Jesse Laflamme, chief executive of specialty egg producer Pete & Gerry’s Organic Eggs, says egg farmers are also facing uncertainty. Prices have soared then dropped in a matter of months. Farmers debate what to do next as the pricing “roller coaster” ride might not be over.
Another problem is the rigidity in the egg production supply chain. A facility might specialize solely in liquid eggs rather than eggs in the shell, and may only sell that liquid product to a choice customer or two, like McDonald’s Corp. /zigman2/quotes/203508018/composite MCD +1.80% If that customer cuts back, the egg producer has few immediate options for making up the shortfall.
On the other hand, if you’re on the retail side and demand swells, a farmer can’t simply produce more eggs overnight.
“Two factors in our food supply impacting right now: phenomenal efficiency born from scale and specialization,” Laflamme said, and “high scrutiny of food safety and regulation.”
Many companies have food regulatory and approval systems that can’t easily shift to other suppliers when consumer or client conditions change.
“This supply chain wasn’t made to swell like this,” Laflamme said. “Now it’s all an impediment because food is so cheap in this country and our supply chain is fragile.”
Before the coronavirus pandemic, food eaten at restaurants accounted for 16% of consumption, according to David Portalatin, NPD Group Inc. food industry advisor. Due to the high price, food away from home accounted for 50% of U.S. food dollars spent.
Another 4% of meals come from work cafeterias, university dining halls, and the like.
Now shoppers are making 9% more of their meals at home.
The Consumer Staples Select Sector SPDR ETF /zigman2/quotes/200697959/composite XLP +1.20% has gained 2.2% over the past year while the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.01% has fallen 4.4% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.68% has slumped 11.6%.
“Clearly it’s a dramatic change in overall behavior,” Portalatin said. “It’s reasonable that supply chains would take time to adjust.”
A $19 billion relief fund for farmers was announced on Friday .
As the pandemic wears on and financial insecurity becomes a bigger factor, there could be more change afoot in consumer behavior and even less reliance on restaurants.
“Consumers will try to avoid food waste and make sure they use leftovers,” Portalatin said. “An indicator that consumers are starting to feel the heat is when people get concerned about food budget and want to use leftovers.”
Tyson Foods Inc. /zigman2/quotes/201117502/composite TSN +0.85% has the advantage of experience in this COVID-19 pandemic, having made adaptations to its supply chain when the illness was having maximum impact in Asia, Dean Banks, the company’s president told MarketWatch. Tyson has beef and pork plants running at levels to meet demand, for instance, and says its employees have been willing to adjust.
“There’s nothing about coronavirus that makes people eat two-to-three times more food,” Banks said. “Plants can only run so fast.”
Still, readying the company for the unpredictable nature of the situation may also be helping the company to prepare for the future.
“There are signs of what new normal might ultimately be,” Banks said. “We have to follow the pace of change as it’s happening.”