Industry analyst Kevin Grier is a regular contributor to Grocery Business Magazine who provides economic insights on the livestock, meat and grocery sectors.
The pandemic has taken a toll on the food supply chain, particularly meat with plants closing and other suppliers struggling to meet demand. What is your take on the current situation?
Four weeks ago, when someone told me Cargill in High River was down to one shift, I didn’t believe it and figured it would get back up. Then a week later it was shut down completely. That was followed by the JBS plant at Brooks going from two shifts to one. This is the first time in 40 years that Eastern Canada is producing more cattle than Western Canada. Normally Western Canada’s beef production is four times larger than in Eastern Canada.
One thing that I have been heartened by is the level of cooperation and mutual respect being demonstrated between pork companies on the Prairies, such as Maple Leaf, HyLife, Olymel and Donald’s and the workers because everyone understands how important the plants are to supplying meat and at the same time they want to protect workers.
What impact is the current crisis having on the meat supply chain?
It is having a big impact. In March the meat shortage occurred because of the unprecedented demand for meat. The industry in Canada was producing huge amounts of beef, pork and chicken, record numbers, but we had a shortage anyway because shoppers were pillaging and plundering the meat aisle in grocery stores. Now we have a shortage of supply because of the disruptions at meat processing plants.
I think it’s right for retailers to limit purchases because with the current situation at meat processing plants in Canada, there could be shortages if they did not limit purchases. There will be less choice than consumers would like, but the plants will start to come back slowly. I think it’s a temporary hole and no one is going to go hungry because of a lack of supply in meat.
So, expect to see tight supply in the next couple of weeks and consumers won’t have all the choices they normally find in their grocery stores.
Victoria Day is critical for the grilling season and it will be interesting to see the beef and pork features on the front page of flyers. Last year was a great year for features but this year all of that has been thrown out the window because of the impact of the coronavirus.
Another impact from the coronavirus is that pricing on beef and pork at the packer level has gone through the roof. In the last week of April, the price for 100 lb of USDA beef choice cut was $349. Last year in the same week it was $230 lb. The prices continue to climb. On May 7, the USDA choice cut five day rolling average was over $400 lb and in the same week last year, it was $233 lb, so that’s almost double and it’s because of plant closures in Canada and the U.S.
Retailers in Canada haven’t really increased their prices even though they’ve been rising four or five per cent year over year every month. So, at this point they’re absorbing the prices. I can’t see retailers passing the prices on to customers so instead I think they will buy less, absorb the costs because of competitive pressures. Retailers don’t want to be seen as taking advantage of the situation even though they’re clearly taking a hit as beef prices continue to go up. How much prices will climb I don’t know, and it will depend on whether the virus is long term.
The same thing is happening with pork and with chicken. For example, the Canadian chicken industry dramatically changed its production allocations for this spring and summer from modest increases to 10 per cent increases. That is at least in part to allow for more practical production practices in plants as a result of the virus.
I don’t expect that the industry will get back to anywhere near 100 per cent of its normal production capacity for at least 2020 due to the virus mitigation measures in the plants.