Jordan: The first thing you should know about our guest today is that he’s got flour, like in his house, and he just bought it in a store. Really! All kidding aside, he is living proof that despite what I might see at my local grocery stores, Canada’s food supply chain is working. Even for flour. But if it is, then why can’t I find flour? And why can’t my friend who lives up in the country get fresh bread? In order to answer that, you have to start with the basics of how Canada’s food supply chains operate. I say chains because when you start to have it explained, the first thing you learn is that there are two of them, and those two supply chains are very different. So from a beginner’s guide to those chains, to the impact of COVID-19 outbreaks and meat packing plants on them, to why you should really think about eating some fries while you’re on lockdown, and how much more you might pay for groceries this fall. We’re going to walk you through what the past couple of months have done to the journey your food takes between farm and table. And we’ll do that as soon as Claire tells you what you need to know today.
Claire: The federal government is pledging $252 million to ease pressures on the country’s agriculture industry. Last month, the Canadian Federation of Agriculture asked for $2.6 billion, but Prime Minister Justin Trudeau says the amount being given now is a starting point.
News Clip: We will continue to work with farmers, with stakeholders and industry representatives, with provinces and territories, to ensure that our food capacity in this country, and those people who work so incredibly hard every single day to feed Canadians, get the support that they need through this crisis and beyond.
Claire: Alberta plans to double its capacity to test for the Coronavirus. $4.5 million will be spent on new equipment and technology. Right now, the province is doing about 7,000 tests a day and they want that number at 16,000. Quebec, the hardest hit province in Canada is lifting some of the restrictions on private seniors’ homes. For nearly two months now, residents have not been allowed to have visitors, and they’ve not been allowed to go out unaccompanied. The premier says, now, some residents will be allowed to go out on their own and they can have visitors, but they have to be outside. As of Tuesday evening, 62,046 cases of COVID-19 in Canada with 4,166 deaths.
Jordan: I’m Jordan Heath Rawlings, and this is The Big Story. Michael von Massow is an associate professor of food, agriculture and resource economics at the University of Guelph where he also hosts their Food Focus podcast. Hi Michael.
Jordan: I’m going to get you to explain something that I probably haven’t had thoroughly explained to me, before we get into why I can’t buy flour, so just start by describing the supply chain to me. What is it? How does it work?
Michael: The supply chain is the path or the series of steps that a product goes from production, to when we as customers get it. In the case of food, it’s a restaurant or a retail store, or it may be a truck that delivers it to our house. And so the scope or the scale of the supply chain depends on exactly what we’re looking for. So again, for food, it starts at the farmer, but in some cases we might also consider the inputs that that farmer buys– fertilizer seed and things like that. Farmer then sells it to a processor. There may be a step in the middle. Processor may sell it to a further processor, who then will package it and sell it into distribution, who then will sell it into a restaurant or into a retailer. There could be more or fewer steps depending on the specific product. And it can be food or it can be cars. But it is those steps in the process to get it from where it starts, to where we can buy it. And it’s not just sort of the physical companies that do it. It is the relationships between those companies that we define as the supply chain.
Jordan: So how has Canada’s food supply chain, and I realize I’m asking you to speak a little bit generally, but how has that coped with the COVID-19 crisis?
Michael: Well, if you look, not withstanding some short term demand-based shortages that we’ve seen and that I’m sure we’ll talk about, I would say that the supply chain has performed remarkably well. It’s demonstrated that it’s been robust and resilient. And in the face of an unprecedented demand shock, it’s bent, but not broken. And we’ve still been able to buy most food products. And the supply chain is catching up to give us those products that are occasionally somewhat still in shortage.
Jordan: So yeah, let’s get into that. Because if it’s performed remarkably well, there’s also some staples that a lot of grocery stores have been missing. Like it’s been six weeks, I can’t get flour. I know some people in cottage country have had trouble getting eggs and bread. Like those seem like pretty basic failures of the supply chain, or am I wrong?
Michael: Well, I think yes, they are failures of the supply chain. But they are not supply based failures. So I think that some of the shortages have been localized and/or inconsistent. So I’m not bragging, but I’ve been able to get flour. And so we have lots of flour and in fact, some yeast in our house that we’ve been able to buy at our local stores. And I think often it depends on when you go to the store. And so demand has gone up. So why has there been a change in demand? Well, there’s been a couple of things that have contributed to the change in demand. The first thing is we’ve seen this dramatic increase in demand at retail stores, driven by the fact that we’re no longer buying much, if anything, in food service. So the demand, the quantity we’re buying at the grocery store, has gone up, and the system has to catch up. We have kind of a just in time system, where we produce and order to expected or forecasted demand, and when that demand changes, the system takes a while to catch up. The other thing that’s happened is we had some panic buying, so people were buying more than they needed. I think to a significant degree that has decreased. I think we still have the psychology, if I see something on the shelf and it’s the last item on the shelf, we may buy it. But I think people– we have perishable products in many cases, so there’s only so much room we have for storage and only so long we can store some of these things. So I think that that sort of panic buying has diminished. And the last thing is, because we’re going to the grocery store less frequently, many of us are, are buying more things in each individual shop. And there that sort of demand comes, what I call a little bit lumpier and a little bit harder to predict. So some days demand will be higher and other days demand will be lower, depending on how many people come into the store. So all of those things have shocked the supply chain. And it’s not just having the product, it’s also having the packaging to put that product in so that we can get it to the retail store. So demand for flour, which is a product you brought up, is generally low in the summer. We like to be outside, we like to barbecue, we bake significantly less than we do, maybe in a pre-Christmas timeline. And so they weren’t looking to produce a bunch of flour, and then all of a sudden we started buying flour. So the system had to catch up. It’s not like we’re short of wheat, but we were, to a degree, short of some of the packaging that we would put that flour in. And so that’s what’s constrained getting to the market. So while some stores have white flour, some of the specialty flours have been hard to find– multigrains or whole wheats– because as they’re catching up to the increased demand, they focused on the core products. So I would expect to see some of those secondary products show up in grocery stores relatively soon.
Jordan: I want to ask you about something you’ve mentioned a couple of times now, which is that there are kind of two supply chains, one for retailers and one for food service, and then at the same time you mentioned that while our home cooking and home demand has gone up, demand for food services obviously bottomed out. So how different are those two supply chains? And why can’t they just move supplies from the restaurant side of things to the retail side of things so that we don’t see these kinds of shortages sometimes?
Michael: So there are a couple of reasons. That’s a great question. The first is those supply chains start at the same place. They all start on the farm. The processors, while they may have different customers and different relative focus, will also be the same. But once we get to the distribution step, we see those two supply chains diverge, so that companies that supply restaurants are distinct from the distribution systems that supply retail stores. And so, we have to establish different relationships, we have to divert product, we have inventory in some of those food service companies, distributors, that has to be rerouted. Logistics, we have to have, make sure we have enough trucks to do that diversion. I was speaking the other day to the president of a Canadian restaurant distribution company, and he said, one of the things that they’re doing is not only selling some of their products to retailers, but helping retailers with logistics because their trucks aren’t as busy helping retailers get from suppliers to retail stores, helping them with that trucking step. So that trucking step is not an insignificant challenge either. So it’s not just flipping a switch and products or somewhere else. It’s finding someone who can move that product effectively for you. The other thing I think that that’s important to remember is that we don’t eat exactly the same products in restaurants as we do at home. And in a couple of examples are we eat almost no chicken wings at home. Chicken wings are a restaurant or bar item, and so demand for chicken wings has gone down. The size of chickens that we eat, that we prefer in retail is usually a little bit smaller than the size of chickens that they produce for food service. So the products aren’t always identical. We drink more milk at home than we do in restaurants, but we eat more cheese in restaurants– think pizza– than we do at home. And so it’s not just moving the product. It’s also sometimes changing the products that we’re producing for the different markets, and that takes some time. The last point I’ll make in that if I may, is that we also package things differently. If you’re producing 2% milk for Tim Horton’s, you’re either putting it into those small creamers. Or you’re putting it into large bags that they put into dispensers. Whereas if you’re producing it for Loblaws or Sobeys, you’re putting it into the variety of retail packaging. And so again, you have to have that packaging on hand. You have to divert the production system to do that. So you don’t just flick a switch and product moves from one place to the other. There are changes in products, changes in packaging, and changes in the links in the supply chain, including transportation, that have required some time to adjust.
Jordan: How much do we want to adjust those supply chains? I mean, if it’s not as easy as flicking a switch, do we want to push for an adjustment, or will that make it difficult to switch back? Like some of the things you’re talking about sound like pretty fundamental changes in how we do these things?
Michael: Well, I think we do want to switch because if you think about, again, to the just in time process, for things like milk, we’re producing milk every day. For things like eggs, we’re producing eggs every day. And if we, if we just shut off that production, then we’ll be shortchanging retail and not selling into food service. So we want that production to continue. We’re also buying more stuff in retail because we were spending a third of our dollars, a third of our food dollar in food service. We’re not doing that anymore. We still need that food, so we do need to redirect it into the retail side. It just has taken some time. On the flip side, as we go back and we see restaurants open, I think there are a couple of factors that will smooth that process and not lead to some of the same shortages that we’ve seen as we switched away from food service. First, we know it’s coming. I think to a significant degree, this is a surprise, but we know the reopening is coming. We don’t know exactly when, so we’ll have the opportunity to plan for it. The second point is that it’s much easier to ramp up slowly than it is to, you know, flick a switch. You know, restaurants went from a hundred miles an hour to zero, literally almost in 24 hours. We’re not going to go up to that same level of demanded restaurants anytime soon, even as these open up again. I think there are a variety of factors. Physical distancing is going to require that capacity in the average sit down restaurant is probably going to go down about right 50% so the only be able to hold half as many people. I think also, until we get a vaccine, there will be some hesitancy on the part of some people to go out and eat in restaurants. You can wear a mask and go to the grocery store. You can wear a mask and go to the hardware store and buy the things you need. You can’t go to a restaurant and wear a mask the whole time. And so I think that unfortunately for the restaurant sector, that ramp up again will be much more gradual than the ramp down will be. And because they’ll anticipate it, I don’t expect that we’ll have the same sort of disruption in the system that we did in the initial shock.
Jordan: Tell me about that initial disruption in the system. Cause it sounds fascinating to have restaurant demand go down to basically zero within 24 hours, like you said. So what actually happens at the supply chain level when that happens?
Michael: It’s a shock, right? It is an unanticipated shock. So you’ll have producers, and it’s been different in different markets and it’s been different in different segments, because of both the supply chain relationships and the production process. So if you look at milk as an example that we heard about when it happened, we had markets for milk and cheese that all of a sudden disappeared. And we had to divert that milk to processors who could make the products in the packaging that was demanded for the customers for whom it was demanded. And so we had this sort of realignment within the system in Canada that we have central marketing for milk. So all farmers sell their milk to the same organization that then allocates it out to processors. And so in that system, the supply chain had existing relationships with all the processors. They just had to divert it, and those processors had to understand which customers were going to order how much. You know, retailers had to figure out how their demand to change so that they could order the amounts that they thought they were going to need, then the processors had to say, well, yes, we can make it, but it’s going to take some time to catch up. And they had to say, well, we have to order the right amount of packaging and the right type of packaging so that we can deliver that. So there are all of these individual levers in the supply chain that had to be switched and figured out and the logistics had to happen. And so it’s a bit like a duck swimming on a pond. While we sort of saw some shortages, there’s been a lot of scrambling underwater, those feet have been moving very fast, to make the adjustments that have been required.
Jordan: Is that kind of the root of the problems that I’ve been hearing about with regards to like, we have a hundred thousand tons of potatoes that are going uneaten and that kind of stuff? Is that disruption caused by the lack of restaurants to get them out? Like is that all part of the same problem?
Michael: So potatoes are a great example, and, and I was remiss for not bringing it up. So it’s a great question. 60% of the french fries that we eat are in restaurants. And so we have all of these potatoes that were produced last summer in storage that were targeted for the French fry market. That product, like wings, is fairly unique to the restaurant market, and our consumption of potatoes at home hasn’t gone up to the same degree as the demand for potatoes for french fries has gone down in the restaurant market. So in that case, it wasn’t just a transfer of demand. We just eat more potatoes out at restaurants in the form of fries. So all of a sudden this product that had a home, no longer has a home. You can’t divert it all. And you know, maybe to be good citizens of Canada, we should be eating more fries at home, but that’s why we had that excess product there. We heard also about dumping of milk at the acute point of turnover. That is likely more due to the fact that it was much easier to shut off demand than it was to switch product to others. And there’s just not a lot of buffer in the supply chain to store that milk. So the average dairy farm has two to three days storage of milk on the farm, and milk is picked up usually every two days. And processors then– it’s a perishable product– they process it quickly when it gets to them. And so if they aren’t shipping product out the other side, they get full of milk, the farmer gets full of milk, and we have this sort of tension in the supply chain, and that’s why we threw it out. So in some cases it’s just the process of adjustment. In other cases, it is just the fact that that demand has disappeared, in the case of French fries.
Jordan: So it kind of sounds like the supply chain, as you say, has performed remarkably well and has either adapted or is in the process of adapting to the new normal. But I also finally wanted to ask you about what comes next? And one of the things that’s been on my mind as it’s received a ton of coverage has been the COVID outbreaks at meat packing plants. What could happen to the supply chain due to COVID-19? Like is that a danger of creating a big meat shortage? Are there backups and fail safes? Like what does the future look like if that continues to happen?
Michael: The meat industry is a great example. And if we look at beef packing plants or pork packing plants, they are relatively unique in food supply chains because there is such a high degree of concentration. That means they’re big plants, with small numbers of plants. And that’s a competitive and an inefficiency driven process. The other thing is that because cattle vary in size, there’s been very little automation in these plants. So they are still labour intensive facilities. So you have large groups of people coming to work in relatively close proximity to each other. Not only does that happen within the plants, but these plants are often outside of larger urban centers, so they have to either bus or carpool to get there. They also sit in lunch rooms. They sit in locker rooms. So there are lots of places where there is a strong opportunity for cross infection. So that’s why those plants have become sort of hotspots for outbreaks. I want to highlight before I go any further that that doesn’t mean that our meat is unsafe. It just means that we have to find ways of keeping the workers who process that meat safe, in a way that we can keep that meat flowing. We have a globally integrated supply chain for meat. And so the plant in High River, which opened again yesterday but at reduced capacity, represents roughly a third of the beef processing capacity in Canada. That being closed significantly caused pain for Canadian beef producers. But we have cattle and beef moving across the US/Canada border all the time, and globally. And we saw an example of McDonald’s bought all of their Canadian beef from the plant in High River. They came out and said, we’re not going to be able to maintain our commitment to Canadian beef. We’re going to be buying it from the US until such time as that plant reopens, and we can go back. And so we’ve seen product adjust from different sources to make sure that we don’t have any disruptions at the consumer end. That said, it’s caused significant disruption for farmers, who’ve been used to shipping to those plants.
Jordan: My last question for you is just, what should I be watching for over the next weeks and months in terms of disruptions in the supply chain or signs that actually, it’s fine, it’s getting back to normal?
Michael: Well, I think as you said at the beginning, we’re starting to see those products come back in stores. As I said, I’ve been able to get eggs. I’ve been able to get flour at my local store. I haven’t been able to get the specialty flour that I might like, and I think we’ll start seeing some of those specialty products, the diversity of products that maybe has disappeared a little bit, come back into stores, which will be reassuring to say, yep, the supply chain is coming back. I think if I was looking for any red flags to pop out, the things I would be looking at are, again, in meat processing. If more plants close, and if more plants close for longer periods of time, then we might start seeing some impacts on, probably not supply because it’ll probably stay domestic and we’ll export less, but we may start seeing some increases in grocery store prices. So I don’t expect that to happen. But if we see more plants close, particularly in the US, and they close for longer periods of time, then we might start seeing some concern with respect to the availability of beef or pork.
Jordan: Michael, thank you for taking the time and we appreciate it. And my producer will give you our address where you can send that flour.
Michael: Okay. I’m not sure how keen I am to share, but I’ll be happy to send you a little bit.
Jordan: Alright, thanks so much.
Michael: Thanks for having me. Stay safe.
Jordan: Michael von Massow of the University of Guelph. Also the host of the Food Focus Podcast, and that was The Big Story. If you’d like more, you can head to thebigstorypodcast.ca. You can also talk to us on Twitter anytime at @thebigstoryFPN. You can also email us the address is firstname.lastname@example.org. You can type, you can send us a voice memo, you can send us a video, whatever you like. We love to hear from you. And of course this podcast is available everywhere you get podcasts, Apple, Google, Stitcher, Spotify, and at frequencypodcastnetwork.com where you can find a whole bunch of other really good podcasts. Thanks for listening I’m Jordan Heath Rawlings. We’ll talk tomorrow.
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