The COVID-19 pandemic is still raging nearly nine months after it first began to take hold in the U.S. It’s appropriate then to realize anew just how much it has impacted the U.S. meat and poultry industry. The first impact was that beef, pork and chicken processors in the spring saw production severely curtailed by worker illnesses and absenteeism. Huge cutbacks resulted in a dramatic decline in cattle and hog prices. Cattle prices today remain 6-7 percent below year-ago levels.
The second impact was that meat and poultry companies have spent in excess of $1.5 billion on numerous measures inside and outside plants to protect their workers and encourage them to return to work. A third impact is that widespread restaurant closures and restrictions have transferred consumers’ food dollars from foodservice to retail establishments even more than occurred during the great 2007-2009 recession. Such spending is unlikely to return to a normal 50:50 split until the pandemic dramatically recedes or until the majority of Americans are vaccinated against the virus.
Companies have acted on numerous fronts to protect their workers, at huge expense. Tyson Foods, the largest company, incurred direct incremental expenses associated with the impact of COVID-19 totaling approximately $200 million and $540 million for its fourth quarter (ended Oct. 2) and 12 months of fiscal year 2020, respectively, it says. It expects such costs to decline to $330 million in fiscal 2021.
Its COVID-related direct incremental expenses primarily included team member costs associated with worker health and availability and production facility downtime, it says. They included direct costs for personal protection equipment, production facility sanitization, COVID-19 testing, donations, product downgrades and rendered product, partially offset by CARES Act credits. Other indirect costs associated with COVID-19 were not reflected in this amount, including costs associated with raw materials, distribution and transportation, plant underutilization and reconfiguration, premiums paid to cattle producers and pricing discounts, it says. Tyson even set up special health clinics at its plants.
Meanwhile, Tyson sold far more beef to retail outlets in fiscal 2020 than in 2019, in large part because of the impact of the COVID-19 pandemic on foodservice establishments from March on. Tyson’s retail beef sales totaled $8.155 billion, up $735 million on 2019’s $7.420 billion. Its foodservice sales totaled $3.669 billion, down $482 million from 2019’s $4.151 billion. Beef sales in 2020 were thus 2.2 times larger to retail than to foodservice, versus 1.78 times in 2019.
The COVID-19 pandemic has altered, at least for a while, where Americans spend their food dollars but not how much they spend relative to their disposable personal income (DPI). The percentage is 10 percent and has not changed in the past 20 years. In contrast, the average percentage between 1960 and 2000 declined from 17.0 percent to 9.9 percent.
DPI is the amount of money that Americans have left to spend or save after paying taxes, says USDA’s Economic Research Service (ERS), which compiled the data. From 1960 to 2000, Americans spent less of their incomes on food purchased from supermarkets, convenience stores, warehouse club stores, supercenters and other retailers (food at home), says ERS. The share of DPI spent on food at home fell from 13.7 percent in 1960 to 5.7 percent in 2000. Over the same period, the share of disposable income spent on food purchased from restaurants, fast food places, schools and other away-from-home eating places (food away from home) rose from 3.3 percent to 4.2 percent, says ERS.
The declining share of income spent on food at home in the U.S. over 1960 to 2000 in part reflects rising disposable incomes and efficiencies in the U.S. food system, says ERS. This kept inflation for food-at-home prices generally low. Higher incomes mean food at home can take up a smaller share of income and allow for more funds for the generally more expensive option of eating out. Average DPI in the U.S., adjusted for inflation, grew 3.3 percent per year from 1965 to 1985 and 2.8 percent per year from 1986 to 2000. But since 2000, the average rate of increase of DPI has slowed to 1.9 percent per year from 2001 and 2019, says ERS.
The share of DPI spent on food at home continued to decline after 2000 but at a slower pace, says ERS. This slower decline could reflect Americans opting to prepare more meals at home, as they did during the 2007-09 recession and its aftermath. It also could reflect Americans purchasing more expensive grocery store options, such as pre-cut vegetables and fruits, imported out-of-season foods, organic products and prepared dishes than they did in earlier decades, says ERS. The share of DPI spent on food away from home held steady at 4.4 percent during the 2007-2009 recession before reaching 4.7 percent in 2019, compared with the 4.9 percent of DPI spent on food at home, says ERS. — Steve Kay
(Steve Kay is editor/publisher ofCattle Buyers Weekly,an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
