How And Why America’s Food System Is Cracking

How And Why America’s Food System Is Cracking

Before government shut the nation down, Americans ate half their meals outside home. The farmers who served restaurants and cafeterias are dumping meat, veggies, and milk. And it's going to get worse.
Christopher Bedford
By

America’s food system is cracking.

People are still eating, farmers are still farming, and grocery stores are still open, but in areas around the country, shoppers looking for meat, milk, and other products find empty shelves and limits on what they can purchase — all while farmers from coast to coast are forced to dump milk, plow up vegetables, and euthanize livestock. So what’s happening, and why?

There isn’t a simple answer: No single issue that can be cured by safety gear and precautions, or “phase 1” reopenings. Yes, sick workers in tight conditions are causing a jam-up in processing plants. And yes, a shortage of access to personal protective equipment (PPE) and the threat of employee lawsuits compounds those risks. But the broader problem appears to lie in an unbelievably rapid shift in Americans’ eating habits, and thereby the American food economy, compounded by a draconian reaction and lack of dependable information from elected government.

“You’ve got to remember, it’s a finely tuned system,” John Rieley, a former Sysco food company sales rep and a current councilman for the nation’s top chicken farming county, Sussex Country, Delaware, told The Federalist. That’s usually a good thing — unless you need to play a different note.

‘A Finely Tuned System’

While in the mid-1980s, Americans still spent the majority of their food budget at retail grocery stores, that number has steadily declined, and in 2010, eating-out spending surpassed at-home for the first time. At the opening of 2020, Rieley estimates, only “40 percent of what farmers produced may have gone into retail.”

“Prior to [coronavirus], the majority of Americans would eat at least half of their meals away from home. A lot of people eating lunch and dinner away from home, or breakfast and lunch, and then you go out to dinner on the weekends, so all that production was geared toward food service, which is generally speaking a different size of animal, a different size of chicken.”

Meat processing plants are very specific. While they use a great deal of human labor, the factory is highly mechanized, its machines tuned to process specifically sized livestock to specific proportions or products for specific packaging (and the carefully regulated labeling each requires).

Just a few months ago, when more than one-third of us were eating at least one fast food meal a day, Americans wanted tens of millions of chicken nuggets, which are typically made with smaller, three-pound birds, breaded and packaged in large bags for commercial kitchens. When instead we’re buying chicken at the store, we prefer retail packages of larger, five-pound birds, either whole or cut into breasts, legs, or thighs. This is just one example.

“Food-service production has their own lines that they process and cut geared toward food service,” Rieley explains. “Dairy’s another good example: The milk that would go toward food service would end up in ice cream mix, little portion-packed creamers, five-gallon boxes of milk for the cafeteria, stuff like that. Stuff that’s geared for the supermarket, they just put in quarts, half gallons and gallons.”

“You can change over a plant, but all the machinery has got to be retooled, and realistically you’d need brand-new machinery because you probably couldn’t jerry-rig the machines that are in there properly to make them work well. So you’d probably end up tearing out what you have and putting in new. And then all the labeling has to be changed, and all the administrative things have to be updated and changed to comply with the retail products instead of the wholesale products, because they really are that much different. So you’ve got a lot of products that are for food service but there’s no demand to speak of, or the demand is a fraction of what it was. On the other hand, the demand for meals eaten at home has skyrocketed, so it’s creating this imbalance of the supply chain.”

Fast food does “70 percent of their business out the drive-up window,” Quality Milk Sales group CFO/COO Rance Miles tells The Federalist. “Of course, the drive-up window is still open, but places like McDonald’s, their total sales are down 30 percent; when you take a place like Subway, their sales are down 40 percent. I think it’s a combination that you say, ‘Well, we have this equipment that will do nuggets and strips, but that’s not what people are buying right now — they want chicken in the grocery store and we don’t have enough capacity for that. We have plenty of poultry, we just don’t have enough capacity. And then maybe some of that capacity we do have is shut down because of Covid cases.'”

“If this is going to be the new normal forever, they would go ahead and make the changes and everything would be fine eventually,” Rieley says, “but because the governors keep saying, ‘Two more weeks, just two more weeks, just two more weeks.’ They’re not going to put the investment into retooling the plants and then just have to change it back.”

It isn’t just dairy and chicken nuggets. It’s whole cuts of beef, crates of frozen burger patties, giant mesh bags of produce. While less than half of products once went to retail, Rieley now puts that number closer to 80 percent. The retail supply chain can’t keep up, and the food service supply chain has an abundance of product they can’t move.

‘You Do Your Best To Grow A Good Chicken Just To See It Destroyed’

Chickens and hogs grow bigger every day. Dairy cows need to be milked twice daily, and some dairies milk them three times a day. That means every day that there’s a serious back up and every day that there’s chaos in consumer demand, we consumers face shortages — but it’s the farmers who have to make the hard calls.

When we go to the grocery store and buy a gallon of milk or a block of deli cheese, we might assume it was made by the company on the package, but by and large it’s simply packaged by that company. The milk, the cream, the cheese, the cream cheese — those come from dairymen like Rance Miles.

“We’re partners in two big cheese plants and we’ll make probably 20 percent of the cheddar cheese in the country,” Miles says. While about half of that cheese goes to retail and the other half to the food industry, it all leaves the plant the same way: wholesale.

“If you go in and buy a package of Kraft cheese in the grocery store, that’s our cheese,” he says. “Kraft doesn’t make any cheese, Sargento doesn’t make any cheese, Kroger doesn’t make any cheese — we sell all the cheese to those people that cut and wrap and put their own brand and their own label on it.”

The same is true for milk, a fast-perishing product that is transferred to packaging plants in tankers, then to the grocery store to be stocked and purchased. As the millions of dairy cows continue to produce, milk that doesn’t go to the processing plant has to be destroyed.

“Here in the Southwest, just in Texas and New Mexico, we would have these big surges, big milk orders that we would have to rush to try to fill,” Miles says, speaking to the hoarding as virus-panic spread. “And then the next week they wouldn’t order anything, because the customers had bought enough for two weeks. Then we’d be dumping 100 loads a day.”

“Just think that we’re putting 700,000 gallons of milk on the ground today. Can you imagine? It breaks our dairyman’s hearts. We’re trying to donate milk to food banks, we’re working with our processors to process it so we can donate milk, but what are you going to do, pull up to a food bank with a tanker of milk? With a truckload of cattle?”

While dumping good milk is a grim task, poultry and other livestock are even tougher. At week six, when a 50,000-chicken population is ready to process, the next batch of eggs have hatched, chickens are being raised, and the 50,000 are eating approximately 20,000 pounds of feed a day.

Most farmers work long, hard hours to just get by, but even the wealthiest don’t have the feed or the space to keep those chickens indefinitely. In addition, while fast food might want a three-pound bird and retail a five or six-pound bird, few want much bigger — and the plants lack the capacity.

“The egg is laid, it takes 21 days to hatch, six weeks later they take it to their plant and process it, later that day it’s on a truck to the supermarket, you buy it the next day,” Rieley says. “It’s that finely tuned; there’s not a lot of flex in that. Same with pigs: Factories are geared toward their [specific] size, but pigs don’t stop growing.”

It sounds cruel, but given the options, turning off the air to the chicken houses and suffocating the birds is estimated as the most humane thing to do. Still, it’s a disturbing sight. One chicken farmer The Federalist spoke to, who asked not to be named, shed tears at the memory, saying, “You do your best to grow a good chicken just to see it destroyed.” And in a few weeks, this farmer will need to do it again.

Raising hogs on the modern farm is also down to a science. “The sows get bred at just the perfect time,” Miles explains, “they know how many pigs they’re going to have, they know when they’re going to have them, they know when those hogs are going to be 220 pounds, which is right where they want it.”

“I talked to a guy yesterday in Wisconsin and he said even just in his area, they were euthanizing 3,000 hogs a day that were ready to go to market that they couldn’t send anywhere, and that was just one place in Wisconsin. They’re also aborting sows right now because they know there’s no sense in having these babies and adding to the supply chain problem. They’re trying to slow down the supply until we can get this processing capacity back.”

The loss is hard for the companies that own the livestock, too. While ranchers typically own their herds, most chicken and hog farmers are essentially contractors, their livestock owned by the processors. “If you’ve got a Hallmark store, you might not sell anything but you’re not losing all your inventory,” Rieley says. “I think [the chicken companies] have the wherewithal to weather the storm but it depends on how long the storm continues. There’s limits to everything and they’re trying to pay their people and they’re trying to keep going and hold everything together and it’s all [loss] right now, not much income.”

In response to the hemorrhaging, President Donald Trump announced on Saturday a plan to buy $3 billion worth of product from farmers, using one of the Department of Agriculture’s coronavirus relief effort, the Farmers to Families Food Box program. But as the bottleneck continues, millions of animals are being euthanized.

“It’s just a very disappointing mess,” Miles says, “and the only cure for it is get everything back up, get these different channels — different restaurants, the food service industry — calling that product through, and that won’t do any good if you don’t have that packing plants up and running too.”

His daughter and son-in-law own a 7,000-cow feedlot, where cattle that have been grazing up to a certain weight are sent for custom feed to fatten up before processing. With the price of beef paid to ranchers through the floor and plants backed up, though, customers are telling the feedlot to just donate the cattle — they’re getting too fat and feeding them just isn’t making sense anymore.

“Thirty percent of the meat-packing capacity in the country is shut down, so you have all of these fat cows that are ready to be killed and ready to be processed and ready to go in a package and get on the grocery store shelves. They’re everywhere and there’s no place to take them to actually have them killed, have them slaughtered and have them processed. So the processing and packaging is really the choke point.”

A single plant closure has wide-reaching implications: According to the U.S. Department of Agriculture, losing one major beef plant “can result in the loss of over 10 million individual servings of beef in a single day.”

But donating the livestock just isn’t infeasible. “What are you gonna do,” Miles asks hypothetically, “roll up with a freight train of hogs and say, ‘Here you go, boys?’ Roll up with a truckload of milk? It’s very frustrating on the farmers, because nobody likes to see anything go to waste and knowing that we have people that are hungry and can eat it, and we’re having to destroy goods at phenomenal rates. Some of these guys go into a depression when they see it, they just — they can’t hardly take it.”

While food bank demand is spiking across the country, donating or even selling chickens or hogs directly to Americans is hampered by the American regulatory system. “It would be a tremendous liability to the farmer personally, and then to the [chicken] company” that owns the birds, Rieley says. Indeed, farmers face legal risk simply for having customers on their land.

‘Butter Stacked In Every F-ing Corner Of The World’

Not all the goods farmers produce rot, spoil, or continue growing. Costco shoppers will know that some, like butter, can be refrigerated or frozen for a year on the safe side. That is, if you have the freezer space.

“We make a million pounds of butter a day, just my company, which is 10 percent of the butter that’s consumed in the United States,” Miles explains. “We have butter stacked in every f-ing corner of the world that we can find cold storage and we’re running out.”

“Yet if you go to the store and look for packets of butter, it will possibly be in short supply,” he continues, “and that’s because there’s not enough packaging capacity out there. We’re making plenty of butter and it’s sitting around just begging for a home right now, but there’s not enough packaging where you actually cut it, pack it, put it in a package with sticks.”

“All of that capacity is running wide open but it’s not keeping up, because more people are shifting their buying to the grocery stories right now, and away from food service. Before Covid we had a pretty nice balance of butter being used in manufacturing, butter being used in restaurants. But there’s a shift: Everybody in the world learning how to bake again.”

The frozen food supply is packed to the brim, with the Midwest Center and USDA reporting that “America‚Äôs storage freezers have more beef, chicken breasts and legs, french fries and onion rings than at any point in history.”

“We enjoy here in the United States the best food-supply machine in the world and it’s because it has become so efficient,” Miles says. “Grocery stores operate on a 2 percent margin — that’s all. So they have to be really efficient with the resources and the whole supply chain does. There’s not storage capacity for disruption and whatnot, so what’s happened here is truly a disruption in the supply chain.”

Even when farmers were able to keep up with doubling orders at the beginning of the pandemic, store shelves were often empty. The reason: The American food supply isn’t just farmer to customer, but relies, for example, on tanker trucks to carry the raw milk to the processing plants, the drivers to move them, even the hands to unload the product and stack it in the case for the public to buy.

On 2 percent margins, the extra employees and equipment for an historic surge are as implausible to maintain as the above-mentioned storage space. It’s a credit to the economy that a food supply as diverse and complicated as ours delivers abundance at an affordable cost, but that same efficiency is less than nimble. Walking around grocery stores during the first shortages, it was not uncommon to spot dairy stacked in the cooler space behind empty cases, simply waiting on a free hand from hard-worked grocers.

“There would be a 100 cases of milk sitting back there and the shelves would be empty just because they’re busy stocking f-ing toilet paper, whatever else, and they just couldn’t get a body in time to get back there and put that on the shelf,” Miles complains. “And everybody got just totally overwhelmed.”

Death And Lawyers

By the end of April, when President Donald Trump issued an executive order for meat processing plants to remain open, the Centers for Disease Control tabulated nearly 5,000 cases of coronavirus in the industry — or nearly 4 percent of employees — and 20 deaths. The numbers, though, had been out of date for weeks, with one investigation by USA Today and the Midwest Center For Investigative Reporting pegging deaths at more than twice that by May 6.

Just on Monday, a Minnesota poultry plant faced worker protests. On Wednesday, a sausage plant in Kansas was forced shut.

The problem is magnified in an industry increasingly dependent on a smaller number of bigger factories. In the mid-1970s, 12 percent of cattle were slaughtered in plants that handled more than 500,000 a year. By the mid ’90s, that number had risen to 65 percent. For hogs, plants processing more than a million a year went from 38 percent to 88. Despite the executive order and increased access to PPE and temperature testing, the Midwest Center reports, weekly production is down 36 percent from 2019.

The risk of remaining open threatens owners as well. After 36-year-old forklift operator Hugo Dominguez died of coronavirus in Dallas in late April, his widow brought a wrongful death lawsuit against the sausage company he was working at, alleging the company neglected safety, giving “more importance to profits than human life.”

“The option,” Miles tells The Federalist, “is to say, ‘OK, open these plants back up, get all these workers back to work here and let them all get Covid. And then oh, by the way, let the workers all sue you because you did it.’ If I’m a packing-house guy, I’m not sure what to do here.”

“Trump should say, ‘You guys take all the precautions you can, but get them opened back up and we’re going to give you immunity from class-action suit for three months or something like that.”

Although the president’s executive order designating meat plants “critical infrastructure” doesn’t mention liability, industry publication The Cattle Site reports the order “is expected to absolve companies who own them from liability for illnesses or deaths among workers.”

Miles and his company, which has been at work throughout the pandemic, have been fortunate. “In the about 120 dairy farms, I would say we might have had 10-12 different individual cases in different spots. Out of 500 employees or so that we have working in our manufacturing plants, making powder and butter and cream, we’ve had one case, and that actually came last weekend at Littlefield, Texas. We’ve taken all the precautions and contact-tracing and everything else, all of the precautions really since late January with masks, social distancing.”

“I just didn’t feel like it was right if we ask all these workers to go to the plants and keep working and maybe exposing themselves, while the office boys all went to the house,” Miles says, “so we’ve continued to work and I think my employees are sure happy that they are not staying at home.”

‘We’re Going To See Some Inflation Here That Nobody Has Really Anticipated’

The costs of goods and services, excluding food and energy, dropped in April, the highest amount since records started in 1957. The costs of energy have plummeted. The price of groceries has risen the most in nearly half a century, with meat and eggs taking the lead. But while the price of meat is up at the stores, the glut of livestock has led to a price drop of over one-third for cattle and pork farmers since 2019. On May 6, the president asked for a federal investigation of price-fixing among packers, leading to a limited rebound in prices, but the danger persists.

It’s a similar situation for American energy, where bottomed-out prices will drive independent producers to ruin, allowing major corporations able to withstand the economic downturn to gobble them up. While some prices might be low for Americans now, some expect the reduced competition and supply to lead to rising prices across the board.

“I think we’re going to see some inflation here that nobody has really anticipated because you don’t think about inflation when you feel like you’re in the Depression and jobless claims,” Miles says. “You have some of these industries that are going to be decimated. The dairy industry is going to be one of them, by the way.”

“With all of this backup in the supply, we’ve seen commodity prices and butter and cheese and everything else fall to 20-year lows. We’re going see $9 [per-100-pound] milk prices to the dairyman at the farm when his break-even is $16 to $17 [per hundred pounds]. So think about that: One of my dairies makes 400,000 pounds of milk, so 4,000 hundred-weights a day. These guys are going to be losing a half a million dollars a month on one dairy, so we’re going to lose a lot of milk out of the dairy industry.”

Every 1 percent decline in dairy supply, he cautions, “usually means about a 10 percent change in price. “So let’s say you lose to 2 or 3 percent, and you see dairy go up to 30 or 40 percent from where it was: You could see $4 a gallon milk on the shelves, versus the $1.80 or so that it’s going for right now.”

As restaurants permanently close across the country and states limit access and seating, the same reaction is nearly certain: high demand, low supply, and rising prices. “We just got put a $4 trillion in the economy,” Miles says. “You’re going to have a lot of dollars chasing fewer goods and services.”

There is, however, light at the end of the tunnel. “In the food business, nothing is too, too long-term because you can replenish the supply chain,” Rieley says, estimating it will take two months to replenish chickens and one year for pork. Cows, though, are more difficult, with a nine-month gestation period plus at least 18 months to prepare for market.

“I don’t think that the shortage is going to get worse,” Miles adds. “It’s happening now — the impact of this is happening now.”

‘Man, These Guys Are Resilient’

The American food supply isn’t flexible, but the men and women who make it function are tough, creative, and resourceful. They can patch up snags, stretch resources, and bear burdens.

When Kroger and Walmart, among the largest supermarket chains in the world, didn’t have the trucks and drivers they needed to keep up with the shift in demand, for example, Sysco, the largest food distributor and the country’s top supplier of restaurants and wholesale, stepped up.

“Well Sysco, the food service people, they’re all sitting there idle,” Miles recounts. “So they jumped over and went to work for people like Kroger and Walmart, places like that, saying, ‘Well, we’ve got all of these trucks and drivers, let’s put them to work over there because they don’t have enough.’ The cleverness and the ingenuity of the American people, and businessmen especially — to see them navigate and do some of the reallocating of resources just gives me, gives you, some hope for sure. You go, ‘Man, these guys are resilient.'”

“It’s sure interesting times, I’ll tell ya. I don’t know what other people think, but I think we’re gonna have a little challenge coming out of this. All the more reason to get started. But we’re going to have a hangover from this for a while here.”

Christopher Bedford is a senior editor at The Federalist, the vice chairman of Young Americans for Freedom, a board member at the National Journalism Center, and the author of The Art of the Donald. Follow him on Twitter.

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