Growing up, dinner at my grandparents’ rural dairy farm meant fresh, home grown food on the table. They always sent us home with a few jars of home-canned fruit, vegetables and jam, or packages of frozen beef or salmon to last us for weeks. I’d often stay with them on summer breaks, and recall that we rarely went into town. Grocery shopping was bi-monthly at best and their only needs were flour, sugar, coffee, spices, ice cream and maybe a few other staples not grown on their farm. And, this wasn’t uncommon for the times.
Fast-forward 50+ years, and most of us don’t grow our own food. And, many of us are quite dependent on grocery stores―shopping weekly or even more frequently. Today, TV and internet news stories across the nation are showing photos of empty grocery stores. America is not known for food shortages, so why are grocery stores running out of so many of the key staples we rely on? Of course COVID-19 stockpiling is a factor, but there’s more to this story. Before we examine this, let’s briefly delve into the U.S. food supply.
Like my grandparents who grew and raised most of their own food, U.S. farmers, ranchers, dairies and U.S. based processing plants, provide the majority of the food we all consume daily. While we enjoy gourmet and luxury foods from other countries, the majority of our food, beverages, meat and poultry are produced here in the U.S.
U.S. has low reliance on imported foods
With few exceptions, which I’ll note, the U.S. has limited our dependence on imported food commodities. As represented on the following table, apples, potatoes, beef, pork, poultry, dairy and tree nut import percentages have remained the same, and in some cased declined, over the past 10 years. The nuanced increase in peppers, tomatoes is largely due to greenhouse production in Mexico, along with improved transportation and border crossing between the U.S. and Mexico. Sugar imports from Mexico increased as part of NAFTA. The high seafood import percentage is due to farmed shrimp imported from India, Ecuador, Indonesia and other countries, along with farmed Atlantic salmon (Canada, Chile, and Norway). The U.S. has a very limited shrimp and salmon aquaculture industry.
U.S. Production of Many Food Commodities Exceeds Population Growth
Over the past 10 years, the U.S. population has increased by about 6.3%.1 Production of many key food commodities has exceeded population growth. In fact, for many foods, the U.S. enjoys abundant production and still has sufficient volume to export many food and agricultural commodities around the world. A few food commodities are highlighted below and on the following charts.
- Milk production per cow has increased by 11% in the last 10 years alone, due to improved feed rations and better animal genetics.2
- Broilers are low cost due to faster growth:3
- 1990’s – 4.5 lb. bird in 7 weeks;
- 2019 – 6.3 lb. bird in < 7 weeks with 10% less feed.
- Beef: Modest growth, offset by leaner products, less trim loss and more package ready beef.
- Corn: U.S leads the world in production volume and yield;
- Improved genetics, disease resistance and agricultural practices.
In addition to feeding the U.S., American agricultural commodities are exported around the world. The key export percentage of key U.S. agricultural products is highlighted in the following graphic.
The above charts tell only a few of the success stories about U.S. agriculture. The good news is that no matter the commodity, production and yields have increased over the decades. This has helped maintain the supply/demand balance, and also has minimized inflation pressures on most food commodities. Exceptions are weather, disease, or global supply changes. Rarely do these events impact multiple commodities at the same time.
So, we’re back to the question at hand―with all this food, why are our grocery store shelves empty? The answer: just-in-time inventory strategy. The good news is that empty grocery shelves we’re seeing during this COVID-19 crisis is not from lack of food and other products. The short-term shortage is due to a food distribution and inventory focused “just-in-time” strategy that aims to produce, ship and stock as few goods as possible to meet demand. By decreasing the capacity of their distribution centers, retailers save on rent, utilities and labor. Distributors save on fuel and wages. Manufacturers cut down on capital locked up in unsold inventory.
Pre-COVID-19, the food distribution system was balanced with consumers eating in restaurants, or at schools and universities. In fact, in 2018, U.S. foodservice spending amounted to roughly 54% of total food purchases (Source USDA-ERS). In the midst of COVID-19, restaurant dine-in restrictions, grade school and college closures, and work from home mandates, have resulted in more meals being prepared and consumed at home. This has caused a mercurial demand growth for retail groceries in a short time period. Just-in-time is now, “just-sold-out”) as food manufacturers, distributors and supermarkets refocus production and build inventory to meet rising retail grocery demand.
The “just-in-time” inventory strategy isn’t a new development. It has been fine-tuned over the past two decades as grocery chains merged, acquired competitors and add stores to grow coverage geographies. This strategy works well under normal circumstances. As noted on the table below, Walmart, has increased its number of stores far more than the Kroger and Albertson’s chains. Still, each of these supermarket retail chains has more than quadrupled its revenue since 1998.
Walmart, reported inventory turn ratio of 7x’s sales in 1998, and improved its ratio to 11.7x by 2019, a 70% increase. This is remarkable for one of the world’s largest retailers, especially since grocery items are only a portion of Walmart’s strategic merchandise units, per its 2020 annual report. Kroger and Albertson’s starting from higher turn ratios, per their 1998 annual reports, also improved. Similar inventory metrics are reported by other retail grocery chains. With less than a month of inventory, it’s no surprise pandemic stockpiling empty grocery shelves across the nation.
The quick response by the food manufacturing, distribution and supermarket industries to re-stock shelves is commendable. Consumers are finding grocery shelves are better stocked than even a month ago. With a potentially slow recovery from COVID-19 and return to normalcy, the grocery system will likely need to forgo a return to the just-in-time strategy for several more months. While we’ve answered the question regarding empty grocery shelves, the sparsely stocked toilet paper aisles remain a mystery! Perhaps the subject for another article!
- Source: Census.gov
- USDA NASS
- Source: National Chicken Council
Scott Etzel is a Vice President and Sector Analyst within Well Fargo’s Food and Agribusiness Industry Advisory group and is focused on the seafood, dairy, and sugar sectors.
Scott joined Wells Fargo in 1987 as an Agribusiness Consultant with responsibility for lending to California’s fruit, vegetable, nursery, tree nut, wine, and forest product industries. Scott has been with wells fargo for more than 30 years with a 2-year gap from 1994−1996, when he was employed as Director of Environmental Affairs for the Northwest Food Processors Association in Portland, Oregon. Prior to joining the wells fargo, Scott held positions in trade association management and food brokerage representing the fruit and vegetable processing industries.
Scott is a 1976 graduate of Oregon State University and holds a B.S. degree in Food Science and Technology.
