COVID Caused Beef Business Thinkers to Do a Lot of Rethinking
By Burt Rutherford, Contributing Editor
If the beef business has learned anything during the past two years, it’s that old business practices must be made new again.
Take, for example, the beef supply chain from the packing plant to the consumer. Pre-COVID, it was a supply chain that would have made Henry Ford proud. Packers harvested cattle and shipped boxed primals out the back door. Wholesalers and retailers processed the primals and subprimals into consumer-ready cuts. This just-in-time production model worked well, providing end users with the freshest product they could get.
Then came the fire at the Tyson plant in Holcomb, Kan., and COVID. “The burden of the marketplace fell on producers, just the perishability of a steer and the inability to get them harvested on a timely basis,” said Don Close, senior analyst-animal protein with RaboResearch.
Indeed, at the height of COVID cases in 2020, fed and feeder cattle backed up severely while packing plants, crippled or shut down because of a lack of employees, caused severe shortages in retail meat cases.
That caused the thinkers in the beef business to do a lot of thinking and rethinking about existing business models. “If we think forward and we think [about] what changes need to occur in the industry to prevent the occurrence of empty shelves from happening again, we need to look at a post-harvest scenario that transitions the market from a just-in-time delivery system to a just-in-case delivery system.
“We have identified four major issues, which are well known, that are driving fundamental change in the beef supply chain from a just-in-time delivery model to a just-in-case approach over the next three to five years,” according to Close.
Those four are:
- Automation in packing plants to increase the efficiency of their labor force.
- Packaging that extends shelf life, is more durable for grocery delivery and meets sustainability expectations.
- Government and investor-led sustainability demands, which may require more documentation and verification methods throughout the supply chain.
- The transportation system’s technology and infrastructure overhaul that reduces carbon emissions and the risk for backlogs.
When the words “automation” and “packing plants” are used in the same sentence, the first thought is robotics. And that’s very much a possibility, Close said. But not yet.
“What we are seeing is a lot of implementation of technology. We see a lot of implementation of cameras, monitors and creating a lot of big data that shows the efficiency of a machine,” he said. “So we’re talking movement of boxes through the plant. We’re talking storage. We’re talking billing, assembly of orders.”
So what Close expects to see initially is the addition of a lot of software that enables the existing workforce to work more efficiently. “Over time, could that lead to robotics? Yeah. We’re just not there today.”
Today, beef is packaged two ways. From the packer to the wholesaler, it’s in Cryovac bags in a box. That, Close said, is very good packaging.
“But if we go from there to the retail counter, we’re talking the conventional foam tray with cellophane.” That packaging is designed to let oxygen through to keep the bright red color.
“That foam tray and cellophane is designed to last hours, not days,” he said.
Now, think of the explosion of meal kits and the growth of home delivery. In some metro areas, grocery retailers promise delivery in 10 minutes. Then consider the international trade and what future packaging may be needed there.
“Each of these avenue streams to consumers oftentimes need very different packaging with varying levels of durability to withstand shipping, extended shelf life.” Even antibacterial packaging.
“The takeaway is the very consumer who has needs for a different type of packaging is often the very same consumer who is raising hell because of the amount of package waste and sustainability and how we save the planet. How do we serve both ends of that consumer?” Close asked.
“That leads into the whole sustainability from with a whole ‘nother set of issues that will require more third-party verification, more certification, more inspection. That will add cost to the system,” he said, and further widen the farm-to-wholesale and farm-to-retail price spreads.
But the need for documentation is essential, he believes. “Producers throughout the production chain, as well as processors, need to connect to pass on information. The answer that is most frequently suggested is blockchain technology, although cheaper options may also be available.”
Close looked at the three ways cattle and beef are transported – trucks, rail and ocean freighters.
Looking first at trucking, Close said the American Trucking Association estimates that the nation is short 68,000 truck drivers today, and within five years that shortage could be a million to a million-and-a-half drivers.
So that leads us to the conversation of the self-driving, automated truck. Close says experiments are underway that involves a lead truck with a driver and two or three drone trucks behind. “We know that’s going on. That technology is there.”
However, giving consideration to the amount of truck traffic on the highways today, “If we try to find additional truck drivers or if we look at self-driving trucks, it’s a band-aid,” he said. “I think there are limitations on how much additional truck traffic our interstate highway system can bear.
“That leads me to the conclusion that our real long-term solution is to update and enhance our rail system and get some of that traffic off the road.” Close admitted that he has little input on how to reinvent the rail system, “but somebody’s got to be the first one to talk about it.
“I think it will be a massively expensive proposition that will require a private-public combination,” he said. “But I think if you take the efficiency of rail, the environmental benefits of rail, it’s an area that logically makes sense.”
All four of those points adds cost to the system. “I don’t know that any one of them are necessarily prohibitive, but if you look at a culmination of the add-on cost of all these interventions, that cost will be at a level that is going to have a substantial impact on the live-to-cutout ratio. And there are only two places where that added cost can surface, and that’s lower cost to the producer or higher cost to the consumer.”
Where From Here?
“The first thing I’m going to argue is that as cattle supplies tighten, packer margins will normalize,” he predicted. As the world adjusts to living with COVID, those restrictions will ease as well.
But “normal” will never be normal again, and it’s reasonable to think that another bomb on the market like COVID could happen again. “So if there are interventions we can place in the system to extend the shelf life of product post-harvest – when we have any kind of problem that shuts the harvest process down – we can go an extended period of days with a product that is inventory and ready to go to the supermarket counter,” he said.
The beef business has spent the past 25 to 30 years creating and refining an efficient just-in-time supply chain. Changing to a just-in-case model will take time, too. And to make it work, all segments will need to share in the cost.
“The current crisis put unfair pressure on the producer. As we build the system forward, that elasticity has to be built into the cost and that has to be picked up by the packer, the retailer. They all need to pick up a piece,” he said.
“It’s going to take a window of time to build a system of just-in-case and over that time to implement a system of to whom the cost falls,” Close concluded. “That will shuffle out in the market.”