Going grocery shopping in today’s unique coronavirus climate has meant concerns about shortages well beyond the coveted toilet paper and hand sanitizer. Across the country, news stories about crunches in food supply chains dominate, from risk at meat packing plants to pictures of farmers dumping milk in fields.
The Kansas City Fed region in the middle of the United States has a high concentration of food production. Food production in a state like Nebraska accounts for approximately 3.5% of GDP (compared to 1.4% nationwide); food manufacturing in the state also accounts for an outsized share of employment and overall income compared with the nation. The Kansas City Fed’s Omaha Branch executive and economist Nathan Kauffman focuses on studying the regional economy and particularly agriculture.
“We have been hearing more recently in the news and from our contacts about impacts to producers and consumers if there were COVID-19 cases in a meat processing facility that would force it to close, and what that means for access to food in stores,” he said.
With COVID-19, breakdowns or bottlenecks in any segment of the supply chain can affect others up and down the chain. Kauffman shed light on the food production supply chain, and the role and costs from the farmer and their inputs all the way to retail sales, using beef as an example.
- Inputs: The first step in the chain is the farmer paying for inputs of feed, breeding livestock and services.
- Production: In the secondary step, farmers produce cattle and add weight via pasture or feedlot systems.
- Processing and Distribution: Focused on packing and processing, this step also includes distribution of meat products to wholesalers.
- Retail: The final step is distribution to the consumer through channels such as supermarkets, restaurants and schools.
Kauffman outlined two potential scenarios illustrating how disruptions to this chain can impact consumers and the economy.
- There is an outbreak of COVID-19 at a beef packing facility, which causes a temporary closure. Farmers and intermediate producers have a greater supply of animals but nowhere to sell them. This bottleneck with the packer drives prices down for cattle, and potentially causes shortages and higher beef prices for consumers in retail outlets.
- Schools and restaurants account for notable share of demand for dairy products in the United States. With their closures or cutbacks to takeout or delivery only, there is an excess supply of milk in the market. The supply chain isn’t currently set up to efficiently package or transport the milk differently to go direct to consumers, so some dairy farmers are dumping their milk since it’s a perishable resource.
Kauffman and his team are working to learn where bottlenecks are occurring and listening to business owners across the supply chain to understand the economic pressures and share that information with Federal Reserve policymakers on a national level.
“We are talking with producers, packing plants, lenders and retailers to try to understand their constraints and different approaches they are taking to try to solve bottlenecks,” Kauffman said. “What they are facing is something that eventually affects every single one of us.”
While the situation is fluid, Kauffman said one solution within the industry has been to focus on ensuring the least amount of disruption at the packing plant level, which might include staffing plans, improved social distancing practices or different shifts to keep up production.
Kauffman noted how having the regional Reserve Bank structure has been very useful in understanding the economic impacts of this crisis in real time, no matter the industry.
“In a crisis, anecdotes straight from businesses and the community are our best source of information,” he said. “Because we have regional offices that are focused on gathering and synthesizing this type of information, we can focus on calling and hearing from businesses, lenders and community leaders for a snapshot of what is happening right now. Then we don’t have to wait for data that takes time to accumulate and process and is old by the time we get it.”