May 18, 2020

How the Coronavirus is Affecting Agriculture


KEY TAKEAWAYS

  • While America’s food supply remains generally strong, logistical bottlenecks have interrupted supplies of commodities like pork and poultry.
  • President Trump invoked the Defense Production Act to require meatpacking plants to continue operating.
  • If coronavirus-driven changes in consumer demand continue, agriculture around the world will go through a difficult transition to alter production.

Throughout the coronavirus crisis, the American agricultural system has produced a safe, plentiful food supply. The Coronavirus Aid, Relief, and Economic Security Act and other federal actions have helped secure food production in the short run. As the crisis has worn on, the virus and measures to protect worker safety have led to interruptions of some product supply chains. President Trump invoked the Defense Production Act on April 28 to ensure meatpacking plants stay open so that livestock can continue to be processed and delivered to grocery stores. The order is not a panacea, however, and the federal government will need to monitor the situation. Analysts in the private sector have continued to predict a severe decrease in meatpacking capacity.

Agriculture’s Coronavirus Challenges

Coronavirus and Agriculture

Major Changes in Demand and Supply ChainS

Consumers across the country have dramatically changed their behavior during the crisis. A surge in unemployment, many workers telecommuting and avoiding driving, restaurants shuttered by government order, children remaining home from school, and the inadvisability of frequent grocery shopping are causing the demand for some products to crater. Even though the necessity of food remains a constant, the types of food consumed at home as opposed to in a restaurant can be very different. Changing the venue at which foods are consumed also changes which supply chains are used, leading to more logistical problems. Given the production cycle of agriculture products, the sector is not able to quickly retool and adapt to major changes. If coronavirus-driven changes in consumer demand continue, agriculture around the world will go through a difficult transition to alter production.

Decline in Commodity Prices during the Coronavirus Crisis

Coronavirus and Agriculture

With far fewer workers commuting to work, gasoline usage has dramatically decreased, in turn decreasing demand for corn-based ethanol used as an additive. Meanwhile, the price per pound of butter dropped from $1.86 on March 6 to $1.28 on April 3.

In Wisconsin, farmers have dumped thousands of gallons of fresh milk because of low demand and limited processing capability. Farmers in the western United States and Florida have plowed under millions of pounds of vegetables. Earlier this month, 1 billion pounds of surplus potatoes in Washington were sitting unused.

Supply chains present a different problem. About half of the food grown in the United States was previously sold to restaurants, schools, stadiums, theme parks, and cruise ships, many of which are currently not open or doing far less business. Delivering food to grocery stores instead of restaurants has caused the grocery store supply chain to be strained and the restaurant supply chain to suffer from underuse.

The president announced on April 17 that the Agriculture Department would send $16 billion in direct relief to farmers, as well as $3 billion to fund the Farmers to Families Food Box program, which purchases surplus farm goods and donates them to food banks. On May 9, he announced he would provide another $3 billion for the program.

Agricultural Labor during the crisis

The United States imports only about 15% of its overall food supply, meaning the country’s food supply is relatively immune to catastrophic trade disruptions. There is no threat of famine.

The production of certain kinds of food, however, has come under pressure because of labor restrictions. Temporary foreign workers, mostly from Mexico, made up 20% of the farm labor workforce in 2019. The U.S. temporarily suspended visa processing services in March, which put pressure on the labor supply. The State Department subsequently eased requirements for temporary work visas, but the labor situation remains fragile.

To prevent large-scale labor disruptions from the virus, farms are adopting social distancing measures among laborers and setting up hand-washing stations.

Meat Supply chain problems

Tyson Foods, a major meat producer, last month published a full-page advertisement in the New York Times, Washington Post, and Arkansas Democrat-Gazette warning that the food supply chain was breaking “because of the closure of our processing facilities.” Employees in the processing facilities work in very close proximity to each other. The disease has spread rapidly in some plants, leading to staff shortages. Pork has been particularly affected. Three of the largest pork processing plants in the country, accounting for 15% of pork production, ceased operations entirely. Poultry and beef processing facilities have seen plant closures and marked decreases in processing capacity.

The uncertainty of processing capacity creates ripples through the livestock production chain, in which animals are raised and marketed to provide a steady supply throughout the year. While production has partially resumed at these plants, the production cycle is simply not able to respond nimbly to a shock of this magnitude to processing capacity. It is likely the most significant market response to this backlog will relate to plant capacity, not supply. 

President Trump responded with his April 28 executive order invoking the Defense Production Act, directing the secretary of agriculture to keep meat and poultry processing facilities open and providing joint guidance by the Centers for Disease Control and Prevention and the Occupational Safety and Health Administration. He described the situation as a “very unique circumstance because of liability,” referring to the fear that businesses operating the plants could be sued by employees who contract the coronavirus. Tyson Foods thanked the administration for taking “decisive action.”

While this executive action can help keep the meatpacking plants open, the supply chain remains tenuous. Earlier this month, Tyson executives commented during an investor call that hog processing capacity was down 50% at the time of the executive order. Lacking processing capacity, farmers are euthanizing tens of thousands of pigs every day.

Issue Tags: Environment, COVID-19