Will the Pandemic Cause Food Shortages?

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Wharton’s Marshall Fisher talks with Wharton Business Daily on Sirius XM about what’s behind the supply chain disruptions in grocery stores.

In Idaho, farmer Ryan Cranney piled up 2 million potatoes he couldn’t sell during the coronavirus pandemic and gave them away. In Minnesota, contract farmers Kerry and Barb Mergen watched helplessly as a company crew euthanized 61,000 egg-laying hens because the demand for liquid eggs used by restaurants evaporated. And across the country, supermarket chains are limiting customers to two packs of meat, pork or chicken because processing plants have ramped down production as workers fall sick with the novel virus.

The news of farmers dumping milk and plowing over produce are hard to reconcile with the equally heartbreaking stories of desperate families queueing in long lines at food banks. The conflicting images have many people wondering why unsold food cannot be redistributed to charities that help the needy, and whether empty grocery store shelves mean America should also brace for a hunger pandemic in some regions.

The answer is as complex as the food supply chain, Wharton experts say. But the situation isn’t as worrisome as it appears.

“I don’t think we are going to starve at an aggregate level. There is enough food to feed everyone,” said Senthil Veeraraghavan, Wharton professor of operations, information and decisions. “But at the individual level, there is definitely going to be difficultly to access food in some places, for some people.”

The fact that farmers are destroying millions of pounds of perishables is evidence that there is plenty of food in production. It’s the breakdown of supply chains that has left store shelves barren, driving up costs for consumers. Prices for groceries jumped 2.6% in April, the largest monthly increase since 1974, according to the U.S. Department of Labor. Meats, poultry, fish and eggs rose 4.3%; fruits and vegetables climbed 1.5%; and cereals and bakery products moved 2.9%.

“We see micro disruptions when we go to the store every day, and that’s because the food supply chain is very complicated.” Marshall Fisher

“We are roughly in balance at the aggregate level, but [there are] incredible disruptions at the micro level,” professor Marshall Fisher said during a segment of the Wharton Business Daily radio show on Sirius XM. (Listen to a podcast at the top of this page.) “That’s why you see this paradox of farmers throwing away milk and shelves empty of milk. My wife went to Costco this morning to do the shopping, and there was lots of milk and no toilet paper. We see micro disruptions when we go to the store every day, and that’s because the supply chain is very complicated.”

The Toilet Paper Problem

Suppliers that sell mostly to commercial buyers cannot easily repackage items for residential use. That means industrial-sized rolls of toilet paper designed for use in office buildings, for example, can’t quickly be switched out for retail stores. With so many restaurants and businesses closed to the public during the pandemic and food consumption shifting to the home, manufacturers suddenly find themselves without their usual commercial customers.

“I’m told that 40% of toilet paper was used outside of the home prior to this, so just take that one thing, and toilet paper sales in stores are way up,” Fisher noted.

Shoppers panic-buying and hoarding toilet paper is “an easy, fun explanation. But that’s generally wrong,” Veeraraghavan said. “Industrial supply chains had to switch for household supply chains. That’s a huge switch, and you see this shock for companies that have had to change this.” The switch can be especially difficult for large operations like commercial farms because many of their processes are automated, designed for maximum efficiency and minimum human intervention.

The professors outlined three main factors that contribute to supply chain disruptions:

  1. The supply chain is highly decentralized. There are many players at many levels – producers, wholesale buyers, retail buyers — each making decisions.
  2. Perishable foods have a short shelf life. The route from farm to table for milk, for example, can’t take too long or the beverage expires. Meanwhile, agricultural products are subject to numerous safety and quality checks that also take time.
  3. Distribution must be a well-oiled machine. Getting goods to their final destinations takes a lot of planning, so any deviation – like ports closing during the pandemic – can throw a wrench into the gears, bringing the entire process to a halt. Logistics require deep connections and longstanding commitments, which is also why it’s hard for farmers who sell to commercial vendors to suddenly reroute their potatoes to a food bank, for example.

“At some level, people are familiar with wasted food. We all know there are Michelin three-star restaurants throwing away food while there are starving kids,” Veeraraghavan said. “We understand that there are inequities that exist. Even if you want to solve it, there are going to be constraints. We teach [our students] about it, that it’s hard to solve it. And it’s true for every system that has many parts that make decisions.”

“I don’t think we are getting close to existential dread. Whatever we want to get for the next six weeks is already in the chain. It’s moving somewhere.” –Senthil Veeraraghavan

Before the pandemic, the United Nations World Food Programme estimated that 135 million people around the globe were at risk for acute hunger. Now, the organization puts that number at a staggering 265 million. But food insecurity is more a function of demographics rather than the worldwide food supply, Veeraraghavan said. It depends on where you live and your income level. Obtaining food will be more challenging, obviously, for those who have lost their jobs during the pandemic or who live in areas where the distribution system has collapsed.

“What you are seeing is huge income shocks and less access to buy food,” Veeraraghavan said. “I think a lot of the increase in starvation is going to come from income problems, not a food supply problem. That’s why we’re talking about income payments and transfer of wealth.”

The professors urged consumers to be flexible as they ride out the supply-chain disruptions. If the stores are out of whole milk, buy skim milk or a milk alternative like soy or almond. If there is no chicken breast, consider buying dark meat.

“I think the key word for the whole supply chain is adaptability,” Fisher said. “There’s going to have to be lots of adaptations. As consumers, we have to adapt a little bit. We go to the stores as few times as possible, so we buy a lot more when we go to the stores, and we have to be adaptable to what we get there.”

Veeraraghavan added: “I don’t think we are getting close to existential dread. Whatever we want to get for the next six weeks is already in the chain. It’s moving somewhere.”

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