- Meat processing plants across the country have closed and reduced production as the coronavirus spreads among their workers, causing a massive bottleneck in the supply chain for meat and livestock, according to a new report from CoBank.
- Even if the reduced processing capacity is just short term, it will likely have a lasting affect on meat processors, producers, retailers and consumers, the report found. Meat supplies for grocery stores could drop 30% by Memorial Day, resulting in pork and beef price increases as high as 20% compared to last year.
- "Significant contractions in meat supplies have often led to substantial inflation of retail beef and pork prices," Will Sawyer, lead animal protein economist with CoBank, said. "In the past 20 years, retail pork prices experienced inflation of more than 10% just twice. And neither of those times did we see inflation climb to 20%, which may be coming in the months ahead."
As meat plants struggle to get facilities back up to full capacity, this new report said declines in meat production from April will likely lead to reduced grocery store supplies through June even if the closures are temporary.
Meatpacking employees work in close quarters, often shoulder to shoulder, which has led the virus to quickly spread among workers. So far, thousands have tested positive for coronavirus. More than 20 meatpacking plants, including operations run by Tyson Foods, JBS USA, Smithfield Foods and Cargill, have closed temporarily or indefinitely under pressure from local authorities and their own employees to slow the spread of the virus.
In recent months, executives at some of the largest meat companies in the U.S. have warned of potential shortages as a result of the closures. In a full-page ad Tyson took out in major newspapers last month, the company's chairman wrote that the "food supply chain is breaking." While Smithfield's CEO said the closures were "pushing our country perilously close to the edge in terms of our meat supply."
To ease concerns about supply, President Donald Trump signed an executive order last week designating meat processing plants as "critical infrastructure" to help keep them open and the supply chain flowing. The order said "closures threaten the continued functioning of the national meat and poultry supply chain, undermining critical infrastructure during the national emergency." Although critics said the order could endanger more workers, companies and the industry praised the move. They said it could help get the supply chain moving again, allow them to procure more protective equipment for employees and fight back against legal issues.
The CoBank report said Trump's order to reopen closed meat plants could help stop future plant closures and pave the way for shuttered plants to reopen. Meat processors are putting in more safety measures, such as barriers and testing in facilities, to protect employees. But attracting enough workers to fill the thousands of vacant positions could be difficult in the near-term, the report said.
The plant closures also have put significant strain on farmers. Millions of chickens and pigs have been euthanized because closed processing plants mean the livestock have nowhere to go. Trade groups have already predicted major losses for these industries this year, with cattle producers expecting to loss $13.6 million and hog producers $5 billion.
"Shrinkage in the U.S. livestock herd will likely make the food supply shortage more acute later in the year," Sawyer said in the report.
Pork and beef production is down about 35% compared to this time last year, meaning shortages and price inflation is "assured," the report said. There have already been concerns about possible anti-competitive actions in the meat industry during this time.
Companies are already starting to talk about the long-term impact on supply. Already some restaurants are experiencing meat shortages. Wendy's is not serving hamburgers at nearly 20% of its restaurants, and McDonald's is bracing for a potential meat shortage. In addition, some retailers like Publix and Costco are limiting how much meat consumers can buy.
Consumers have so far been able to find meat products in stores, but that could be changing soon. The report said with inventory available from meat plants to local grocery stores typically less than a few weeks, retailers could be forced to dip into their cold storage supplies. Tyson executives said on its earnings call this week they expect the U.S. meat supply to increase in the third and fourth quarters of 2020.
"As communities reopen with only about one week of meat supply in cold storage, shortages and stockouts in the meat case could not come at a worse time," the report warned. "Food inflation and a weak U.S. economy is a combination that will leave many consumers in greater financial strain."