Washington Insider -- Wednesday

Food Supply Chain Disruptions

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

NPPC Calls for Billions in Aid to Hog Farmers

U.S. hog producers are expected to lose $37 per head the rest of this year due to the COVID-19 situation, which would be losses of around $5 billion for the hog industry, according to the National Pork Producers Council (NPPC).

As hog plants have suspended operations due to workers contracting COVID-19, NPPC President Howard Roth said that conditions have become “dramatically worse in recent days.” The situation has meant hogs are backing up on farms. He added, “Market-ready hogs have nowhere to go.”

While pork supplies are currently adequate, the group warned that if the hog plant shutdowns grow, it could impact retail supplies to consumers.

The group also wants USDA to buy up to $1 billion in pork for domestic food and feeding programs, urging that the products should also include those packaged for restaurants and other areas of the food service sector.

Lawmaker Push on USDA COVID-19 Aid Continues

Farm-state Senators continue to fire off letters to USDA outlining their wants for specific commodities in any USDA COVID-19 aid plan. Senate Ag Committee Ranking Member Debbie Stabenow, D-Mich., and other lawmakers Monday fired off a series of letters to USDA Secretary Sonny Perdue calling for USDA COVID-19 aid plans to include specialty crop producers which the letter said have seen losses of $5 billion so far with more ahead.

They want USDA to provide direct payments to cover lost revenue and increased production costs and want the agency to buy specialty crops to redistribute to food banks, schools and emergency feeding organizations.

For dairy, the letter calls on USDA to “build off existing programs to deliver both direct assistance to dairy farmers and intervene in the market to reverse the decline in futures prices and signal a floor on farm prices.” They also want USDA to reopen the Dairy Market Coverage (DMC) signup that closed in December and make sizable buys of dairy products for food and feed efforts.

A portion of the $9.5 billion tabbed for COVID-19 aid from USDA also needs to go to local farmers who sell directly to consumers, schools, institutions and others, according to a third letter. Lawmakers signing that letter noted the specific mention of those who supply local food systems as being eligible for a portion of the aid. They called on USDA to require that those receiving aid show they have at least 25% of their total farm income from local sales.

USDA is expected to unveil its details of around $16 billion in aid plans either this week or next week.

Washington Insider: Food Supply Chain Disruptions

The administration has spent a lot of time lately assuring consumers that there is plenty of food. Some experts say the system has problems anyway. For example, The Hill is reporting this week that former Agriculture Secretary Tom Vilsack said last week that a "cascading series of events" is disrupting the U.S. food supply chain and could “impact millions of Americans.”

Vilsack is pointing to interruptions like the shutdown of public schools, universities and even some restaurants that served as a source of food for many who now have been "redirected" amid the coronavirus outbreak.

The result has been a “cascading series of events,” Vilsack said, that mean that a “tremendous amount of the overall supply of food” must be redirected.

Vilsack previously served as secretary of agriculture for the duration of former President Obama's terms in the White House, and before that was governor of Iowa for eight years.

Bloomberg also added detail in a report that said that grocers are struggling to keep shelves stocked because producers lack incentive to deliver some products like milk or some produce.

The problem, Bloomberg says, is that the food marketplace “can’t be easily adjusted on the fly, even during a crisis.” It’s why farmers and others in food supply are counting on $9.5 billion in aid designated for them within the $2 trillion CARES Act that was signed March 27.

With restaurants, school cafeterias and sporting arenas closed, the supply chain for food service “has seen demand evaporate overnight.” The industry normally would serve about 100 million restaurant meals and 30 million school lunches over a five-day period, said Robert Guenther, senior vice president of government relations for United Fresh, a trade association representing the fresh produce industry. With COVID-19, Guenther said that supply chain “literally froze up in a matter of days.”

Even as produce planted back in December and January will be ready for harvest in the near future, the demand is so low now that the question people are facing is “whether it makes sense to incur the operational costs to go out and harvest,” said Chris Valadez, president of the Grower-Shipper Association, a California-based trade association representing fruit and vegetable growers.

According to Guenther, the commercial food service industry accounts for roughly 40% of all fresh produce grown in the U.S. But that number is far greater for certain products.

“Most of the iceberg lettuce we grow goes into the fast-food industry, retail takes almost no iceberg lettuce,” said Tim York, president of the Markon Cooperative. Based in Salinas, Calif., Markon is a purchasing co-op, which buys fresh fruits and vegetables for food-service distribution companies including Sysco Corp., U.S. Foods Inc. and Performance Food Group Co.

“As the food service economy grinds to a halt, farmers have all this iceberg lettuce with no place to sell it,” he said. Pandemic-driven demand is driving purchases of certain staples such as bread, meat, eggs and dried beans. The same isn’t necessarily true for fresh fruits and vegetables.

“For the time being everyone’s waiting, storing what they can in packing sheds, or leaving it unharvested in the field,” Guenther said.

Moreover, as retailers respond to shoppers changing preferences, York said grocery stores are simplifying their inventory by reducing the number of produce stock keeping units from a normal range of 300-400, down to 60-70.

Sysco and competitor Gordon Food Service said they’re assisting restaurant customers as they try to adapt their businesses for take-out and delivery, or even in some cases, acting as “mini mart” stores. But it doesn’t come close to compensating for normal volume.

As a result, Mutschler said, the company has been forced to lay off staff while also trying to secure agreements with retail grocers to backfill any shortages.

USDA said it is evaluating the authorities granted under the CARES Act and will leverage its programs to alleviate disruption as necessary, a spokesperson said last week. He added that the U.S. food supply chain remains safe and secure.

But some worry the relief won’t be anywhere near enough to keep many producers from going out of business. “Whatever amount ultimately becomes available, I’m not banking that it will be enough to keep the operational side of our industry adequately lubricated,” Valadez said. “I just don’t see that.”

Still others worry about the disruption created by a long-term shift in demand.

“You can’t just not harvest until the market comes back,” said Dale Moore, American Farm Bureau Federation executive vice president. “We’ve got farmers whose market has disappeared.”

The Farm Bureau said it’s working with USDA and food bank leaders to develop solutions to distribute perishable food to consumers in need.

“Whether it’s buying the produce and distributing that food to different nutrition and feeding programs,” Moore said, “or just making a direct payment to them to help carry themselves over until we can start getting our feet back under us, that’s what we’re going to be doing.”

So, we will see. The food system is enormously complex and highly sensitive — and disruptions can mean impacts that last for long periods. These will require careful management to avoid severe consumer shocks, threats producers should watch closely as the virus impacts emerge, Washington Insider believes.

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