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Message from a dairy farmer about supply chain problems

 

The following was posted April 14 on the Conservative Treehouse blog and is a perspective many readers may have yet to consider:

  • Phase One was retail. •Phase two was distribution. •Phase three was the space between processing/manufacturing and distribution. •Phase four was raw material supply to manufacturing. •Phase five is consumer packaging capacity, and bulk storage inventories.

Most Americans are not aware food consumption in the U.S. is a 60/40 proposition. (Before Covid-19) approximately 60% of all food was consumed “outside the home” (or food away from home), and 40% of all food consumed was food “inside the home” (grocery shoppers).

Food ‘outside the home’ included: restaurants, fast-food locales, schools, corporate cafeterias, university lunchrooms, manufacturing cafeterias, hotels, food trucks, park and amusement food sellers and many more. Many of those venues are not thought about when people evaluate the overall U.S. food delivery system; however, this network was approximately 60 percent of all food consumption on a daily basis.

The ‘food away from home‘ sector has its own supply chain. Very few restaurants and venues (cited above) purchase food products from retail grocery outlets. As a result of the coronavirus mitigation effort the ‘food away from home’ sector has been reduced by 75% of daily food delivery operations. However, people still need to eat. That means retail food outlets, grocers, are seeing sales increases of 25 to 50 percent, depending on the area.

♦ Phase Five – The retail consumer supply chain for manufactured and processed food products includes bulk storage to compensate for seasonality. As Agriculture Secretary Sonny Perdue recently noted “there are over 800 commercial and public warehouses in the continental 48 states that store frozen products.”

Here is a snapshot of the food we had in storage at the end of February: over 302 million pounds of frozen butter; 1.36 billion pounds of frozen cheese; 925 million pounds of frozen chicken; over 1 billion pounds of frozen fruit; nearly 2.04 billion pounds of frozen vegetables; 491 million pounds of frozen beef; and nearly 662 million pounds of frozen pork.

This bulk food storage is how the total U.S. consumer food supply ensures consistent availability even with weather impacts.  As a nation we essentially stay one harvest ahead of demand by storing it and smoothing out any peak/valley shortfalls. There are a total of 175,642 commercial facilities involved in this supply-chain across the country

Few Americans are aware of this.  However, that stored food supply is the supply-chain for food manufacturers who process the ingredients into a variety of branded food products and distribute to your local supermarket. That bulk stored food, and the subsequent supply chain, is entirely separate from the fresh food supply chain used by restaurants, hotels, cafeterias etc.  For almost 8 weeks the retail supply chain has been operating beyond capacity and the burn rate of raw food products is up a stunning 40 percent.

Those bulk warehouses, the feeder pools for retail/consumer manufactured food products, are starting to run low. Believe me: (1) we don’t want to find out what happens when those 800 mass storage facilities run out; and (2) the food supply chain will be a big part of President Trump’s decision-making on reopening the economy thereby re-opening restaurants, cafeterias, etc…. and switching consumption back to fresh supply.

This “bigger picture” is not being considered by politically-minded governors, DC politicians, and public health-centric advisors who focus exclusively on the virus.

Additionally, there are very specific issues within each supply chain (commercial and consumer). It is not as easy as people think to move the commercial supply-chain (restaurants etc.) into the consumer supply chain (grocers). First, there are simply packaging capacity issues.  Additionally, there’s an entirely different set of regulations on the processing side for the consumer supply chain.

One dairy farmer helps explain:

Are we dumping milk because of greed or low demand, no. It’s the supply chain, there are only so many jug fillers, all were running 24/7 before this cluster you-know-what.

Now demand for jug milk has almost doubled.  However, restaurant demand is almost gone; NO ONE is eating out. 

Restaurant milk is distributed in 2.5 gal bags or pint chugs; further, almost 75 percent of milk is processed into hard products in this country, cheese and butter. Mozzarella is almost a third of total cheese production; how’s pizza sales going right now??

A bit of history – Years ago (40+) every town had a bottler, they ran one shift a day, and could ramp up production easily.  Now with all the corporate takeovers (wall street over main street) we are left with regional “high efficiency” milk plants that ran jug lines 24/7 before this mess, no excess capacity.

Jug machines cost millions and are MADE IN CHINA. Only so many jugs can be blown at a jug plant.  We farmers don’t make the jugs, damn hard to ramp up production.

I’m a dairy farmer, believe me NO dairyman likes dumping milk; and so far there is NO guarantee they will get paid. Milk must be processed within 48 hours of production and 24 hours of receipt in the plant or it goes bad. Same with making it into cheese and butter, and neither stores well for long.

The same supply line problems exists where restaurants are supplied with bulk 1 pound blocks of butter or single serve packs or pats; and cheese is sold in 10 to 20 pound bags (think shredded Mozzarella for pizza).  Furthermore, it is not legal for this end of the supply chain to sell direct to consumers in most states.

Take cheddar cheese for instance; it goes from mild to sharp to crap in storage. Butter, frozen, only stores for so long and then must be slowly thawed and processed into other uses as it gets “strong”.  At Organic Valley we cook it down into butter oil or ghee for cooking.

We are headed for the same problem with canned veggies.  The vast majority of produce comes off and is processed in season; canned or frozen.  The supply is already in cans for the season; restaurants use gallon cans or bulk bags of frozen produce.

At some point we will run out of consumer sized cans in stock because home size sales are up (40%+) and restaurant sales are almost nonexistent.  Fresh produce out of U.S. season comes from Mexico (different climate). I’m talking sweet corn, green beans, peas, tomatoes, all veggies are seasonal in the USA.  Fresh, out-of-season, row crops are imported. (There are exceptions, like hydroponic grown, but a small amount of total).

Someone mentioned “time to raid all those bins of corn”.  Those bins on the farm contain yellow corn, cattle feed and totally unfit for human consumption, now or at harvest.

Eggs? Same problem.  Bakeries and restaurants of any size use Pullman egg cases, 30 dozen at a pop, 30 eggs to a flat, 12 flats to a case.  There are only so many 1 dozen egg cartons available and only so many packing machines.

Industrial bakeries and processors of packaged food buy bulk liquid eggs, no carton at all.  Also in many states it is illegal to sell this supply-chain directly to consumers. 

On your standard buffet of any size, do you really think they boil eggs and peel them? They come in a bag, boiled and diced; those nice uniform slices of boiled egg you see on your salad, a lot of them come in tubes boiled and extruded at the same time, just unwrap and slice. Your scrambled eggs come in a homogenized bag on most buffets.

Another example of Main Street being gutted and “improved by wall street” NO local egg processors available or many small egg producers either, all corporate and huge, contracted to sell to the corporate masters.

This is a warning the same problems exist in all supply chains.

The supply chain is in trouble.

David Osterloh,

61-year-old dairy farmer