Wednesday, March 18, 2020

Looking for food in all the wrong places

(Revised 10:20 AM 18 March 2020 - bad math now corrected - I think)

I’m writing this on Wednesday, 18 March 2020. Restaurants in Illinois closed to dining-in two days ago, followed shortly by Indiana. We’ve made all the jokes about having to learn to cook and toilet paper, and I think we’re about to have a come-to-Jesus moment about how flexible our food system is.

This is what woke me up at 3 am. this morning.

We’ve talked about this trend for the last few years, but it has been little more than an indicator of consumer prosperity, the decline of cooking, and any other cultural or economic observation one we wanted to validate. What never crossed our mind – or should have – is what happens when half the food delivery system is crippled by, say, a pandemic closing restaurants, just picking a disruptor at random.

To reach any useful conclusions let’s make some crude engineer-type approximations. First, money spent on food is not the same as amount of food. Obviously, food in restaurants is more expensive per calorie or ounce than a supermarket due to more processing: cooking serving, etc.

So the first step is to try to estimate how much volume of food is delivered by each branch. The best numbers I could find for Cost-of-Goods for supermarkets is ~70%. This figure includes shampoo and yes, toilet paper, but work with me for a moment.

For supermarkets that means about 35% of total food dollars are spent on actual food. Let’s assume that is roughly indicative of volume.

Using 30%, that means 15% of consumer food dollars are used in restaurants for actual victuals.

The ratio for the two branches is then 15:35, so 30% of food goes through restaurants and 70% through groceries.

Now let’s look at the restaurant industry structure by type. Segment analysis of restaurants turns out to be hard to find – or hard for me to find, anyway. The best I could come up with is ~60% of restaurant sales are “QSR”, quick-service restaurants. Let’s go with that. This means 18% of food volume is fast food, and the remaining 12% something else.

Next, how much does loss of dining-in decrease outside-the-home food delivery? For McDonald’s drive-thru is about 65%. But other fast food varies from 35-60%. So say 50% for the whole QSR segment in normal times. How much could they ramp up? My wild guess is 50% more across the industry so churning this all out maybe fast food can increase their output to customers. Crunching all these numbers means QSR drive-thru/pickup (D/P) might be able to expand from 9% of total food volume to 13% in very round numbers.

But what about non-QSR? Their D/P is much lower – Olive Garden and Texas Roadhouse really can’t easily expand D/P and I would think be reluctant to even try, since the pandemic closures could be over in a few weeks. I think the 12% of non-QSR food volume will shrivel drastically with loss of dining-in. Let’s put in 3% for a total of 16% of consumer food dollars (and hence food) could flow through restaurants.

The result is instead of 30% food volume from restaurants, consumers will only be getting at most 16%. The remaining 14% will have to come from groceries/supermarkets. This would be a throughput jump of 14/70 = 20%. That’s a whopping step-change for any industry.

But wait, I have more bad news. The products between the two types of food are not interchangeable – no consumer buys hamburger buns in trays of several dozen like are delivered at McD’s. In fact, many of the ingredients are specifically made for a given chain, and the recipes carefully protected. It’s a SPECIAL sauce, remember. Restaurant supply delivery trucks can’t just divert to the supermarket.

Moreover, the food processing industry will hesitate to convert production lines to different products with different packaging, ands could even decide to simply wait out the virus. Nor does this part of the food chain have a lot of extra capacity sitting idle – price competition has forced our whole food chain to be as lean as possible [pun intended].

My semi-informed prediction is this inflexibility chokepoint for food caused by our bifurcated and specialized food chain will NOT adapt easily or quickly. Wholesale supermarket suppliers will strain capacity but not expand. Specialized wholesalers will hunker down, lay off, and clamor for a bailout.

What does this mean for consumers? Your plans may vary, but here is my approach.

·      Keep in mind that supermarkets will strain for the duration of restaurant closure to supply consumers. Hoarding and panic buying will exacerbate this problem.
·      Shop often; buy what’s there, keep a list of all products you normally use and add those of people who need help sourcing food. Buy what you can when you can. Expand your diet to include stuff that is there.
·      If you can afford it, buy premium products (steaks) and leave low priced groceries (hamburger) for those struggling. DO NOT BUY “WIC” marked products, unless you are in that program of course.
·      If you can afford it, buy drive-through/pickup more often than usual. This is a headache when you live outside the edible-temperature zone (20 miles is too far for French fries, for example). Our experience is fried chicken, pizza, and Chinese can be reheated to palatable condition. Remember this is where the unused capacity is in the food chain.
·      Try not to overbuy. This will be extremely difficult to resist, especially on your third try to get hamburger or pasta.
·      Brace yourself for rudeness, selfishness, and fear in the supermarket. The scarcity mindset will take hold faster than you think, since we have little familiarity with shortages of any kind, let alone food. Remember people’s attitudes during your last long electricity blackout and multiply by 5. Food has a deep-seated urgency hard-wired into our brains. Ag’s relentless boasting about our food supply is about to be revealed as riddled with inherent weakness. Supply we’ve got – but the links to that supply are perhaps more important.

I think rural America may experience disruption worse than many places, since our market is already barely served. Watch out for hidden hunger. Teachers are a great source for finding out what families could use help. Don’t ask if they need help. Take food over and hand it to them.

The worst part is it will be hard for the system to re-allocate more than ample supplies because systemic changes could need to be reversed at any time. Watching COVID19 infection rates may be the best clue as to when restaurants could re-open, but in areas where they are closed, we are just beginning to glimpse the strains on the food chain. If the closures last into summer, food processing and logistics may be forced to realign, bringing some relief.

And for farmers, maybe now we will finally realize food is not just about us. In fact, it’s not much about us. Producing turns out to be the easy part.

Wednesday, January 20, 2016

New Transparenseed Link...


Not much response, but thanks to those who did.

Memories of a similar time...

I linked to an old Top Producer column from 2004 in my post on Accountable Ag. When checking the link, I read through it, and almost recaptured how I felt twelve years ago. For those of you who did not click through, here is how I saw the world then:

Left behind – and I’m not enraptured 

Being in the middle of groups has a naturally comforting feel. Looking at the ubiquitous newspaper pie charts indicating public sentiment on everything from trade issues to toilet paper, we often are relieved when others agree with our opinion. 
More frequently, however, I find myself tending to the margins – holding positions that are mildly out of the mainstream. On a few issues I seem to have wandered into the fringe. The manly response is to assert loudly that I don’t care about the opinions of the masses; that I am an independent thinker. This is nonsense, of course – we all care about what others think. This separation can occur not only when I adopt unpopular beliefs, but also when mass opinion shifts and I do not. In the realm of popular issues, I am less alarmed. I don’t watch enough TV to keep up with rapidly shifting controversies. Howard Dean came and went before I really had formed a judgment, for example. The situations that perplex me are not spelled out in polls but corporate decisions or organizational policy signals. 
For example, I have been a happy owner of a Case 2366 combine. It is the largest combine I have ever owned and its performance has been more than I hoped, not withstanding the unloading auger-power pole incident which I now admit was not a design flaw. Its capacity is more than enough for our 1350 acres. 
I was stunned to hear that CNH will not be continuing this machine size, only larger harvesters. To me it indicated I was no longer a target market for them. I do not fault their marketing, but all the charts and graphs about where farm size is going don’t begin to have the impact of discovering your operation is too small to be of interest to long-term suppliers. 
Nor am I whining about loyalty. I have to make reciprocal decisions to protect my own business viability as well. Nonetheless it is a sobering wakeup call to my self-serving view of the world to find that agriculture is moving on without me. 
A similar incident occurred at the AFBF (Farm Bureau) meeting recently. It has been a singular privilege to have been active in Farm Bureau at numerous levels, and I have many valued friends in the organization. I am fairly familiar with their policy from my days as a county president. One of these positions was a firm belief that free trade optimizes the outcome for all involved. 
This changed in 2004. The AFBF delegate body approved a blatantly protectionist stance on selected commodities. Although the vote was razor thin, the fact that any majority at all was assembled revealed to me how far from the pack I was. Of course this is just one issue, but added to other subtle shifts lately, I think we are “drifting apart”, to use modern relationship jargon. 
Nor is it a direction I wish to go to in order to stay in the group. Loyalty to core beliefs is often more important than loyalty to groups or individuals. Farm Bureau shrewdly makes it difficult to register my disapproval by binding insurance policies to membership. Finding a new insurance agent when I really like the one I have is another hurdle altogether. So as far as the membership statistics the outside world sees, I remain another happy Farm Bureau member satisfied with policy decisions. 
To be sure, I have the option of mounting a grass-roots campaign to reverse this decision, but frankly, I sense the weight of insurance customers moving in the opposite direction. My best use of time is probably to start pricing a new farm policy. Either way, I am obviously no longer in sync with much of my profession. 
The latest jolt though, was President Bush’s 2005 budget. My position on the political chart has always been in the conservative Republican camp. This is where I thought the guy I voted for was anchored as well. But if planning more tax cuts in the face of $500B deficits, erecting trade barriers for politically powerful industries, attacking sincere dissent as craven disloyalty are the beliefs of conservative Republicans today, then I must be something else. Maybe I’m a liberal…Republican. I’ve heard there may be as many as 6 or 7 of us. 
Now all these perceptions could simply be fusty middle-aged crankiness. Perhaps I am just not well-informed or smart enough to understand my principles are outdated. Regardless, my painfully-acquired intellectual tools and moral compass are all that I have to guide my decisions. CNH, Farm Bureau, and the Republican Party are going where my conscience or circumstances prohibit. I suspect they won’t miss me at all. 
Nevertheless, I shall miss them. 

It is important to note I was mistaken about CNH - I did not know they were simply rolling out Class V and VI combines after the big boys. But not knowing this put a different machine on our farm.

Given the continued and intensified rightward drift of FB and its domination by insurance votes from the south, it may be well past time for me to switch to another insurance company. (Nope - still haven't moved) For that matter, I could be paying way too much for farm insurance for all I know.

Finally, to admit to being even a liberal Republican after the last few weeks makes me queasy. This is the party I should be affiliated with? I don't think I'm angry enough to fit in, and my interest in policy and problem-solving fits poorly with a group fascinated by passion and pessimism. 

Heck, I'm probably embarrassing them!