What’s next for meat & milk: higher prices, odd sizes, weird packaging, rationing

On Tuesday, a group of agricultural economists unveiled a report aimed at guiding public discourse on potential meat shortages and supply issues. In the report, they emphasized that while there isn't a shortage of livestock, the supply chain is grappling with significant challenges. For weeks now, we at *The Prepared* have been covering these supply chain disruptions, so this revelation wasn’t entirely unexpected. However, this information gained renewed attention this week when Tyson Foods ran a full-page advertisement in newspapers ranging from the *New York Times* to the *Washington Post*. The ad highlighted the company's struggles and warned that the supply chain might soon face the absence of millions of pounds of meat. In direct response to Tyson's ad, President Trump issued an executive order designating meat processing plants as essential infrastructure. This move sparked backlash from unions and workers in processing facilities where COVID-19 infections are rapidly spreading. The meat supply report acknowledges the difficulty in predicting what will happen next regarding America's meat and dairy supplies as the pandemic continues. The food supply chain is a complex and often opaque system, and no single entity has a comprehensive view of the entire process. Predicting how it will adapt to plant closures, reopenings, and absenteeism remains challenging. To gain insights, we reached out to economists to help us anticipate potential outcomes. Breaking down the major problems, reports of empty deli counters, meat lockers, and dairy aisles are nothing new. However, understanding the underlying issues requires some unpacking. Speaking with several economists, we identified three categories impacting our food consumption in both the short and long term: 1. **Labor Shortages**: Meat processing has faced labor shortages for a long time, even before the pandemic. Now, with illnesses and plant closures, the workforce is even smaller. 2. **Demand Shifts**: Processing plants are struggling to redirect supply from restaurants to consumers as demand shifts. This is already visible in grocery stores. 3. **Culling of Livestock**: Farmers are being forced to cull animals due to demand shifts and processing bottlenecks. While this won’t immediately affect stores, the impact will be felt in 10-15 months. Current shortages in grocery stores are largely tied to labor shortages and shifting demand. Before COVID-19, labor was already scarce; now, the workforce is even smaller. Meanwhile, plants are attempting to pivot their focus as restaurant demand plummets and consumer demand rises. The culling of livestock is a longer-term concern. With uncertainty surrounding the duration of the pandemic, large meat processing companies are unsure how long they'll have to operate with fewer workers. They also don't know when restaurant demand will rebound. This uncertainty is leading farmers to cull animals and shut down operations. The impact of these decisions won’t be felt in stores for another 10-15 months. In the long term, economists believe the meat and dairy supply chain is unlikely to collapse entirely. Even if plants occasionally close due to illness and absenteeism, the broader system will remain functional. We may see temporary price increases and sporadic rationing. Consumers will notice changes in packaging and portion sizes, as parts of the underused restaurant supply chain are gradually adapted for the overburdened consumer market. Let’s delve deeper into these issues. **Problem #1: Labor Shortages Amidst COVID-19** To Lee Schulz, one of the report’s authors, it’s crucial to remember the pre-pandemic concerns facing the meat processing industry. “It’s important to note that while you can order a plant to stay open, you can’t dictate its operational capacity,” he stated during a call on Wednesday. Even before the pandemic, labor was a critical constraint. Now, with workers falling ill, the situation has worsened. These issues aren’t limited to processing plants. Farms are also experiencing challenges. Recently, Michigan reported that 72 workers at a poultry ranch tested positive for COVID-19. Despite these concerns, economists like Schulz believe the supply chain issues are potentially short-lived if markets function freely. Michael Boland, an economist from the University of Minnesota, echoed this sentiment. “I trust the private market to handle things,” he noted. “No one is starving; food distribution is ongoing.” However, ensuring worker safety in meat processing plants is nearly impossible given the close quarters. This means workers will likely continue to fall ill. **Problem #1.5: Safety, Labor, and Market Dynamics** If markets are allowed to operate, meat processors will resume work. Yet, maintaining a six-foot distance between workers is virtually impossible. This puts workers at continued risk. “The humane approach is to smooth out market functioning,” said another University of Minnesota economist, Marin Bozic. He added that even in the worst-case scenario, disruptions would be temporary. “There will likely be some rationing in grocery stores for a brief period.” The CDC recently released guidelines for worker safety, but some industry leaders doubt their sufficiency. Howard “A.V.” Roth, president of the National Pork Producers Council, expressed concerns about the limitations of these measures. Economists primarily focus on market dynamics and cannot address broader safety and ethical considerations. Bozic noted that even in extreme scenarios, disruptions would last only a few months. Grocery stores might impose restrictions on purchases, similar to what we've seen with milk. **Problem #2: Ripple Effects Throughout the Supply Chain** Schulz explained that livestock is an example of a “growing inventory.” Unlike grains, calves born today cannot be stored until processing resumes. “The supply chain involves moving livestock from farms to processing plants, creating hundreds of products, and distributing them through various outlets,” he said. The pandemic has disrupted this process, particularly at processing stages. Currently, decisions made by farmers and agricultural businesses 10-15 months ago are influencing today’s processing and production. Thus, today’s choices will impact the supply chain 10-15 months from now. Schulz prefers to view the situation as an “availability issue” rather than a shortage. Despite a 18% increase in livestock production in Q1 2020, consumers may not find the same products they did a year ago. Instead, they might encounter larger packages intended for restaurants. **Problem #3: A Farmer’s Downturn with Future Shelves** As the supply chain adjusts, farmers are left with excess production. “We’ve seen demand destruction for dairy,” said Bozic. “Unlike workers, we can’t furlough cows.” Although data on milk production impacts is still pending, Bozic expects production to decrease. For farmers, this surplus inventory is problematic. Consider the farmer we discussed in late April whose farm saw 61,000 chickens culled unexpectedly. “It’s devastating for anyone who grows food,” Bozic remarked. Farmers represent only 2-3% of the population but feed everyone else. This impact won’t be immediate. It’ll surface in 10-15 months, potentially causing shortages starting in early 2021. Producers await USDA guidance, leaving decisions in the hands of major players like Tyson. The future remains uncertain, with outcomes expected within the next year. From our conversations with economists, it’s clear they prioritize keeping production running so markets function correctly. The President shares this goal, as do farmers and processors. However, achieving this safely and sustainably remains unclear.

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