Home Cooked Meals and the Supply Chain

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During my review of, “What Happens When Everyone Stays Home to Eat?” a podcast on Freakonomics by Stephen J. Dubner, we take a look back at the height of the pandemic and how it affect the supply and demand of our food-supply system here in America. Many remember going to the grocery store at the start of the pandemic, and shelves being empty; toiler paper, meat, bread, soup, pasta, water, and many other aisles left completely desolate. What affect did this have on both our economy, and our food-supply system?

Today, over two years later since the pandemic started, we have somewhat rebalanced the scales and returned back to pre-pandemic ways. Dubner articulates that, as we look back, we can see that there were both winners and losers during this time, some more clear then others. Furthermore, it is clear how supply and demand has shifted due to these circumstances, and is very interesting to view in terms of economics.

Doug Baker, from F.M.I. (the Food Marketing Institute), explains the sudden demand change as soon as the pandemic hit. First, he explains, is preventative preparedness, or the stockpile of things like toilet paper or hand sanitizer, as many quickly realized. Second, would be response preparedness. Frantic shopping, for things like soup and pasta, spiked initially, while still varying in intensity by location. Both of these are basic reasons for an increase in demand, but why do grocery stores aisles still become empty?

Jayson Lusk, an economist from Purdue University, explains how pre-pandemic, over half of food expenditures were spent outside of households. This means, when the pandemic hit, the food industry was hit hard, layoffs were just the start. Sit down restaurants take major hits, while things like alcohol sales change. Less spending at bars, sports venues, or restaurants affects sales overall, however, with more people drinking at home, in-store liquor sales actually increased. On top of this, Dubner emphasizes how places like Dominoes, Instacart, or Blue Apron saw an increase in sales due to delivery. Once again, winners and losers.

Continuing, Lusk mentions how around 35 percent of our pounds of food was consumed out at these restaurants before, and our total demand for food hasn’t changed, just shifted towards grocery stores now. Lusk also notes how people are still eating the same amounts of food — the coronavirus hasn’t made people hungrier. This means that the supply side of things is fine, there is the same amount of supply before and after. There was simply just a shock in demand.

Dubner continues investigating further, delving into the supply chain of our food. Why were farmers ordered to dump milk when there might still be a shortage of milk in grocery stores? Simply put, many products aren’t solely intended for grocery stores — milk for example goes to schools or restaurants as well. On top of this, we also take advantage of the just-in-time delivery model, where industries minimize inventory to help cut costs. Throw a pandemic in the mix, and ripples will occur. One of the biggest factors in the food supply chain is the movement of food. It takes many steps and a lot of movement to get food to your plate from the seed, and when transport workers are benched due to quarantine, disruptions occur. Lusk states that we have enough food to feed everyone, it is simply that we cannot get the food to everyone that needs it in a timely manner.

If there are shortages and disruptions, there is most certainly going to be economic consequences as well. Price increases, sometimes very large ones, take shape because of this. However, Lusk argues that this isn’t gouging, but more incentivizing people to stop hoarding and overstocking. One such way is item limiting, or major increases in prices beyond a specific number of items. Baker claims this adjustment is pacing set by manufacturers for retailers. Many more adjustments have to be made as well, such as cutting out the middle man and shipping directly to customers houses for large enough orders.

Bakers continues on, citing adjustments also have an effect on natural rivalries, such as retailers and grocers. He claims that when there is a crisis, everyone comes together to help solve it. This is shown through the redeployment of resources, such as warehouse space, labor, and equipment. Lusk also claims there have to be some realignments, specifically with perishable, such as fish or fruit and vegetables. An adjustment to higher processed foods is essential, otherwise it would be a complete loss of products. Lusk continues and even poses the idea that these adjustments and new transaction costs might actually pressure prices to drop, conversely to one might think from higher demand or kinks in the supply chain. Lusk explains how things like exporting good, where the U.S. is one of the top exporters, will see a retention in products because of recessions in global markets. He states that there might be a short term increase in prices, but a long term spiral. Dubner and Lusk continue, explaining how oil is another great example. Lowered prices due to things like price wars between Russia and Saudi Arabia have had an affect on the supply chain, lowering prices for customers, but hurting farmers because of this. Once again, winners and losers.

An additional major impact of the coronavirus is the increase in food insecurity. Layoffs and other job insecurities have led to an extreme increase in food insecurity. Jada Hoerr, the development and relations director at Midwest Food Bank, claims that in addition to this increase in demand, there will be unintended consequences from how people are shopping (hoarding) to the supply of many nonprofit feeding programs. When a large part of food for these programs comes from grocery stores, specifically with perishables, there become supply problems. However, as I claimed earlier, people come together during crisis. More specifically, places that were hit so hard, such as restaurants, schools, and cafeterias are able to donate and repurpose the food they aren’t using towards these programs.

Lastly, Dubner ends with the story of Garth Brown, who owns a small farm in upstate New York. Garth has seen a tremendous increase in orders. However, he also speculates how he cannot continue to have these insanely high orders long term, but that this will be a benefit to his business over time. He also contemplates that his increase in business is built on immense tragedy as well. Once again, winners and losers, shifts, changes and adjustments. The balance of the supply and demand of food is just one of many ways our economy, and life, has been affected by the pandemic.

Here is a link to the podcast: “What Happens When Everyone Stays Home to Eat?” a podcast by Freakonomics Radio.