational pandemic, supply chains that chugged along and kept the global machine going in relative obscurity were suddenly thrust into the spotlight. Where would U.S. hospitals get the necessary medical equipment to protect its frontline workers? Would auto shops be able to procure the parts needed to make repairs we have become accustomed to? Just how many different components are necessary to build out a smartphone, and other tech gadgets?
These were just some of the questions being asked as the globalized world attempted to function in an unprecedented period. But as COVID-19 spread across the U.S. from more densely populated regions into sparse towns, the mechanisms that underly the domestic food supply chain have now been illuminated as well. As the World Food Programme (WFP) announced, per The Hill, that they expect 265 million people across the world to face crisis levels of hunger (up from 135 million that was estimated before COVID-19), reports are piling up about U.S. farmers being left with no choice other than discarding various types of food.
So why is American-made food being tossed away as U.S. residents are scrambling to grocery stores and countries are struggling with shortages?
Market Factors: Pivoting from Supplying Restaurants to Grocery Stores not a Straightforward Task
A Wall Street Journal article includes a chart indicating that, since the beginning of the 21st century, American consumers are steadily eating food outside their homes in lieu of cooking. By 2018, almost 55% of food expenditures by consumers were away from their homes, increasing from around 47% in 2000.
This growing dependency on restaurants for food appears to have led farms and food distributors to tailor their products to be distributed in large, bulky orders, rather than the relatively small bags that grocery stores seem to prefer. However, when restaurants and other venues such as stadiums were, without warning, essentially removed from the equation due to the COVID-19 crisis, and Americans were compelled to turn to grocery stores for even more food, a supply chain that had grown more and more geared towards restaurants was suddenly forced to pivot.
Why has this proven to be so difficult? One reason is that the processes in place for some distributors have been geared to service their restaurant clientele. For example, Wired has reported on one packing facility that was able to spin and bag 50,000 onions per hour for a customer base that mostly consisted of food service providers (restaurant chains, stadiums, etc.). This output has now been slashed to 10,000 onions per hour as they now only fill up 3-5 pound bags that grocery stores typically covet. And if they wanted to be more efficient at filling up those types of bags, Wired notes that this would require a new machine consisting of specialty equipment that would take 6-9 months to arrive from Europe. Given the uncertain nature of how long this crisis will persist for, these facilities may not be inclined to invest the necessary money and time to adjust.
Additionally, consumption habits differ when people do their own cooking rather than eat at restaurants. A New York Times article noted that “[t]he quarantines have shown just how many more vegetables Americans eat when meals are prepared for them in restaurants than when they have to cook for themselves” and quoted an onion farmer who pointed out that “[p]eople don’t make onion rings at home.” Wired notes that, prior to the crisis, 15% of fruit and 35% of vegetables were eaten outside the home.
This disruption in workflow and consumer habits has reportedly led to bottlenecks and inefficiencies, negatively impacting bottom lines for farmers and distributors, as well as wasting food that could be valuable in other parts of the world, or even in isolated parts of the U.S. The Times recently reported on alarming statistics revealing the nature of this dumping, including:
- A farmer in Idaho built a huge ditch to bury 1 million pounds of onions.
- One chicken processor has been smashing about 750,000 unhatched eggs (5.5% of the processor’s total production) each week.
- A processing plant in Ohio, prior to the outbreak, typically produced three loads (about 13,500 gallons) of milk for Starbucks every day. Now, the order consists of one load every three days.
- An estimate from the country’s largest dairy cooperative, Dairy Farmers of America, that thousands of gallons of milk are being dumped into lagoons and manure pits on a daily basis. And according to the International Dairy Foods Association, roughly 5% of the country’s milk supply is currently being dumped, and this amount could double if the closures of restaurants, cafes, schools, and other entities extend over the next few months.
With respect to the dumping of milk, there are also environmental considerations involved as well. An article from the Wisconsin State Farmer (part of the USA Today Network) reported that the Wisconsin Department of Agriculture, Trade and Consumer Protection (WDATCP) and the Wisconsin Department of Natural Resources (WNR) created a fact sheet titled “‘Emergency Disposal of Milk for Dairy Farms During the COVID-19 Public Health Emergency’” which advised, in part, that:
- “Discharge of milk to surface water or groundwater is a discharge of pollutants in the same way that discharge of manure or process wastewater would be.
- Milk contains higher concentrations of nutrients than manure and has high biochemical oxygen demand (BOD) which can cause detrimental impact to surface water including fish kills.
- Milk is considered to be process wastewater under DNR rules governing animal feeding operations.”
Lastly, while the Times noted that many farmers have donated some surplus to food banks, it appears that a relative dearth of refrigerators and storage, coupled with volunteers being reluctant or unable to assist during this period of social distancing, has limited the capacity for these programs to accept excess food that currently can’t be sent elsewhere. Additionally, the Times also reported that international exports may not be practical as well, in part, due to currency fluctuations and transportation costs that may be saddled onto the farmers and distributors.
Another Blow for U.S. Farmers
Unfortunately, the shocks reverberating throughout the food production chain is merely one more issue that has reportedly plagued U.S. farmers in recent years. The trade war involving China and the United States, per PBS News Hour, may have contributed to agricultural exports to China decreasing from $15.8 billion in 2017 to $5.9 billion in 2018. Furthermore, the article notes that in 2019, exports continued to trend lower.
While the article notes that, as part of the Phase 1 U.S.-China deal, China will purchase over $40 billion of agricultural goods from the U.S. in 2020, it may be worth keeping an eye on potential economic disruptions that may ensue from the COVID-19 crisis, coupled with the fact that China reportedly has never purchased more than $26 billion of agricultural goods, to see if China executes these purchases and U.S. farmers receive this influx of cash.
In addition to geopolitical forces, the fertile American heartland also was punished by “historical rains” in 2019, according to Reuters. Per the article, vast amounts of rain flooded western Corn Belt states, including North Dakota, South Dakota, Nebraska, and Iowa. Mother Nature wasn’t as merciful out east either—per Reuters, spring floods were so significant that in Ohio, just 68% of corn and 46% of soybean crops were planted by mid-June. Typically, all corn and 94% of soy would be planted by that time.
Some climate scientists, per Reuters, have expressed that this difficult season might not be an outlier but rather could mark the beginning of a trend, and that the record breaking floods were consistent with predictions of climate change impacts (see our post here for an examination of the aging infrastructure around the Mississippi River that could be exacerbating these flooding issues as well).
Wrapping Up: Health Concerns, Previewing Part II
While COVID-19 has proven to be a logistical nightmare for the different parts that comprise the food supply chain, the presence of the virus itself has also cut into the very processing facilities that handle these food supplies too. Various reports have arisen, including from the Wall Street Journal, explaining that the layout of food processing plants—specifically meatpacking—consists of tightly packed work spaces that do not allow for social distancing measures to limit risk of contracting COVID-19. The article cites one plant in which 109 of the 500 employees had tested positive for the virus, and that infection rates have surged in plants around Iowa and Colorado.
However, the apparent dependence on these plants to facilitate food across the supply chain and eventually into grocery stores is reportedly leading to some difficult decisions for government officials, plant owners, and employees. As of this posting, the New York Times had reported that meat processing plants were deemed to be “‘critical infrastructure’” in an Executive Order passed at the end of April, and that they would stay open, despite thousands of workers reportedly being sickened during the crisis.
The magnitude of this decision and the potential consequences involved illuminate the importance—as well as the fragility—of each component of the food supply chain. In a coming Featured Post, we will discuss some measures and developing technologies that could be implemented to mitigate disruptions like this from unfolding in the future.