Exploring COVID-19 food supply chain disruptions

Meat disruption

The meat industry has been among those profoundly affected by COVID-19.

In Borgic's case, that meant working with a nutritionist to keep his 200,000 pigs under the weight limits until he could sell to a packing house that wasn't closed due to COVID-19. He considers himself fortunate that only two of the four packing houses where he delivers his animals was shut down.

What he learned from this crisis should prove helpful going forward, he said.

Like Borgic, Jim Fulk, owner of Springdale Farm in Ashland, Ohio, faced pandemic disruption. And like Fulk, he was luckier than some in that he was able to sell some of his animals -- in his case, cattle -- to a local slaughterhouse.

When the COVID-19 pandemic hit, the price of cattle at auction fell from about $1.30 a pound live weight to $1.09 a pound, at the most -- resulting in quite a hefty loss considering that each cow weighs anywhere from 1200 pounds to 1400 pounds, Fulk said.

I never thought I would have to call somebody up and say, 'Hey, I want my pigs to stop growing.'

Major meat processing plants had slowed down and even shut down due to COVID-19 outbreaks in the facilities. This caused delays across the meat processing industry, leading to a drop in demand from slaughterhouses as well as the prices for cattle.

A lot of "cattle normally getting killed [at processing facilities were] not getting killed," Fulk said.

For the month of May, red meat production was down by 18% compared with May 2019, according to the USDA. For example, 2.28 million head of cattle were slaughtered in May, down 23% the previous year.

Farmers had to make decisions about the surplus that they couldn't sell.

While on one hand, meat prices rose early in the pandemic as consumers panic-bought cheaper cuts, reports surfaced in April and May that millions of pigs, cows and chickens would be euthanized and animals aborted because they couldn't be sold to slaughterhouses or food facilities.

Panic-buying and COVID-19

Panic-buying was one of the most obvious results of the novel coronavirus.

As COVID-19 numbers rose and lockdowns became a reality, consumers didn't buy as much fresh food, said Brian Frank, general partner at Food for Thought Worldwide (FTW) Ventures, a food tech-focused venture fund based in San Francisco. Instead, many consumers stocked up on pantry staples because they didn't know how long the quarantine would last. That led to shortages, which stores responded to by creating purchase limits.

In addition, with so many businesses and organizations shut down, companies that used to sell to restaurants and large institutions had to figure out how to sell directly to consumers.

For example, Cheetah, a San Francisco e-commerce company that delivers food to restaurants and hospitality service companies had to start doing direct-to-consumer sales to clear their inventory, Frank said.

"They would drive a truck to basically a parking lot and people would drive their cars up, pop their trunks, and they would drop a box of groceries in your trunk for you," he said.

COVID-19 food supplier disruption

Supplier disruption and the subsequent shortage of raw supplies has had a profound effect on food companies. Some companies have been more fortunate and have turned to new suppliers, limited production or brainstormed other solutions. And in some cases, being smaller has paid off.

Cleveland Kitchen, a company that produces fermented sauerkraut as well as fermented dressings and marinades, has been holding its own thanks to a narrow niche and supplier availability, said Luke Visnic, chief operating officer of the Cleveland-based company.

The company requires red cabbage and green cabbage, and deals with one grower for that, Visnic said. It has another supplier that deals with the non-cabbage ingredients, such as jalapenos, garlic and fresh peppers.

"That supplier did a lot of restaurant business and so it was a blessing for them to be able to continue to work with us," he said. "But we know … a lot of retailers that have had massive issues since mid-March because they're dealing with so many different suppliers that are having a tough time manufacturing [their products]."

Pandemic hindsight is 20/20

COVID-19 is forcing companies to make rapid and previously unheard-of adjustments, said Kim Hirsch, manager of advisory services at Fusion Risk Management, based in Rolling Meadows, Ill. If companies had anticipated the pandemic and its corresponding supply chain risk, they could have taken multiple steps that would help them during this COVID-19 crisis, she said.

"[These include] varying supply chains geographically to keeping raw materials in stock and revising sick policies to incentivize people to stay at home if they had been exposed," she said. "In hindsight, companies will realize much could have been done in advance."

A good pandemic plan could have helped companies consolidate the number of items they will sell in a crisis and vary their supplies, Hirsch said.

"Proper pandemic planning can seem daunting to those without experienced providers or guidance," she said. "Today, the value of allocating resources and [the need to prioritize] proper planning has become abundantly clear."

It's not too late for many producers to prepare for what is still ahead and take proactive action, Hirsch said.

While many other industries and companies have the luxury to move their employees to remote work, the crucial employees that staff the nation's food supply facilities must physically work on those production lines, Hirsch said. Similarly, retail employees who sell food are also on the front lines every day and risk contact with thousands of people who could transmit COVID-19.

"To secure the U.S. food supply chain, protect employees and allow them to return to work, companies must be able to conduct immediate and consistent workforce testing, ensure every employee has [personal protective equipment] and strictly enforce social distancing mandates," Hirsch said.

But protecting food workers, who traditionally work in close quarters, has not been easy. By many accounts, COVID-19 is sweeping through many food plants and other food-related businesses.

Focusing on supply chain resilience

Global agricultural commodities processor ADM (formerly Archer Daniels Midland), headquartered in Chicago, has taken other steps to avoid any hiccups in its supply chain during the pandemic.

"We have a network of food and beverage developers across the globe in over 50 innovation centers," said Ana Ferrell, vice president of marketing at ADM. "And so we've been very frantically working to address the industry demand coming from retail when it comes to [developing new products]."

For example, ADM has sent product demos to its customers' homes to foster continued collaboration, she said.

On the consumer side, ADM has seen a surge in shoppers looking for plant-based meat and dairy substitutes as well as those indulging in more comfort food, savory snacks and nutrition and snack bars, Ferrell said.

"We've seen both kinds of demand areas picking up very rapidly for us," she said.

Looking to the future, ADM has established an internal pandemic council to manage the different measures it has taken during the pandemic.

"We've been on top of this since early January because we have significant operations in China," she said. "So we've anticipated some of the potential challenges that we would face in North America, where we are so big, and we don't necessarily expect a return to what used to be the norm anytime soon."

That proactive mindset is critical.

While companies are certainly facing challenging issues, they can take action to keep their supply chains operating more smoothly, Hirsch said. Companies must prepare for a second, perhaps steeper, wave that could hit on the heels of relaxed social distancing rules.

Producers and retailers can proactively map out their supply chain weaknesses, attempt to identify alternative supplies and work with their existing vendors to understand how solid their supply lines are likely to remain, Hirsch said.

"Sometimes a shortage is due to geography, as some regions are more heavily impacted than others, and sometimes it's a result of having to substitute alternative ingredients for harder-to-find ones -- so flexibility will be key," she said.

Those companies producing perishable materials will need to calculate a minimum supply of material they need to maintain as well as pinpoint alternative markets, Hirsch said.

We all need to focus not on returning to normal, but on adjusting to a new normal that finds us better prepared.

"In many cases, there will be an abundance of raw ingredients that were previously being used in commercial operations such as hotels, restaurants and schools," she said. "Companies would do well to thoughtfully maximize these supplies according to demand, negotiating to repackage commercial supplies and ingredients for consumer sales."

Retailers also must be prepared to limit purchases of sought-after goods [when needed], Hirsch said.

"This pandemic will fundamentally change business operations going forward, and we all need to focus not on returning to normal, but on adjusting to a new normal that finds us better prepared," she said.

The overarching lesson this pandemic has taught all businesses is that running tight supply chains with little to no excess may be the most inexpensive way to operate day-to-day, but it will never be the way to mitigate risk, Hirsch said.