Economics Of The Supply Chain During The Pandemic
June 29th 2020
At the height of the fallout from COVID-19, packing plants shut down or scaled back production which sent boxed beef prices skyrocketing and producer payouts plummeting.
A fire at a packing plant in Holcomb, Kansas, and now a global pandemic leave some wondering why is the meat sector so vulnerable? Purdue University ag economist, Jayson Lusk says one issue is the concentrated nature of meatpacking producers. According to Lusk, "What we have is a handful of large plants that contribute most of the nation's meat...on the beef side, the 10 largest plants are responsible for processing about 60 percent of all cattle and in hogs, it's the 15 largest pork plants processing about 60 percent of all hogs."
"If you close down a meat plant, you can't sell as much meat, you're not producing as much meat, so there is less supply of meat on the market; so consumers, grocery stores were bidding, competing against each other for a small amount of meat which pulls up those prices... On the live animal side, you don't need as many animals... your demand for cattle and hogs falls, because you just don't have the ability to process them through," Lusk notes.
Therefore, the gap between wholesale prices and live cattle and hog prices widens. While this does not rule out market manipulation, which the USDA and the Department of Justice are investigating, one thing not readily apparent is packer posts. "It costs money when workers don't show up, it costs money when you have to install dividers. If you have to space out your workers you're not able to run as efficiently. So all those things add extra costs to the system that have to be picked up somewhere," Lusk notes.
Lusk notes that one important thing moving forward will be automation:
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