The obvious obstacles in America’s food-supply chain — from shuttered meat plants to restocking delays and panic buying — have largely dissipated. But shock waves remain.
There are millions of pigs that need to get processed fast, before their weights become too burdensome, or farmers will be forced to euthanize the animals. Meanwhile, food sellers like pizza maker Papa John’s International Inc. and Campbell Soup Co. had to bulk up on extra ingredients to avoid further disruption. Kraft Heinz Co., the giant that makes ketchup and cream cheese, had to expand its lists of usual suppliers for some items, while livestock-feed makers were forced to reformulate rations.
Take the case of Tyler Beaver, the 31-year-old founder of brokerage Beaf Cattle Co., who helps connect farmers and ranchers with buyers for their animals. Even though meat plants owned by giants like Smithfield Foods Inc. and Tyson Foods Inc. are mostly running again, he’s still busy dealing with a backlog of animals after coronavirus outbreaks shuttered slaughterhouses in April and May.
“It will take a long time before things get back to normal,” he said.
Beaver is connecting farmers to wholesale buyers that sell pigs to individuals instead of meat companies. The efforts are “helping and we are doing good, but they are still having to cull a lot of pigs every day,” he said.
In the last few months, Americans have experienced food shortages in ways the country hasn’t seen for decades. It was shocking for consumers to walk into grocery stores and not find the overflowing shelves they’d come to take for granted. Even Wendy’s Co. dropped burgers from some menus. Many analysts and experts dubbed the supply chain as broken.
But the U.S. food system wasn’t developed by accident. It’s a complex and interconnected web that thrives on huge economies of scale, allowing everything from dairy to meat to vegetables to be produced quickly and efficiently. The problem is, the industry has become so intertwined that any hiccup can trigger a series of domino effects.
The cascade of unexpected impacts forced the largest food companies to rethink their usual production methods.
Kraft Heinz had to seek out new sources of carbon dioxide, used in refrigeration. That was a knock-on effect from ethanol plants shutting. Beer makers also were left without the C02, a biofuel byproduct they use to make their beverages fizz.
“It was an unexpected outcome of this crisis,” said Kraft Chief Procurement Officer Marcos Eloi.
Shortfalls at grocery stores along with concerns for worker health have sparked calls for production to be carried out on a smaller scale and through more localized markets. The answer may not be that simple. Consumer prices would certainly increase in that type of production system, and eliminating economies of scale would also do away with the efficiencies that have been built to make food quickly and with less waste.
“There’s a lot of big companies that produce a lot, and what’s not obvious to people is that you need those sorts of economies of scale to produce affordable food,” said Jayson Lusk, head of agricultural economics at Purdue University. “People are talking about smaller, regional scale, but would some sort of food system like this be more resilient to the type of shocks we’ve seen? I don’t think so. No system can respond that quickly to that type of demand shock.”
Companies are working to avoid futures disruptions.
Campbell Soup, the maker of Goldfish crackers and Pacific broths, and snack-bar producer Bobo’s are buying more ingredients to maintain production in case supply lines get disrupted again.
They’re also preparing for impacts from unexpected places.
Ripples from the ethanol industry, for example, have had a sharp impact on food companies. As nationwide lockdowns kept people off the roads, demand for the biofuel tumbled and some of the industry’s largest and most efficient production sites were forced to shut down.
Ethanol is mostly made from corn in the U.S. When production halted, farmers were left with few options but to stash their grain. Meanwhile, output of a key biofuel byproduct, distiller dried grains, slumped. Livestock producers use the product as an ingredient in rations for cattle and dairy cows.
The dislocation resulted in “mass reformulations” of animal feed, David Hoogmoed, president of the Purina Animal Nutrition unit of Land O’ Lakes Inc., said earlier this year.
Meanwhile, Kraft Heinz faced shortages of carbon dioxide in California. That forced the company, which uses CO2 in some 13 U.S. operations, to get creative, sourcing from Midwest suppliers and shipping it to the West Coast, said Eloi.
“It does cost more, and as you know at the end of the day, it’s not only CO2,” he said. “The impact of CO2 was minimal compared to the overall scenario that we are facing.”
Port closures in China earlier in the year also pushed Kraft to start sourcing apple juice from Chile for its Capri Sun brand, while a huge increase in at-home eating sent demand for navy beans in the U.K. soaring. To ensure shelves are stocked, Kraft has asked its suppliers in the U.S. and Canada to plant more of the beans and is planning to start shipping earlier in the season.
“Some of these changes maybe are going to stay, some will not, so we need to make sure that we have the agility to change,” Eloi said.
There are also ripple effects from the food system onto other industries. For example, makers of aluminum can sheets have seen demand gain as people drank more at home.
“They’re now back to growing at about 5% to 6% a year, so they could get back to the all time high potentially this year or early next year,” said Greg Wittbecker, an analyst at CRU Group.
The changes made in food production over the past few months, and the industry’s ability to adapt quickly could likely prove useful in a potential second wave of coronavirus infections.
“I’m hopeful we’ll be better prepared, if for no other reasons we have a better understanding of the science about the spread of the disease and populations who are vulnerable,” said Lusk of Purdue.
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