Logistics Of Food: 1 Year Later In Post-COVID World

Apr 2, 2021  | 7 min  | Ep4633

There is still economic optimism among those managing the manufacturing sector in the nine-states that are used to calculate Creighton University’s MidAmerica Index. Despite a slight dip, the index maintained a 10-month streak above growth-neutral. According to those responding, the biggest problem in the foreseeable future will be delays in the supply chain.

Bottlenecks that slow the delivery of goods have been under the watchful eye of Professor John Anderson who heads the Agricultural Economics and Agribusiness Department at the University of Arkansas. A year after our first meeting, I spoke with Professor Anderson about the new normal for supplying and purchasing everything from steel to peanut butter. Our conversation is the subject of this week’s Cover Story. 

 

John Anderson/Chair, Agricultural Economics – University of Arkansas: “The big disruption was this, this the separate optimization that we had for our food service versus our grocery retail supply chains, and that is a very efficient system. It's still an efficient system, it it, it it has a lot to recommend it but in the very specific circumstances of COVID it became a liability at least for a time and honestly, I think having to re-direct that you mentioned dairy right having a fluid milk processing facility set up to to to only produce half-pint cartons was disastrous in COVID. Right? Because all the schools were closed and nobody wanted half-pint cartons, right? But what do you do with crates full a half-pint cartons when schools are closed, you know, cheese facilities that were set up to do 40 pound blocks of cheese and only 40 pound blocks of cheese when all the retail grocery store wanted, you know, one pound blocks of cheese. I mean, those were the kind of things that really were disruptive and even toilet paper I joked about toilet paper a second ago, but having paper mills that were set up to produce, you know, huge rolls of toilet paper to go in commercial facilities versus regular rolls of toilet paper like you use at home that was disruptive in the specific circumstances of COVID. And I think there were a lot of other things that were happening, obviously, having to deal with social distancing in a in a, in a, in a, in a physical plant, right, where you're doing some kind of processing or some kind of production operation that was disruptive to so there were lots of things that contributed. But I think we're all caught a little bit flat-footed by how much difference it made that we basically had two parallel supply chains. And one of those chains basically lost its market overnight.” 

 

Paul Yeager: “Okay, you mentioned a couple of things that I think let's see if I'm paying attention, right in class. You're, you're mentioning pivots in production. Yes, that's one thing that happened right away. But now we've come to the point where the pivots happened. And all of a sudden, the hose that we used to have coming in as the supply has been disrupted in many things, like somebody had storage of certain items. And now all of a sudden, it's gone, whether that's food, whether that's making camping gear, or whatever the thing is, how have those supply lines been able to weather and why have supply lines become? Or why are they still a story?”

 

John Anderson/Chair, Agricultural Economics – University of Arkansas: “Well, I think they're a story because we're still trying to figure out now what optimum looks like, right? What, what, what is optimal now in a post COVID world? We had an optimal arrangement, pre-COVID hyper efficient, you know, everything just in time. very lean operations, really, throughout the supply chain, a minimal number of suppliers, because the fewer people you got to deal with the better so so very little redundancy in those systems. And so we had a system that was optimal for the pre-COVID world. And I'm not prepared to say that it's that it's not optimal. Now, it certainly wasn't optimal in 2020. But there are a lot of advantages to that kind of system. It's a very low cost system. It's very efficient. It drives down costs throughout the system. There's a reason that we had that system, right. And those reasons haven't gone away. We're just having to change our calculation a little bit, how much do we need to change our calculation based on the possibility of something like COVID? And so why that's to answer your question of why that's still a story is I don't think that's an easy question to answer. How much do we need to recalibrate based on the experience of COVID? And I think reasonable people can really disagree on that. I don't think it would be unreasonable for somebody to say, you know, we don't need to change at all. This was a black swan event. I mean, let's don't organize our whole system around a black swan, let's find ways of being prepared to mitigate that risk. But but but keep the advantages of these low cost efficient systems. Let's don't change anything. Anything. I'm not saying that's my answer. But I don't think that's crazy answer. You have people on the other side who say no, COVID showed that this is a disaster, that the potential costs of this and the disruptions are too great a burden to bear. And they affect too many people in too many negative ways. So let's completely change the supply system. Let's get shorter supply chains, let's get redundancy built in our system, let's get spare capacity online so that we're not running so lean all the time.”

Paul Yeager: “I think if I look at my notes efficiency translates in the factory world to making money. That's why we have efficiencies. That's right. There could be fewer companies making money because efficiencies are what helped them become, and become profitable.

John Anderson/Chair, Agricultural Economics – University of Arkansas: “That's what efficiencies are, obviously make a contribution to the bottom line efficiency means lower cost. Lower cost means more money. Now more money might mean more profit to the companies operating in that supply chain. Lower costs might also mean a lower retail price to the consumers who are buying those goods. And I don't hear and again, I'm I lean more toward thinking that we're probably going to go back to something that looks a whole lot like what we had pre-COVID probably won't be exactly like it, I think that there'll be a lot more work to, to understand the reliability of upstream suppliers, for instance, and the vulnerability of downstream markets, I think we'll do a lot more investment in understanding our supply chains and having kind of plan B, or C or D in place. But I think Plan A is going to look a lot like what we had pre-COVID in it is because efficiency is so powerful. We understand this in agriculture, right? I mean, we're a hyper efficient industry. We understand economies of scale, we understand the value of technology to drive costs down. And that efficiency, again, keeps you in business, and it keeps your end product prices down. Consumers are not clamoring for higher prices. And they never will.”

This is only part of the conversation. The full interview will be released Tuesday as part of the MtoM podcast which can be found via our YouTube channel of Market to Market or wherever you get your podcasts.

paul.yeager@iowapbs.org

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