By Gopinath (Gopi) Munisamy for UGA CAES News
While all industries have been seriously affected by the COVID-19 pandemic, food and agriculture have been among the hardest hit segments of the U.S. economy. The primary reason lies in the composition of household food expenditures.
The impacts of the pandemic appear to vary by commodity based on two critical issues: perishability and labor use. Perishables like fruits, vegetables and milk are among the hardest hit. Many of these industries also depend on labor for growing and harvesting.
There is no immediate shortage of food in the U.S., according to the U.S. Department of Agriculture (USDA). However, the current demand for items such as grocery-size products and on-demand delivery is greater than what is in abundant supply – bulk, large-sized products and processed shipments to restaurants that remain open.
This demand-supply mismatch appears to mimic anecdotal evidence of price spikes and empty store shelves on the consumer side and the collapse of demand and dumping of food on the farm side, with a range of linked effects in the middle.
Wholesale food demand reduced, supply chain shifts
Households spent $1.7 trillion on food in 2018, 54% of which was spent on food away from the home at restaurants, bars, sports venues and other establishments, according to the USDA Economic Research Service. A dramatic drop in foot traffic at all types of restaurants began in the second week of March.
Supermarkets and grocery outlets have also experienced a significant reduction in foot traffic. But delivery and on-demand services have been strained by the sudden surge in demand from people under stay-at-home orders and social distancing guidelines, which includes nearly 90% of the U.S. population.
With the drastic fall in food demand away from home, multiple forces were unleashed rapidly, causing ripples that stretched farther into every food and agricultural commodity.
First, the supply chain serving food service industries did not have many buyers. A case in point is cheese, where the major supplier, Wisconsin, found two-thirds of its demand fall to near zero within a week or two.
Second, social distancing guidelines and shuttered non-essential businesses affected supply chains serving both food services and retail grocers.
The results include a significant slowdown in the operations of processing and distribution, shortage of workers at farm, processing and distribution (trucking) facilities, and a shortage of cleaning and sanitizing supplies. Compounding these effects are the resources spent in contact tracing and quarantine if and when a worker tested positive for COVID-19.
Third, is the urgent need to transition products run through food services into those that consumers need at the grocery store. For example, restaurants usually buy diced vegetables, like onions, in 60-pound bags, but consumers at grocery stores usually buy 3- to 5-pound bags of unpeeled onions. Also, large cheese blocks sold to food services, which generally have sizable storage space, cannot be chopped overnight into packs of ounces and pounds to sell at grocery stores.
(The author is a professor of agricultural and applied economics in the University of Georgia’s College of Agricultural and Environmental Sciences. Chen Zhen, associate professor in the department of agricultural and applied economics, contributed to this story.)
To read the rest of the story, see UGA CAES Newswire.