Logistics Of Food: Impacts On Dairy, Meat And Grocery Stores

Apr 10, 2020  | 15 min  | Ep4534

The logistical act of getting food from gate to plate has many steps, stops and barriers on a regular week. The Coronavirus outbreak has upended the food system all over the world.

Paul Yeager had a conversation with the Department Chair of the Agricultural Economics Department at the University of Arkansas, John D. Anderson.

The two talked about logistical challenges and how different parts of the industry are meeting the needs of the consumer that as most recently as 2018 spent almost $680 billion on food away from home.

Paul Yeager: Are you in the home research facility there?

John D. Anderson, Department of Agricultural Economics, University of Arkansas: I am in the home research facility work. We're going out of the home office today.

Paul Yeager: What with what's been going on at the university there? How have they been dealing with this virus?

John D. Anderson, Department of Agricultural Economics, University of Arkansas: Well, I think we've done you know, I think it's been amazingly consistent how universities have dealt with this, we pretty much have closed all in person classes since students home and have all non-essential folks working from home and the university. The definition of essential is pretty narrow. I mean, we're down to mainly people who are feeding animals or watering crops, plants in the greenhouse and doing those kind of things to keep research trial kind of stuff going. But those of us who teach and do administration and do research are pretty much all working from home.

Paul Yeager: But you still have to monitor what's going on and one of the things I would imagine you've noticed like anybody else is this and you see it from your professors eyes of let's talk about distribution of food, what have you found when it comes to trying to get our food from the farm to the plant to the grocery store?

John D. Anderson, Department of Agricultural Economics, University of Arkansas: So, there's been a lot of concern, I think developing about supply chain disruptions. And that makes sense. I mean, one of the first things that we saw when we really got into the into the middle of the COVID-19 response, one of the most obvious things we saw with shortages in grocery stores, and honestly, that's something that really freaks Americans out. Because we are not used to that, right. We're used to going in a grocery store and seeing 25 different kinds of ketchup on the sales and everything full. And when we go in and we see the bread aisle half empty or three quarters empty and the meat case is almost empty, and the toilet paper out completely, empty, we panic a little bit. And so supply chain disruptions have really been front and center on everybody's mind because of that experience. And really what we're seeing is, we don't have what I would call honest shortages of really anything in this country, certainly not of food. But we have had a major shift in how we consume food and where we consume food. And it's taken the supply chain a while to catch up on that. And the primary issue there is that, you know, before COVID-19 typically we would get, you know, numbers vary, but say from 40 to 50% of our food would be consumed away from home, restaurants, food service, institutional kind of outlets, and then nearly all of its being consumed at home and we're buying it at the grocery store, and our processing plants and our retail outlets and really every part of the supply chain has had to adjust, to try to shift that production to try to optimize the way From that, you know, 40 to 50%, being in restaurants to now all of it going through the grocery store. And that's, that's created some bottlenecks. And so to the extent that we see sales that are a little light, that primarily what's going on not a real shortage, but a disruption in, in product flow. 

Paul Yeager: And time of year as well, because we were getting close to the end of the school year, safer, let's talk dairy for a moment. We're used to putting all those cardboard containers in the schools, we've got to now  flip to put everything into gallons or bags or something, or something that's not going to a restaurant. So that's just one small thing. And that's happening all across the food chain. 

John D. Anderson, Department of Agricultural Economics, University of Arkansas: That's happening everywhere. And that's, that's happening across lots and lots of different product lines. And I think a lot of things we didn't think about and milk’s a fantastic example, you know, nobody buys Half Pint cartons to drink at home. But that's what our school systems run on, you know, and how many millions of gallons, were, were processed and packaged in those Half Pint containers that nobody needs anymore. And so that's a major change. You see the same thing with cheese. You know, when we buy cheese at home, we buy it in a, you know, an eight ounce or 16 ounce bag of pre-shredded cheese or maybe if you're if you're really ambitious, you buy one pound block, you know, nobody buys 40 pound blocks, but food service does all the time. And so we've got plants that are set up to fill that need. And overnight that need disappeared. That's a big disruption.

Paul Yeager: Let's talk about the meat industry. You have a couple of big companies in your backyard there. What happens if somebody gets sick? Just this week, Columbus Junction, Iowa, Tyson Fresh Meats plant closing down because 24 people infected with COVID-19 what happens if that hits a bigger plant?

John D. Anderson, Department of Agricultural Economics, University of Arkansas: So that's the disruption and I think we're really concerned about these logistical challenges of shifting from food service to, to, to grocery stores. We'll we're managing that. I think we know what needs to be done there. The the real fear I think the real challenge is what happens when we have to shut down a major processing plant because of COVID-19. There have been a few of these around the country. You mentioned Columbus junction that's a core processing plant. JBS closed, a plant in suburban Philadelphia Saturday in Pennsylvania, because of COVID-19 cases, been a couple of poultry plants that have had short term shutdowns around the country. I believe there was a Perdue plant over on the eastern shore. That plant closed for a couple of days not, not a major shut down yet. But this is the big concern is what happens if we have an outbreak in a plant among workers or workers are afraid and just absenteeism eat you up and you can't run the plant? I mean, what happens when a major processing plant shuts, shuts down? I think the companies have managed very well. You know, the Columbus Junction plants a case in point, I don't know that we're going to see that show up and show up in production numbers because Tyson I think has done a pretty good job of, of routing back production to other plants. You know, if this plant shut down, maybe I can add another, maybe I can put a Saturday shift on and a couple of other plants and move that production, I can do some overtime and we can make it work. That's what we're seeing so far. If those shutdowns become more widespread, I think that's the concern that at least on a regional level, could really create some supply chain disruptions. And and keep in mind when a processing plant goes down, if a processing plant goes down, that disruption is gonna go both directions in the supply chain, right, it's going to go back upstream to farms. And it's going to affect the flow of livestock and the handling of livestock and the cash flow of operations in a massive way. It's going to go downstream to consumers and at least on a regional level, maybe affect availability, in in retail outlets, and so the processes are kind of at a key point in In our supply chains watching that really closely,

Paul Yeager: I want to go down the downside kind of just mentioned the grocery stores, what happens, people get sick and grocery stores. What happens if the grocery store has to not saying close, but they've got all of a sudden find workers? Yes, we have a high unemployment rate in a quick sense, but getting people in and trained. Maybe somebody doesn't want to work in there because of a health concern, not just because they're sick.

John D. Anderson, Department of Agricultural Economics, University of Arkansas: Right. Yeah, I think that's a concern. I think we saw some of that surface this week. Again, I think the companies are doing a pretty good job of managing that we've seen you know, HEB got a lot of attention. It's a major grocery chain in Texas, for raising pay for their workers to make sure that they continue to show up to work. I think there's a lot there are a lot of those kind of things going on. A lot of a lot of companies are trying to do everything they can to source personal protective equipment for workers in grocery stores, you know, face masks and whatnot. And that's pretty hard to find because obviously the medical sector is the is a higher priority for that kind of thing. But I do think over the last week or so we've started to see more aggressive attempts to manage exactly what you're talking about to avoid a situation where workers in the grocery store either get sick and can't come to work or don't feel safe and so don't come to work. Walmart obviously is big in my neck of the woods. They, they are managing, they're limiting the number of people in all of their stores to something like five people per 1000 square feet of floor space, to reduce the density of people in the store. And, and again, that's, that's that's to make customers feel comfortable. But I think there's also a worker protection aspect of that, that they're very cognizant of that this is making the workers feel like okay, this is this is a safe enough environment. This is I can do this, I can come to work, I can be productive and I cannot have to worry about my health because we're doing things actively to manage this and I think, again, ensuring that products flow and continuity of businesses is a major part of those efforts.

Paul Yeager: Let's move ahead two weeks, four weeks, six weeks, we've done all this work to get everything switched to the grocery store. And we've heard it, the thought is on commodities. Once we get out of this, it's going to spring and go forward. We're going to have an itch to get outside what's going to happen to the supply chain, then when this gets on the other end of it? 

John D. Anderson: That's a good question. I mean, will we will we get kind of whipsawed the other way where we need to suddenly move a lot of stuff back to food service optimization away from grocery store optimization. I think some of that could happen. I think some of that is probably inevitable. I think that'll probably be a little easier to manage because I think that'll probably be staged and gradually a little more than, than the than the transition initially was. And so I think it'll be it'll, it'll be manageable in a way that, that maybe this first step wasn't or was more difficult, but that will have its own implications. I think you're right. I mean, we don't just turn the switch back to okay now we're producing 40 pound blocks of cheddar again or we're now we're back to Half Pint cartons   and we'll there will be some adjustments. And some of these adjustments affect production. This is not all just something that happens at the processing level. You know, I was listening to a an investor call that one of the major poultry companies did earlier this week. And one of the things they talked about was how they've shifted production from from, from large birds, which are primarily a food service product to smaller birds, which is what they use for their tray pack operations that goes through retail outlets. And so if you think about that, changing actually, the size of the bird that you're producing affects a lot of operations. I mean, it affects your growers on the farm. It affects the timing of your hatchery operations. It affects your female operations and how you manage that logistically. So really, every aspect of these production systems can be affected by this change that we're talking about. And I think the typical consumer really has very little awareness of that.

Paul Yeager: And we just don't know, so many parts of this right now, but we're just trying to, I guess, keep that as even flow as possible.

John D. Anderson: We are and I would say one thing I would say that I think we all need to take note of is given how quickly this disruption developed, I really do feel like our system has been has been very resilient. The adjustments that have been made by retailers by processors, adjustments that affect everything down to the farm level. To the typical consumer, I think honestly, it's been a fairly easy transition overall, when you think about it, I mean, I have not personally gone into a grocery store and seeing completely empty shelves of anything except toilet paper. They are the meat cases are depleted compared to what I normally see. And the bread rack is is a little light and the bottle water is, is maybe I don't have many, as many brands to choose from. But I haven't seen completely empty shelves yet in the grocery stores that I've been in. And I've actually been in several because for me, this is like, this is like research for me, right? Like I have to keep up with this stuff. So I've actually been really impressed that as as quick as this had happened, and as major as it was. Our system really has managed it very well overall.

Paul Yeager: I heard another outlet talk about these two economists were saying that this is really all they're going to study for the rest of their lives is true right now. I feel the same way. John?

John D. Anderson, Department of Agricultural Economics, University of Arkansas: I think that's probably true. I mean, there will be aspects of this problem that we can pour over for years. And you know, this is something that we've talked about, I mean, one of the things that you know, we'll be talking about the economic impact of this event this is kind of a natural experiment in a lot of ways. And we're going to be talking about the economic impact of this event on various aspects of, of our economy, not just agriculture for for many, many years. I mean, in some cases, it'll be months and maybe even a year or two before we have absolutely complete data on what these impacts have been. So yeah, this will be this will be one of these events that, you know, in certain streams of data, you know, working in agriculture, there are certain things I can look back in the data and pick out a year and say, you know what that was, you know, the pic program from 1983. It goes way back, you know, that's a good example. You look at what was weird about 1983? Oh, yeah, that was the PIC program year. You know, we'll be looking back at 20 2025 years from now we'll say, Oh, yeah, that was COVID-19. Yeah. 

Paul Yeager: Let's hope it's just one year or not even less. 

John D. Anderson, Department of Agricultural Economics, University of Arkansas: Oh, absolutely.

Paul Yeager: All right. That's John D. Anderson, Professor and Chair of the Department of Agricultural Economics at the University of Arkansas, John.

John D. Anderson, Department of Agricultural Economics, University of Arkansas: Thank you, Paul, thanks for having me.

Contact: Paul.Yeager@iowapbs.org

Grinnell Mutual Insurance
Sukup
Accu-Steel
Pioneer