It’s May 2020 and most people have been pretty shocked by recent supply disruptions. For reasons still unknown, it started with toilet paper and bottled water. Then soap, bleach, detergent, and even vinegar disappeared off of shelves. And when restaurants were ordered closed, entire sections of grocery stores were emptied.
For those that live in areas where blizzards or hurricanes are frequent, they are more familiar with this behavior. For many though, this is a new and strange reality.
Pre-Corona society in the U.S. was a remarkable study in efficiency, reliability, and profitability – largely thanks to “Just in Time Inventory”. We all took for granted that the stores would always be stocked, that the Starbucks would have coffee, and that Waffle House would always have a seat for you.
This hasn’t always been the case. In the 1970’s OPEC launched an oil embargo against the US. Gasoline was rationed to a few gallons, cars lined up for miles at stations, and traffic ground to a halt.
During WW2, strict rationing was implemented – everything was needed for the war effort. Households received a coupon book entitling the user the right to purchase certain items. Most families could buy one tire per year. Sugar was the first thing to be rationed. Steel aluminum, rubber were almost impossible to come by. Howard Hughes had to build his largest airplane out of wood because metal was unavailable, hence the name “Spruce Goose”.
Many more supply chain disruptions have been reported this week, massive disruptions, with food supply. Pasta and frozen potato products have been in short supply this week, and just today a major grocery chain, HEB, announced limits on meat purchases. Dozens of huge meat packing plants for chicken, beef, and pork have closed due to Corona infected workers in the last two weeks.
We saw on the news this week milk producers pouring milk down the drains, farmers tilling under entire crops of potatoes, lettuce and tomatoes. It saddened me to read that 2 million chickens would be “humanely euthanized” and destroyed. At the same time the WHO is forecasting multiple major famines, and Americans out of work and hungry, are lining up 5,000 at a time at overwhelmed food banks.
These perverse outcomes harken back to the great depression of the 1930’s when farmers couldn’t sell food because the people who were starving had no jobs or money. Sometimes capitalism results in a deadlock, and it took major government intervention to right the ship. We aren’t quite there yet, but we do have some perverse outcomes from contract farming and “Just in Time Inventory”.
The idea behind Just in Time Inventory means companies try to avoid as much cost as possible with storing, maintaining, and paying taxes on idle inventory. The idea is to have inventory arrive only at the precise time it is needed. The flip side is that it results in very little elasticity in supply chains – options are severely constrained.
As of April 24th, the National Potato Council estimated there was about a billion dollars worth of potato products backed up because of closed distribution channels, like restaurants. The farmers grow specialized varieties for a limited number of buyers and can’t readily pivot when the buyers stop buying. They have to make the difficult choice of continuing to invest additional labor and costs into a crop or cutting their losses. In essence, it comes down to their individual short term financial decisions, which can sometimes be at odds with the national or global need.
With chickens it’s a bit different. Major brands like Tyson hire growers to raise batches of chickens on a contract basis and provides the chicks and the feed. The growers compete with each other for bonuses, and can only supply those chickens to their contracted partner. The meat processing plants began to have their labor affected by Corona virus and had to shut down, leaving the contract growers in a bind. It costs a lot of money to maintain grown chickens, or ‘idle inventory’. They also can’t sell to anybody else, so they (or the meat company) make the only financial decision they can – destroy the chickens. The chickens were eventually going to be killed for food anyway, but something just seems very wrong about creating life just to destroy it without benefit.
The end result is that grocery stores are now starting to ration out meat and other items as supply chains start to seize up. Indeed the President has invoked Defense Production Act this week to compel the plants to stay open. I’m guessing this will sort itself out in a month or two as workers recover and get back on the job and wait the 8-10 weeks for new chickens to be raised.
These outcomes were not completely unforeseen, and there are many lessons to learn from all of this. A plastics plant in Pennsylvania was able to get volunteer workers to live isolated at the plant for 28 days in order to insulate from outside infection and produce critical raw material for masks and other PPE. Maybe this is something that can done on a larger scale a meat processing plant for a short time. Issuing workers N95 masks and instituting strict controls and daily testing to help slow infection between them would be another alternative.
The reliable hamburger isn’t as reliable anymore, but we won’t starve, and we will have to roll with the Strange New Normal that is 2020 and beyond.
A fitting quote:
“I do. ‘Cause we’re not talking about sushi, it’s hamburgers.
I’m not kidding around,
it’s… these things. The everyday things.
The everyday American things.
The 99 cent things
that, when you suddenly have to be afraid of them, strike at the center of our equilibrium.”
-Aaron Sorkin, aka Toby Ziegler, West Wing