Coronavirus pandemic impacting food prices, retail food sector

“Do we have enough?”

Jayson Lusk, head of the agricultural economics department at Purdue University said that’s the most common question he’s been asked since the coronavirus pandemic started.

Lusk spoke during a webinar hosted by the University of Illinois April 21. He said photographs circulating of cars lined up around food banks might suggest a food scarcity, but in reality, it’s much different. It’s people’s incomes becoming scarce.

“There’s a confluence of events—they’re causing people to ask this question about whether we’re going to have enough,” Lusk said.

The answer is yes. There’s enough. It may not be in the places that need it at the moment, but in terms of pounds of food or gallons of liquid consumers want, there’s “certainly enough to support us in the time being.”

“One of the reasons for that is that agricultural production is both location and time specific,” Lusk said. “Agriculture is a seasonal business and what that means in terms of commodity crops, is that you know what we have in storage now was determined last year, last fall.”

There are commodities already in storage for preparation of consumption that’s going to have to happen. It’s the same for many other food products as well.

Pandemic concerns

Lusk said to also think about whether the agriculture industry is vulnerable to some kind of pandemic outbreak and worker shortages because processors are located across the country.

“Beef cattle production occurs, pretty much all over the United States,” he said. “We’re a little more kind of concentrated when it comes to corn for grain mainly in the Midwest, and we start getting a little more specialized when we look at things like boiler chickens.”

Chicken processors are in the south or southeastern United States, he said, and it dials down further when it comes to some particular fruit and vegetable crops—such as potatoes.

“When you think about any individual commodity we could potentially face some more vulnerabilities depending on where production is,” Lusk said. “But by in large agricultural production is spread out and a lot of it is in storage.”

When questioning whether there’s enough, another key point is to recognize, as a whole, the United States as a net exporter of agricultural products. Over time trade has become more important to agriculture on both sides—import and export.

“The U.S. is one of the top five exporters in the world and it’s also one of the top five importers in the world,” Lusk said. “But if things really got dire—and we’re not anywhere close to that yet—a lot of that food we’re sending abroad, we could leave here in our domestic markets, if we, in fact, needed it.”

Lusk said there aren’t currently any restrictions on import of products. Even with restriction on human movement across borders, products are allowed to flow. Logistical issues are becoming apparent, however. Items like tree nuts, coffee, cocoa and spices are commonly imported. Most of the fish and shellfish Americans consume is imported, and about half of fresh fruits are imported—mainly bananas and grapes.

“We’re less dependent on imports for vegetables, and some other commodities, but, I think it again speaks to the fact that if everything went south, that we might not be able to have our morning coffee,” Lusk said. “But there are certainly lots of other things that we could consume in this country.”

Photos of empty store shelves still lead to comments about if there’s really enough food.

“I think this was shocking for a lot of consumers, if anything it probably speaks to how much we have taken for granted,” Lusk said. “In our food system we expect when we walk into a grocery store to really find almost anything we want at any time of year.”

Fruit, vegetables in mix

And that goes for the fruits and vegetables that Americans rely on imports for. So why where there “stock outs?” Lusk said by looking at the data, by the middle of March people had started going to the grocery store much more often. There was a temporary big demand spike in the grocery stores. That demand has already started to level off, and in some cases less often than people did at the same time last year.

“Of course it also could be the case that even though we’re going less often we’re stocking up more,” he said.

The other side of the story is restaurant visits basically fell through the floor, Lusk said.

“Is that one of the reasons we saw those grocery store shelves empty is just the amount of foot traffic?” Lusk said. “That kind of peak demand that happened, and grocery stores just were not equipped and prepared to handle that.”

Another question Lusk is often asked is if people weren’t dining out, but instead going to the grocery store, why not move the food from one system over to the other. The answer? It’s a little more complicated than that. Think about the milk dumping, he said.

“There’s surplus on the farm side, but then scarcity on the retail side,” Lusk said. “That seems paradoxical until you realize there are people in the middle. There are processors that have to move that milk through the system.”

Think about where milk and dairy products are consumed away from home. One of the biggest markets—schools—has been shut down since March. How is the milk served at schools? In small cartons.

“That’s very different than the gallon jugs we buy at the grocery store,” Lusk said. “Maybe on a slightly different scale, the cheese you and I buy in the grocery store might come in a little half pound bags. But if you’re a restaurant you might be buying 50 pound blocks or 40 or 50 pound boxes of shredded cheese to put on pizza.”

The processing plants have capital invested in how they fill the milk cartons for schools and the cheese for restaurant use.

“It’s not like they can just flip a switch and suddenly start cranking out gallon jugs,” Lusk said. “This same story played itself out to different extents in different markets around the country and some of the price fluctuations and stocking out that we saw was related to these capital investments.”

Specifics in the chain essential

Food processing systems are very specific to the product being produced.

“The point is that there are some real constraints of the system that prevent us sometimes from just switching from one supply chain to another,” Lusk said.

Lusk speculates when it comes to consumer retail prices, it’s hard to know what they’re going to do, especially if food processing plants have to shut down further, not just meat plants.

“Those things are going to would tend to push up retail prices,” he said. “At the same time we still have food away from home basically closed down for the moment. That’s the demand hit.”

There are also consumer recessionary concerns, especially if they won’t have, as an aggregate, as much disposable income. That too will tend to hold down prices.

“I think over the longer run these retail price impacts are somewhat ambiguous,” Lusk said.

He’s going to be watching the recessionary impacts on food demand in the future. There was a drop off in spending for food away from home during the great recession as consumers’ disposable incomes fell. He believes food insecurity will also increase as it did during the last recession.

“There’s a big increase in food insecurity rates in the Great Recession and, unfortunately, that may be the case here too,” Lusk said. “We won’t have data on that for many more months to come. But I think from what we’re already seeing out there that’s likely to be the case.”

Groceries delivered

Lusk said more and more people are trying e-grocery or delivery services during the pandemic, and he expects that to increase in the future in rural areas where there’s a food desert. People are trying out services for the first time, and might stick with it.

“I think that delivery at home piece could change a lot in the future.” He said, “We may have systems arising—where it doesn’t really make sense to have a grocery store where everybody’s walking in and entering and potentially exposing each other to pathogens.”

Grocery providers might be thinking about delivering straight to consumers’ homes, bypassing the storefront all together. If there’s enough scale where that starts to make sense, retailers wouldn’t have to worry about having a fancy store to sell their goods.

“I think that that kind of trend will increase,” Lusk said. “I can imagine our grocery stores scaling back in terms of size. Focusing more on fresh items fresh fruits and vegetables and meat, those things that many of us still want to see and pick out with our own hands and look at with our own eyes.”

He also sees changes in the meatpacking and food processing plants because of the issues going on with COVID-19. He sees increased efforts in automation and other changes on the lines.

“There’ll be calls to invest resources in automation,” he said. “You know the thing about processing animals and food is they’re not as uniform as, say putting together a car is. They come in different shapes, sizes, sometimes even different colors. And that’s why it makes it tough to automate.”

Lusk also believes there are questions about geographic scale and whether or not its worth giving up some economies of scale to have a little more production spread out and slightly smaller plants.

“It didn’t make sense when times were good, but I think this pandemic has shown us times aren’t always good,” Lusk said. “I think the last thing that may weigh in there are what are the regulatory barriers.”

Kylene Scott can be reached at 620-227-1804 or [email protected].