Covid-19 has shocked our food-supply system like nothing in modern history. We examine the winners, the losers, the unintended consequences — and just how much toilet paper one household really needs.
Listen and subscribe to our podcast at Apple Podcasts, Stitcher, or elsewhere. Below is a transcript of the episode, edited for readability. For more information on the people and ideas in the episode, see the links at the bottom of this post.
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Garth BROWN: The week that began March 8th, we did 32 orders. The next week, we did 127 orders.
That’s Garth Brown.
BROWN: I own Cairncrest Farm, which is on about 200 acres in beautiful central New York. I raise cows, sheep, and pigs, and I sell directly to customers. I own the farm with my wife, my brother, and my sister-in-law.
Stephen J. DUBNER: And are the four of you the primary labor then?
BROWN: We are all of the labor. We’re about as small as a business can get. We do everything.
The animals Brown raises are fed grass and raised in pastures. His customers are individuals and families, not a wholesaler or distributor. His typical customer is a health-conscious East Coaster, interested in animal welfare, willing to pay a bit more for their meat.
BROWN: The unfortunate economic reality is that that still is a smaller slice of the populace than I would like.
But that slice got bigger, about a month ago, as the coronavirus pandemic set in, as people went home and stayed home.
BROWN: I think a lot of it is customers who are used to maybe cooking half their meals at home and then eating out or ordering for the other half, opening their fridge and saying, “Oh my goodness, I actually need food if I’m going to stay inside for the next two weeks or longer.” And that’s also reflected in the balance of cuts that we’ve been selling. We’ve been selling a lot more ground beef, sausage, sort of staple cuts, and relatively fewer steaks and cuts people might buy for a special occasion.
DUBNER: I want to congratulate you for quadrupling your orders. But I also want to ask how on earth you’re going to deal with it. Can you make your cows four times bigger and your pigs four times bigger? Or can you get four times more cows and pigs immediately? What’s going to happen on your supply side?
BROWN: Unfortunately, animals have their own ideas about how fast they’re going to grow, and it rarely has anything to do with preferred business-production timeframes. Going into this year, I’d been planning what felt like pretty aggressive growth. I’d been hoping to grow sales 30 to 40 percent over last year.
DUBNER: Well, you did it.
BROWN: Exactly. The trouble is that I had mapped out my production roughly in accordance with that. And it’s not a matter of simply putting in a phone call or working more hours to change that.
DUBNER: So what do you think you’re actually going to do then?
BROWN: I think I’m going to plan as if this is half-real. Something like, it will be significantly larger continuing for the foreseeable future, and just getting— there are so many new customers coming in, I can’t imagine it will revert all the way back to the baseline going in.
Garth Brown’s family farm represents just a fraction of a shard of one link of the U.S. food-supply chain. So imagine his level of uncertainty over the future and then multiply it by a few trillion. Brown happens to be in a relatively good spot. In his business — selling directly to customers — demand is way up. If, instead, he were the kind of small farmer who supplied restaurants? Well, that’d be a totally different story. The coronavirus pandemic has changed daily life for so many of us, on so many dimensions, that it’s impossible to know what the new normal will look like, and when we’ll see it. Still, people have to eat. So, today on Freakonomics Radio:
Jada HOERR: We saw the shelf was empty and we didn’t know how we were going to get our next supply.
Winners and losers in our suddenly super-strained food system.
Michael ANTHONY: Throughout the United States, we’re facing the loss of five to seven million jobs.
Doug BAKER: Pasta, it’s up 229 percent. Soups, 212 percent versus previous year.
Jayson LUSK: We are moving inventory from warehouses and grocery stores into our pantries and our refrigerators.
BAKER: We have a viable supply chain. We have enough food in this country to feed the people and they should not be worried. Be patient with us.
We’re not so good with patience, but we’ll try.
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How has the coronavirus pandemic affected our food supply chain? Well, it depends on who you are, where you are, and what part of the chain you look at. Let’s say you go to a supermarket in West Lafayette, Indiana — which is not exactly a Covid-19 hot zone.
LUSK: So about a week ago, I had planned to go to the store early in the morning. I got up about 7:30 a.m. I thought, “I’ll beat the crowds.”
Jayson Lusk is an economist at Purdue University.
LUSK: And got to the store and was, frankly, shocked. There was basically no meat left. And your major staple foods — bread, pasta, rice — were largely picked over. There were still some varieties available, but I was, frankly, very surprised at that.
DUBNER: Now, if there’s anyone in the world who I would think would not be surprised, it would be you, Jayson, because this is what you know, yeah?
LUSK: Yeah. I think even as a food economist, you take our food system for granted. I wouldn’t say our food system is fragile, but we’re certainly experiencing a very unusual strain on our food system that we haven’t seen in recent years.
BAKER: What we’ve been hearing from members is they’re experiencing anywhere from 80 to 150 percent increases in volume.
That is Doug Baker, with F.M.I., the Food Marketing Institute.
BAKER: Foot traffic is up, but not as significantly because basket sizes are up, right? People are buying more stuff.
F.M.I. is a trade association that represents many links in the food chain: retailers, wholesalers, food manufacturers, and more. On the retail side — where groceries sales are a $460 billion business in America — F.M.I. includes small, local stores as well as big chains like Kroger and Walmart. Over the years, Doug Baker has seen a lot of change.
BAKER: I’ve had a long career in the industry. I like to dub myself as a can stacker. Starting in the grocery business as a courtesy clerk at 17 years old, because my dad basically told me to go down to the corner and get a job at the grocery store.
Baker’s wife is an I.C.U. nurse — the definition of an essential job. But he sees his work as essential too.
BAKER: Grocers are never better than when the public needs them most. We deal with disaster on an annual basis and we understand that we’re feeding communities and in many instances, that grocery store is the community center. The grocery industry is a very tight one. It seems really big, but we’re also really tight. So when we have these types of crises, we also offer mutual aid to each other.
Baker says the “strain” on the grocery system, the spike in demand, has arrived in two phases. Phase one:
BAKER: There’s preventative preparedness, and that’s when we were seeing significant increases in household cleaning products, personal care products and personal health products. So hand sanitizers and sanitize wipes and toilet paper and vitamins and stuff like that.
And now, phase two:
BAKER: So it’s response preparedness now. And some examples for you: pasta, previous week, was up 132 percent. Previous year, it’s up 229 percent. Soups, 107 percent versus previous week and 212 percent versus previous year.
Because the response to the coronavirus itself has varied in intensity by location, so too have shopping habits. Some places seem to be getting into phase two-and-a-half, with the most frantic shopping starting to subside.
BAKER: In California, we have some members out there that are seeing sales starting to slow down.
That’s because more and more people are now, as the industry calls it, “pantry-loaded.”
BAKER: And we anticipate that the customer, as they look and see that they’ve got everything that they need and they start heeding those messages to stay home, that we will see a sales decline, which will allow the supply chain to refill.
For the moment, however, in many places, there are significant shortages in grocery stores. Let’s take a step back and ask: why? There are some obvious answers and some less-obvious ones. Here’s an obvious one: many people are buying many more groceries per trip than they usually do. That’s for a few reasons. One is that we’re spending most of our time at home now, which means eating at home a lot more. And even if you’re used to eating at home a fair amount, you probably eat out more than you think. The economist Jayson Lusk:
LUSK: Depending on the data set you look at, more than half of food expenditures occur away from home these days.
According to the U.S. Department of Agriculture, the top three places where we buy food away from home are: full-service restaurants and limited-service, fast-food style restaurants, each taking in roughly $340 billion a year. And then school and college cafeterias, at around $70 billion a year. But there are a lot of other places we’ve gotten used to eating out: hotels and bars and sports stadiums and wedding halls. And just about all these places have suddenly closed or are operating as a shadow of themselves.
ANTHONY: The restaurant industry has come to a near halt.
Michael Anthony is head chef at Gramercy Tavern, one of New York City’s roughly 27,000 restaurants.
ANTHONY: In terms of our company, the Union Square Hospitality company laid off 80 percent of its staff. That’s approximately 2,000, both in our restaurants and in our home office.
Again, to appreciate the scale of the coronavirus disruption, you have to multiply that 2,000 by a lot.
ANTHONY: Throughout the United States, we’re facing the loss of five to seven million jobs. A devastating number of jobs for cooks, servers, sous-chefs, dishwashers, have disappeared overnight.
Congress recently passed a $2.2 trillion relief package aimed at supporting laid-off workers like these. But the damage is vast. As are the ripple effects — in addition to the rise in shopping at traditional grocery stores. Consider, for instance, alcohol consumption.
Barry RITHOLTZ: In New York, liquor stores and beverage-barn type places have been called an essential service.
That’s Barry Ritholtz, an investor, money manager, and general student of the stock markets. Being deemed an essential service means you can stay open during the pandemic. The same holds for grocery stores, gas stations, and so on.
RITHOLTZ: So we are not doing anything to discourage people from having drinks at home, at least not here in New York State.
And it’s not just New York State — alcohol sales have been given a wide dispensation during the pandemic, perhaps due to the strength of the alcohol lobby in D.C. And in-store alcohol sales are way up.
RITHOLTZ: But think about how much booze is consumed in restaurants. It’s bars; it’s restaurants; it’s weddings. It’s all sorts of events and affairs out of the house. So when everybody is locked in place at home— so you can look at Anheuser-Busch, that went from $81 to $35. I mean, that is really some ugly-looking stock price.
Sales at pizza chains like Domino’s and Papa John’s, meanwhile, are up — not way up, but a few percentage points each. And then there’s Blue Apron, a company that sells meal kits by mail. When it went public in 2017, Blue Apron stock went for a share price of $140. It had crashed down to around $2.50 by the beginning of March this year, before the pandemic really set in. But in the space of just a few days, as governors across the country ordered people to stay at home, Blue Apron shares shot up to $16, an increase of more than 500%.
RITHOLTZ: So, first-world problems are being solved by software and technology companies.
Not just Blue Apron with its meal kits, but online grocery-delivery firms too.
RITHOLTZ: Peapod and Instacart, that will save you the hour of time it takes to go food shopping for a small fee.
And of course, they allow you to replenish your groceries without having to leave home. Before the pandemic, Barry Ritholtz was not a customer.
RITHOLTZ: I’ve never got around to trying it out until this recent event. And so far, so good.
So far, so good — except, we should add, for mega-delays in some places, like New York City. Eventually, things will likely revert to normal. And then?
RITHOLTZ: I don’t know how much that’s going to change my shopping habits. But I have to imagine that there are some people who are going to adapt that and say, “We’re going to keep doing this in the future.”
BAKER: People are learning new skills right now, and the longer that this goes, the more comfortable they’re going to get with those skills.
That’s Doug Baker again, with the grocery association F.M.I.
BAKER: I live in the emergency-management world and we talk blue skies and dark skies. So during blue-sky days, online shopping is averaging around the country between two and three percent. And many retailers now are seeing that percent of sales between ten and 15 percent.
So you could see online grocery sales staying higher after the pandemic, but Barry Ritholtz has a concern.
RITHOLTZ: My concern with all these companies that are doing deliveries: if someone actually gets the coronavirus from a food delivery, what is the risk to the stock price there? It’s something that I don’t know how to discount. I barely know how to think about. It’s a genuine risk to any of these companies, especially the ones doing curbside pickup or deliveries.
Of course, going to the grocery store in person carries its own coronavirus risk. But that is one of the few sanctioned activities in America right now, and it’s an incredibly popular one. Now remember, before the pandemic, Jayson Lusk said we’d been spending more than 50 percent of our food dollars at restaurants and elsewhere outside the home.
LUSK: In terms of just pounds of food, it’s certainly lower than that.
Lower than 50 percent because food is more expensive, per pound, in restaurants.
LUSK: My guess is you’re probably talking in the 30 to 40 percent range of pounds of food.
And so, suddenly, that 30 to 40 percent of food missing from restaurants? Americans are buying it from grocery stores. In fact, many people seem to be buying more than their missing 30 to 40 percent. Why? You can think of at least three reasons. Number one: inexperience. If you’re not used to shopping in a grocery store, in a time like this you may buy a lot more food than you need. Number two: fear. Covid-19 is scary; food is comforting. Fighting the fear with food seems like a good idea. And number three: human beings, for all our enviable individuality, also succumb to the herd mentality.
LUSK: Seeing that person next to you that has the 50 pounds of potatoes and all the rolls of toilet paper— we take signals from other people around us. And even if I am perfectly sane and reasonable— most reasonable people also understand we can’t and don’t know everything. We infer information from other people’s behavior. And you see that guy or gal with a basket full of food and you think, “What do they know that I don’t know?”
And that’s how you end up with serious shortages in grocery stores. As Jayson Lusk himself encountered, even though he showed up at 7:30 in the morning. He was alarmed to see the toilet-paper aisle completely cleaned out. What did he think of that?
LUSK: People are just crazy. That was my first thought in that aisle.
But then:
LUSK: I was a little more concerned when I got to the meat aisle.
That too was pretty much cleaned out.
LUSK: On the surface of it, that seemed a little odd. Meat is perishable, particularly beef products. It’s more expensive. And here we are in the midst of this panic. Why would somebody go to the product that is most likely to spoil and is most expensive?
DUBNER: Did you come up with an answer for that?
LUSK: In this time of uncertainty and lack of clarity about the future, things that are familiar and comforting to us have a real pull. And I think that was probably one of the motivating factors in people stocking up on things like meat. Even though it’s perishable, you can freeze it. But it’s something that tastes good. We know we like it. It can be a bit of a treat. Why not stock up on it now and enjoy that? So it’s not just going to be beans and rice for the next six months.
DUBNER: So whenever we think about supply and demand, and there’s a shock in one, we think about the ramifications. The shock here is in demand. But I would put the demand in quotes, because it’s not like people are suddenly eating 12 meals a day. They’re just accelerating their purchasing and hoarding, yes?
LUSK: There’s nothing about the coronavirus that I’m aware of that is going to make people hungrier. I think what’s happened is, we are moving inventory from warehouses and grocery stores into our pantries and our refrigerators. So it almost has to be a short-term demand shock because we’re not going to eat more food as a consequence of that. The food supply chain is geared up to provide enough calories and food for all of the U.S. population. Even though people may get sick from Covid-19, the number of chickens didn’t change. They’re still sitting out there laying eggs.
They’re not worried. They don’t know that a crisis is upon us. So there’s enough food being produced. In fact, if we’re talking about commodity crops, agriculture is very seasonal. And as a result, the corn, the wheat, the soybeans, the rice that we have right now— it was produced back this fall or summer. It’s been sitting in storage, in anticipation of us buying and using it throughout the year. And so just in terms of aggregate food, we’re in pretty, good shape.
So there’s no major problem on the supply side. The shock on the demand side is probably short-term. Now we just have to figure out what’s happening in the middle of the food-supply chain, to explain why we’re still seeing major shortages in grocery stores. You’d think that with all the food that’s not going to restaurants and hotels and airlines these days, there’d be more than enough to fill up grocery stores.
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The experts tell us there is no shortage on the supply side of the American food system. They also tell us the current demand shock is temporary. Still, many grocery outlets are dealing with significant shortages. To understand why, you have to consider the size and suddenness of this pandemic-induced demand shock. It also helps to consider the size and complexity of our food supply chain — which is, to put it mildly, very large and very complex.
Now add a pandemic, and watch the disruptions happen. Last week, for instance, the biggest dairy cooperative in the U.S. ordered some of its farmers to dump their milk. Why? Because although there’s very high demand in grocery stores, a lot of dairy is typically sold to schools and restaurants — a pair of distribution channels that Covid-19 has suddenly shut down. For producers, that creates a milk glut — at least until the supply chain can be reconfigured. Meanwhile, if you go to the grocery store, there may be no milk. Here again is the agricultural economist Jayson Lusk.
LUSK: I think we as consumers have become really so accustomed to grocery stores being full all the time, and having products from overseas, whether it’s avocados or pineapples, anytime we want it. And to not have it has been such a shock that we realize how much we’ve taken for granted. What it does show is the real impacts on the agricultural supply chain and the food supply chain, that is optimized in many ways for just-in-time delivery.
The just-in-time delivery model goes back several decades, when the Japanese automaker Toyota realized it could cut costs by minimizing inventories. The idea quickly spread across industries. And you can see why: at least when markets are stable, it doesn’t make sense to pay for extra inventory and warehouse space. The same concept applies to the beans you may have bought in a grocery store last week.
BAKER: So the food-supply chain journey is somewhat complex and long.
That, again, is Doug Baker with the Food Marketing Institute.
BAKER: It starts at the field, right? It starts even before the crops are harvested. It starts with the seed. Once those crops are harvested, they’ll go to an ingredient manufacturer. From there, product manufacturers will secure those ingredients in order to create a finished good. And then it’s going to a distribution center and the distributor is either a retailer that self-distributes or it’s a wholesaler that distributes to retailers who might not have their own self-distribution system. And all by the way, each one of these journeys is a very important trucking industry that helps us move these products from point A to point B.
Okay, that all sounds good. Until there’s a massive storm — or a pandemic.
BAKER: We’re running behind, and it depends a lot on the category. But we’ve averaged it out to be about a three-day delay. We’ve got product manufacturers that are running 24/7 and much of their safety stock has been sent out to stores.
For distributors trying to catch up, this means streamlining deliveries even further:
BAKER: They’re just going cross-dock. So what that means is that they pull it off of one truck and they roll it right on to another one.
That’s especially true for what are called “high-cube” items:
BAKER: Paper towels and toilet paper and water, anything that would be in pallet quantities. In some instances, they’re not even stopping at the retailer’s distribution center or the wholesaler. They’re going directly from the manufacturer to the retail store.
For Jayson Lusk, these intermediate links in the supply chain were a bit of a revelation.
LUSK: When I study food, I’m focusing on the agricultural inputs, in large part, and the food processing, and the food quality. And probably the thing that I, frankly, didn’t pay as much attention to, and turns out is pretty darn important, are all those people that it takes to get the food there. And if people start getting sick or you have a warehouse where there’s an illness and people have to go home or they’re quarantined for a while, it’s that part of the transportation system that I think is potentially vulnerable to this virus.
In Wuhan, China, where the novel coronavirus started, more than 50 percent of transport workers were sidelined because of quarantine.
LUSK: Of course, anything is possible. We’ve all seen The Walking Dead, and maybe two weeks ago, I would’ve said, “Some things are outside the realm of possibility.” But I think for some of us, things are now inside the realm of possibility more than it once was.
Despite the safety precautions being taken at every level of the food supply chain, the depth and breadth of the coronavirus spread to date suggests there may well be significant disruptions.
LUSK: It takes a real person to put that food on the shelf. It takes a real person to check you out. It takes a real person to drive that food and have it show up at your loading dock.
And it’s not just food distribution that’s susceptible. The Drake University sociologist Michael Haedicke studies agricultural labor, especially the undocumented immigrants who travel from farm to farm picking fruits and vegetables, milking cows, and so on. Haedicke argues that those workers are particularly vulnerable to the coronavirus — often living in dorm housing, with shared bathrooms. But here’s what Jayson Lusk is seeing right now:
LUSK: You know, for somebody that studies food all the time, I focus on the quantity, the pounds of food that are being produced, and you look at that data and it looks like it’s great. We’re fine. We have way more than enough food to feed everybody out there. But it’s not going to work unless we have the people to get it to us.
If the food supply does start to really tighten up — for one of the several reasons we’ve just discussed — and especially if people continue to buy massive quantities of groceries, there is a likely economic consequence.
LUSK: What we will probably see happen is, if this continues, this has got to put pressure on food prices. Some of the estimates that I’ve seen in China is that food prices are about 22 percent higher now than they were at the same time last year. And we’re starting to see that in some food products here in the United States. I looked just this morning and egg prices are up about 300 percent over just a few weeks ago. And this is not a supply issue. You can look at the number of hens laying eggs in this country. It’s virtually unchanged.
DUBNER: Three hundred percent sounds like what some people would consider profiteering. Do you see it that way?
LUSK: It could. I hesitate to go that far just yet, but it is a very large price increase. Where does something become a normal demand-and-supply response, and where does it leak over into the area of gouging? That’s a really tough question. One thing I’d say is that increase in price is exactly what you want to happen, because that rising price provides the incentive for a food-processing plant to get back up and running quickly. It may provide the incentive to spark back up a plant that’s been idled because it wasn’t profitable before. If you’re just now getting over the illness, to get back to work. So that rising price is the economic incentive that encourages people to resupply that food when we get back online.
DUBNER: It’s also, theoretically, the incentive for people to not buy more than they actually need just because it’s available, correct?
LUSK: Precisely. That rising price should also be your incentive to cut back and to not buy more. Actually, some retailers have used a little bit of social pressure and social incentive by saying, “You can have that one roll of toilet paper for, whatever, six bucks. But that second roll is going to be 200 bucks. We’re not saying you can’t have it, but please be kind to other people around you.”
The rest of the food-supply chain is also adjusting to the hoarding instinct. Doug Baker again:
BAKER: What we call that is pacing, inventory pacing, and how that works is actually product manufacturers are putting those allocations on retailers as well. So their inventory pacing into the retailer and then the retailer is putting those limits or allocations on for the consumer. It’s one thing to take what you need for seven to 14 days, but what we were seeing is people were taking far more than that.
Another adjustment: some food distributors are now shipping directly to customers. In New York, the specialty distributor Baldor typically sells to retailers but also to restaurants, hotels, schools, and so. With so much of that business suspended, they’re offering direct sales for orders above $250.
BAKER: And I think that’s helpful. It takes a little bit of the strain off of the supply chain for grocery retail.
It also gives specialty-foods producers — all the cheesemakers and bakers and meat purveyors who rely on restaurants for their business — it gives them a chance to recoup at least some of their income. But again, there will be losers along with the winners. Consider this statistic: about 70 percent of all the seafood consumed in America is eaten in restaurants and elsewhere outside the home. The coronavirus lockdown is a potentially cataclysmic event for many players in that industry. It also makes you wonder: with so many restaurants shut down and not buying fish or meat or vegetables from distributors, where is all that food going? Short answer: a lot of it is gradually being diverted from the restaurant part of the supply chain to the grocery part of the chain.
BAKER: So we have a fillable form. And what it allows is for food distributors to fill it out and share what it is they have available. And on the opposite side, it allows retailers to fill it out and share what it is that they need. And then they just start working directly with each other. What it has done is it allowed many of those goods to continue to flow through that food-service industry and the food distributor and then into the retail grocery industry.
This supply-chain readjustment means that a natural rivalry has, for the moment, been diminished.
BAKER: So typically, grocers and retailers are in competition, right? Food away from home and food at home. And so this sort of goes to the fact that when there’s a crisis, everybody comes together to solve it. And the partnership that we have with them is to help redeploy many of those resources, like labor and equipment and warehouse capacity and even product.
LUSK: So for some of the big companies, it’s a pretty easy switchover.
Jayson Lusk again:
LUSK: And you could imagine even some of the processed-food companies— if you’re Lay’s making Doritos or chips, you’re selling some of that in different venues, you may have to change your packaging. But then, of course, there are companies that specialize. And there are a lot of companies that would specialize in delivering, particularly fruits and vegetables, to higher-end restaurants. And that’s just a market that is going to have to figure itself out over the coming days and weeks.
DUBNER: What do you do about perishability? A lot of what restaurants get every day is fresh, it’s not meant to sit around on a grocery shelf.
LUSK: In some cases, there may be the opportunity to convert fresh into processed. So that can happen, for example, for some fruits and vegetables. In many cases, where there are large areas of production that are associated with producing fruits and vegetables, there also will be big packing plants that are making tomato paste or ketchup.
DUBNER: And what if you’re consulting, let’s say, to the sushi-grade fish market?
LUSK: Fish is a much more difficult one. You can freeze, you can can. And some of that may well happen.
BAKER: Sushi might be one of those areas that maybe doesn’t get as much pickup as others. But we also think about bacon. It goes into the food-service industry in a bulk-type package because it’s further processed; it’s cooked. In order for it to go into the grocery retail, it needs to be repackaged. That could be happening anywhere in the supply chain. It could also happen once it gets to the retail store. And we’ve also worked with the U.S.D.A. to get some flexibility on moving that stuff into the retail environment, because it does need to be repackaged and relabeled for retail sale.
LUSK: That food has got to go somewhere. And there are these temporary costs, sort of adjustment and transactions cost, that are associated with realigning supply chains from one to another. So it’s not crazy that we maybe end up with more supply in the grocery store establishments than we had before, which might put some downward pressure on prices.
Wait a minute: earlier, Jayson Lusk told us that food prices might be going up because of huge demand and kinks in the supply chain. And here again, he says there may be new “adjustment and transaction” costs. But then he says we might see “some downward pressure on prices.” Meaning: lower prices for the consumer.
LUSK: Exactly.
And that’s not just because all that food previously bound for restaurants is showing up in grocery stores.
LUSK: The other component that might put downward pressure on food prices are export markets. So in the U.S., we are a net exporter of agricultural products. So we’re sending, at least in dollar terms, more food away than we are importing. And a lot of that’s going to countries like China, Japan, South Korea, where they have been hit pretty hard by this virus. And if they’re about to go in a recession, like it looks like we are, their demand for our products is going to fall, which will leave more food on our domestic market for some consumers. And so while we probably are going to see a short-term price increase, it’s not inconceivable that we wake up a month from now and we start to see much more downward pressure on food prices.
DUBNER: I’m curious about another potential downward pressure, which is oil prices, which have fallen because of this price war between Russia and Saudi Arabia. Oil is pretty important in the food supply chain, from agriculture to distribution and so on. What kind of effect is that having, if any, yet? And what do you see happening in the future if the oil prices stay low?
LUSK: Yes, lower oil prices are going to help make food more affordable. We were starting to see that already, before the big coronavirus scare, in agricultural markets. If you look at the agricultural commodity — not the retail end, but the farm end: beef, soy, hog, particularly corn prices — were all falling, had been falling over the last couple of months. And were falling sharply, in large part, probably in response to those falling oil prices. Now, in the last few days, we’ve started to see some of those rebounding.
Now, corn has been the exception there. And part of the reason for that may be a big chunk of corn, and probably the largest percentage-wise, more than 40 percent, goes to ethanol. And if there’s falling demand for fuel, that’s going to put downward pressure on those corn prices. So, yes, I mean, lower prices, that’s bad for farmers, but it’s good for consumers.
Lower food prices, along with lower gas prices, might be welcome news in a normal time. Almost nothing about now is normal. You and I both know people who will die from Covid-19. They’re already dying. And we can’t go to their funerals, or hug their survivors. And a lot of them are dying alone. Visitors aren’t allowed in the hospitals, or the nursing homes. I have one friend whose elderly parents are in two separate elder-care homes. Both of them have dementia and trouble with memory. And they can’t understand why all of a sudden their kids and grandkids aren’t coming around anymore — they used to come all the time!
As in every crisis, there are some protections, some forms of insulation. Money is one. If you have enough money, adjusting to the pandemic is easier. You may have to wait in line a bit longer at the grocery store. You may not be able to buy everything you’re used to getting. Still, you’re going to eat. If you don’t have enough money, even feeding your family becomes a big challenge. The bureaucratic phrase for this is “food insecurity.”
HOERR: There’s been a moment that all of us have experienced food insecurity in the past week. The moment when we went to the grocery store and we were looking for pasta or canned beef or even toilet paper and we saw the shelf was empty and we didn’t know how we were going to get our next supply. That pit in our stomach, that is food insecurity. And one out of nine households had that sentiment on a regular basis before this all happened.
That’s Jada Hoerr. She’s the development and relations director at Midwest Food Bank.
HOERR: We distributed over $278 million in food to 2,000 nonprofit feeding programs last year.
Some of the food they distribute is donated from grocery stores and restaurants; some is bought with cash donations. They also produce their own meals.
HOERR: It’s a low-cost, high-nutrition meal that we package. It is rice, beans, soy protein, and vitamins and minerals.
Hoerr is anticipating the demand for donated food will increase hard and fast. One model is the last financial crisis. Unemployment rose suddenly then — but not nearly as much as it’s rising now.
HOERR: So if we would model the increase in food insecurity after this crisis to be similar to that, we would see a 36-percent increase in food-insecure households. The agencies that we serve are already seeing an increase in volume of people coming through their doors.
In addition to a surge in demand, Hoerr is anticipating a big drop in supply — an unintended consequence of how people who aren’t food-insecure have been shopping.
HOERR: Because of the increased consumption and, dare I say, hoarding, by the population, we have not been able to harvest that food and procure that food and to provide it to those in need. We also are seeing that there’s some challenges to procure donated food from food manufacturers because they’ve seen an increased demand signal from the grocery stores. On a regular basis, we go and procure produce and perishables from grocery stores. That is no longer our daily routine. We recognize that there is no supply there at this point. And we’re laughing like the only, maybe, silver lining we have is that it’s going to be a really good food drive six months from now because we’re going to collect all kinds of toilet paper, all kinds of canned beans and canned meat that no one really needed or wanted, but they felt this compulsion to buy it in bulk format.
The recent $2 trillion federal relief package does direct some money to feeding people who need help. And Midwest Food Bank got some help from one of the hardest-hit industries.
HOERR: We have been fortunate to receive food from restaurants, their perishables, from cafeterias at universities, from cafeterias in large corporations where they’ve asked for employees to stay home. So in this very short term, we’ve been able to replace the perishable food from grocery stores, with perishable food from other organizations that are not functioning at their regular rate.
Michael Anthony, the Gramercy Tavern chef, was donating some of their stock when we spoke with him.
ANTHONY: As we speak, a truck from our partner, Rethink, is coming to the restaurant to gather cases of bones and large pieces of meat and a certain quantity of fresh vegetables that we weren’t able to distribute to our own staff. These are people who know how to handle the ingredients and will be able to repurpose the food in a difficult time like this, for many people who don’t have a safety net and who will need to eat over the next few weeks.
In a time when everything’s being disrupted, it’s probably no surprise to see how much disruption there’s been in our food system. But it’s also encouraging to see how much adaptation there’s already been and how, for the most part, the system is holding up well. There’s a famous story about the fact that no one person knows how to make a pencil. We did an episode about it years ago; it’s called “How Can This Possibly Be True?” The idea is that even with something as simple as a pencil, there are so many different components and processes that no one person could possibly know or master them all.
If that’s true, then just how much more true is it, and how remarkable, that even in this period of viral and economic and social upheaval, the food we need to survive is, for the most part, still showing up where we need it? There will, of course, be a lot of economic damage along the way — certain farmers and fishermen and food producers and distributors who, because of some random circumstance beyond their control, are going to lose money and maybe lose heart. There will also be winners, apparently chosen just as randomly, like our friend Garth Brown at his little farm in upstate New York.
BROWN: The week that began March 8th, we did 32 orders. The next week, we did 127 orders. There’s no way I can suddenly raise four times as much beef as I planned.
DUBNER: So how are you thinking about that puzzle then from the financing side? Imagine I’m the local bank and maybe I come knock on your door and I say, “Garth, I understand you’re doing pretty well, but that you’re quadrupling your output because of Covid-19. And I’m happy to lend you whatever you need — $100,000, $300,000 — at our most attractive terms.” Do you go for that?
BROWN: Oh, that would be terrifying. Just— I can think of a million things to do with that kind of money. And it’s also— just the uncertainty is sort of paralyzing.
DUBNER: But if I say to you, “Garth, you and your brother and your families have started this business with this philosophy and a mission, and you’ve been succeeding on a pretty small scale. Now, through a quirk of fate, you’re succeeding on a much larger scale. Wouldn’t you like to be the biggest and best farm of your type in the entire upstate New York region?”
BROWN: Of course I would. And I’m still scared, so I don’t know. If you can guarantee me that what’s happening now will continue, and that 30-percent growth I was expecting will be there starting from this new baseline, then I would absolutely go for that.
DUBNER: I can guarantee you that my bank will loan you the money and that if you don’t repay it, I’ll come for your farm. That’s about the only thing that I can guarantee you.
BROWN: Yeah, that’s what I thought. Yeah.
DUBNER: Garth, let me ask you one last question. The pandemic has plainly been a blessing for your business. How do you think about that?
BROWN: I feel very conflicted about it, because there’s— the positive way I look at it is that I’m providing a service that people really value. I try to really walk the walk as far as how I produce food. I call a slaughterhouse a slaughterhouse, not a processor. And then also, we have an open-door— open-door-with-an-asterisk policy. We like you to call before you show up so that someone’s around, but I want people to come visit the farm and I want to talk about everything. But on the other hand, there’s always that feeling that it’s all built on an immense tragedy, which is inescapable. And I don’t really know how to square that.
DUBNER: What are you having for dinner tonight?
BROWN: Tonight, I’m going to make some pork meatballs and I haven’t decided what to cook to go along with them.
DUBNER: And since you’re looking for visitors, what time tonight do you think your meatballs will be ready?
BROWN: Well, we actually— that’s maybe another asterisk. Given the current situation, we aren’t actually accepting visitors at the moment. We’ll put that off for—
DUBNER: You just invited and uninvited me for dinner?
BROWN: Yeah, I’m sorry. Maybe in mid-September?
DUBNER: I’ll take you up on it then. Thank you very much.
BROWN: Yeah, it was lovely to chat with you.
* * *
Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Zack Lapinski. Our staff also includes Alison Craiglow, Greg Rippin, Matt Hickey, Daphne Chen, Harry Huggins, and Corinne Wallace; our intern is Isabel O’Brien. We had help this week from James Foster. Our theme song is “Mr. Fortune,” by the Hitchhikers; all the other music was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts.
Here’s where you can learn more about the people and ideas in this episode:
SOURCES
- Garth Brown, owner of Cairncrest Farm.
- Jayson Lusk, economist at Purdue University.
- Doug Baker, Vice President of Industry Relations at The Food Marketing Institute.
- Michael Anthony, head chef at Gramercy Tavern.
- Barry Ritholtz, investor, money manager, and general student of the stock markets.
- Jada Hoerr, development and relations director at Midwest Food Bank.
RESOURCES
- “How coronavirus threatens the seasonal farmworkers at the heart of the American food supply” by Michael Haedicke (The Conversation, 2020).
- “Covid-19: Tracking the Impact on FMCG, Retail and Media” (The Nielsen Company, 2020).
- “Food Expenditure Series” (United States Department of Agriculture Economic Research Service, 2020).
EXTRA
- “How Can This Possibly Be True?” Freakonomics Radio, 2016.
The post What Happens When Everyone Stays Home to Eat? (Ep. 412) appeared first on Freakonomics.
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