URBANA-CHAMPAIGN, ILL. — Jayson Lusk, PhD, head of the department of agricultural economics at Purdue University, suggested the coronavirus (COVID-19) pandemic may bring about significant changes not only to how consumers buy their food but even to the ways that food is processed and distributed.
Dr. Lusk presented his observations during an April 22 webinar sponsored by farmdoc, an online information service for agriculture operated by the University of Illinois-Urbana Champaign.
Dr. Lusk pointed to the significant short-run disruptions in food markets since mid-March with a spike in supermarket food sales and a sharp drop in food sales by sit-down restaurants as consumers hunkered down for extended home stays in efforts to avoid contracting COVID-19.
In the wake of these disruptions, Dr. Lusk said he has fielded several media inquiries concerning whether the United States has sufficient food supplies. More often than not, the questions were raised by reporters after viewing depleted or even empty store shelves at the height of the consumer rush to stockpile staples.
He pointed out food production and food in storage were ample and that the empty store shelves reflected the difficulties encountered by a highly efficient food production system that was built to serve not only the grocery sector but also a vibrant and expanding foodservice sector, which has nearly collapsed with restaurants and schools closed at this stage of the response.
It has proved very difficult to shift food earmarked for distribution to the foodservice sector to the grocery sector. Dr. Lusk pointed to the example of a milk processor that has made significant capital investment in operations and machinery to provide milk in single-serve containers to school cafeterias. But schools are closed. The processor has a sizable inventory of single-serve cartons that can’t be filled and may have no inventory of half-gallon or gallon containers to fill for sale in grocery stores, and may not even have the type of equipment required to make the switch in short order.
He also said restaurants may purchase cheese in 50-lb blocks, but cheese mostly is sold in small packages at the grocery store. Making the shift to processing cheese to be distributed in small packages from distributing cheese in blocks takes time and capital.
The difficulties in shifting production to meet the needs of a different distribution system have created the unfortunate circumstance of farmers having to dump milk at a time when supplies may be short at the grocery store.
Dr. Lusk said grocery meat sales increased sharply in March but since have leveled off while remaining well above a year ago. For instance, Mr. Lusk said pork sales around March 22 were 102% higher than a year earlier, beef sales were 91% higher and chicken sales were 55% higher. Sales have declined from those peaks but by April 5 still were 31% higher than a year ago for pork, 38% higher in the case of beef and 29% higher in the case of poultry.
At the same time, the increases in grocery meat sales were not expected to be large enough to compensate for lost sales in the foodservice sector.
Wholesale prices of beef, pork, chicken and eggs advanced in March but also have been leveling off in April, Dr. Lusk said. The price advance was most pronounced in beef. Pork prices advanced in mid-March but now were near year-ago levels. Chicken saw an uptick in prices in mid-March but have been well below year-ago levels. Eggs prices tripled in a span of a couple of weeks in March but now also were declining.
There never was a shortage of eggs. But while consumers buy eggs by the dozen in cartons at the grocery store, restaurants often purchased eggs by the pallet or even in volumes requiring several pallets, Dr. Lusk said. Shipping eggs initially meant to be sold to the foodservice sector to grocery stores has required new packaging and even a temporary easing in labeling regulations by the Food and Drug Administration.
Dr. Lusk said the concentration in the meat processing sector may make it more vulnerable to disruption because of COVID-19 than other sectors of the food industry. He said beef processing has taken a hit, especially in the last couple of weeks. At the beginning of April, the beef slaughter was about the same as a year earlier at a little less than 110,000 head per weekday. Last week, the daily slaughter was 87,000 head per weekday versus 114,286 a year ago. The decline mostly reflected temporary plant shutdowns and/or slowdowns because of the pandemic.
Dr. Lusk suggested that large meat processing plants were built with economies and efficiencies of scale in mind. He suggested in the future there may be consideration of shifting to a model involving smaller facilities spread across wider geographic areas to lessen vulnerability to disruption.
Looking to the future, Dr. Lusk said retail price trends seem ambiguous. Plant shutdowns or slowdowns that may arise from time to time would decrease supply and push up prices. Conversely, the collapse of the away-from-home dining will continue to pressure prices.
He said an emerging recession will decrease disposable income and even increase the number of food insecure citizens, as was the case during the Great Recession.
Dr. Lusk said the trend to e-grocery, already on the rise before the pandemic, could be expected to accelerate.
More food purchased for home consumption may bypass the store. Dr. Lusk pointed out that for the week ended April 1, direct food delivery to consumers was up 50% from the same period a year earlier, and online grocery sales were up about 80%.
Dr. Lusk said future grocery stores may be smaller than today’s supermarkets and concentrate on offering fresh meats and produce while consumers rely on online purchasing and direct home delivery of more processed food items.
He suggested there may be a proliferation of “ghost kitchens,” or kitchens operated by well-known restaurants or chains dedicated entirely to preparing meals for delivery to homes, with no sit-down options.
Dr. Lusk also said he is seeing increased consumer interest in buying food directly from farms, although he said this remained a very small part of the food marketplace.
By: Jay Sierven
Source: Food Business News
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