王府蜜事Sorting through the information flood for usable knowledge for our farm

Wednesday, March 18, 2020

Looking for food in all the wrong places

(Revised 10:20 AM 18 March 2020 - bad math now corrected - I think)

I’m writing this on Wednesday, 18 March 2020. Restaurants inIllinois closed to dining-in two days ago, followed shortly by Indiana. We’vemade all the jokes about having to learn to cook and toilet paper, and I thinkwe’re about to have a come-to-Jesus moment about how flexible our food systemis.

This is what woke me up at 3 am. this morning.

We’ve talked about this trend for the last few years, but ithas been little more than an indicator of consumer prosperity, the decline ofcooking, and any other cultural or economic observation one we wanted to validate.What never crossed our mind – or should have – is what happens when half thefood delivery system is crippled by, say, a pandemic closing restaurants, justpicking a disruptor at random.

To reach any useful conclusions let’s make some crude engineer-typeapproximations. First, money spent on food is not the same as amount offood. Obviously, food in restaurants is more expensive per calorie or ouncethan a supermarket due to more processing: cooking serving, etc.

So the first step is to try to estimate how much volume offood is delivered by each branch. The best numbers I could find for Cost-of-Goodsfor supermarkets is ~70%. This figure includes shampoo and yes, toilet paper,but work with me for a moment.

For supermarkets that means about 35% of total food dollarsare spent on actual food. Let’s assume that is roughly indicative of volume.

Using 30%, that means 15% of consumer food dollars are usedin restaurants for actual victuals.

The ratio for the two branches is then 15:35, so 30% of foodgoes through restaurants and 70% through groceries.

Now let’s look at the restaurant industry structure by type.Segment analysis of restaurants turns out to be hard to find – or hard for meto find, anyway. The best I could come up with is ~60% of restaurant sales are “QSR”,quick-service restaurants. Let’s go with that. This means 18% of food volume isfast food, and the remaining 12% something else.

Next, how much does loss of dining-in decreaseoutside-the-home food delivery? ForMcDonald’s drive-thru is about 65%. But other fast food varies from 35-60%.So say 50% for the whole QSR segment in normal times. How much could they rampup? My wild guess is 50% more across the industry so churning this all outmaybe fast food can increase their output to customers. Crunching all thesenumbers means QSR drive-thru/pickup (D/P) might be able to expand from 9% oftotal food volume to 13% in very round numbers.

But what about non-QSR? Their D/P is much lower – Olive Gardenand Texas Roadhouse really can’t easily expand D/P and I would think bereluctant to even try, since the pandemic closures could be over in a few weeks.I think the 12% of non-QSR food volume will shrivel drastically with loss ofdining-in. Let’s put in 3% for a total of 16% of consumer food dollars (andhence food) could flow through restaurants.

The result is instead of 30% food volume from restaurants,consumers will only be getting at most 16%. The remaining 14% will have to comefrom groceries/supermarkets. This would be a throughput jump of 14/70 = 20%.That’s a whopping step-change for any industry.

But wait, I have more bad news. The products between the twotypes of food are not interchangeable – no consumer buys hamburger buns intrays of several dozen like are delivered at McD’s. In fact, many of the ingredientsare specifically made for a given chain, and the recipes carefully protected.It’s a SPECIAL sauce, remember. Restaurant supply delivery trucks can’t justdivert to the supermarket.

Moreover, the food processing industry will hesitate toconvert production lines to different products with different packaging, andscould even decide to simply wait out the virus. Nor does this part of the foodchain have a lot of extra capacity sitting idle – price competition has forcedour whole food chain to be as lean as possible [pun intended].

My semi-informed prediction is this inflexibility chokepointfor food caused by our bifurcated and specialized food chain will NOT adapteasily or quickly. Wholesale supermarket suppliers will strain capacitybut not expand. Specialized wholesalers will hunker down, lay off, and clamorfor a bailout.

What does this mean for consumers? Your plans may vary, buthere is my approach.

·     Keep in mind that supermarkets will strain forthe duration of restaurant closure to supply consumers. Hoarding and panicbuying will exacerbate this problem.
·     Shop often; buy what’s there, keep a list of allproducts you normally use and add those of people who need help sourcing food.Buy what you can when you can. Expand your diet to include stuff that is there.
·     If you can afford it, buy premium products(steaks) and leave low priced groceries (hamburger) for those struggling. DONOT BUY “WIC” marked products, unless you are in that program of course.
·     If you can afford it, buy drive-through/pickupmore often than usual. This is a headache when you live outside the edible-temperaturezone (20 miles is too far for French fries, for example). Our experience isfried chicken, pizza, and Chinese can be reheated to palatable condition. Rememberthis is where the unused capacity is in the food chain.
·     Try not to overbuy. This will be extremely difficultto resist, especially on your third try to get hamburger or pasta.
·     Brace yourself for rudeness, selfishness, andfear in the supermarket. The scarcity mindsetwill take hold faster than you think, since we have little familiarity with shortagesof any kind, let alone food. Remember people’s attitudes during your last longelectricity blackout and multiply by 5. Food has a deep-seated urgencyhard-wired into our brains. Ag’s relentless boasting about our food supply isabout to be revealed as riddled with inherent weakness. Supply we’ve got – but thelinks to that supply are perhaps more important.

I think rural America may experience disruption worse thanmany places, since our market is already barely served. Watch out for hiddenhunger. Teachers are a great source for finding out what families could usehelp. Don’t ask if they need help. Take food over and hand it to them.

The worst part is it will be hard for the system tore-allocate more than ample supplies because systemic changes could need to bereversed at any time. Watching COVID19 infection rates may be the best clue asto when restaurants could re-open, but in areas where they are closed, we arejust beginning to glimpse the strains on the food chain. If the closures lastinto summer, food processing and logistics may be forced to realign, bringingsome relief.

And for farmers, maybe now we will finally realize food isnot just about us. In fact, it’s not much about us. Producing turns out to bethe easy part.

Wednesday, January 20, 2016

New Transparenseed Link...


Not much response, but thanks to those who did.

Memories of a similar time...

I linked to an old Top Producer column from 2004 in my post on Accountable Ag. When checking the link, I read through it, and almost recaptured how I felt twelve years ago. For those of you who did not click through, here is how I saw the world then:

Left behind – and I’m not enraptured 

Being in the middle of groups has a naturally comforting feel. Looking at the ubiquitous newspaper pie charts indicating public sentiment on everything from trade issues to toilet paper, we often are relieved when others agree with our opinion. 
More frequently, however, I find myself tending to the margins – holding positions that are mildly out of the mainstream. On a few issues I seem to have wandered into the fringe. The manly response is to assert loudly that I don’t care about the opinions of the masses; that I am an independent thinker. This is nonsense, of course – we all care about what others think. This separation can occur not only when I adopt unpopular beliefs, but also when mass opinion shifts and I do not. In the realm of popular issues, I am less alarmed. I don’t watch enough TV to keep up with rapidly shifting controversies. Howard Dean came and went before I really had formed a judgment, for example. The situations that perplex me are not spelled out in polls but corporate decisions or organizational policy signals. 
For example, I have been a happy owner of a Case 2366 combine. It is the largest combine I have ever owned and its performance has been more than I hoped, not withstanding the unloading auger-power pole incident which I now admit was not a design flaw. Its capacity is more than enough for our 1350 acres. 
I was stunned to hear that CNH will not be continuing this machine size, only larger harvesters. To me it indicated I was no longer a target market for them. I do not fault their marketing, but all the charts and graphs about where farm size is going don’t begin to have the impact of discovering your operation is too small to be of interest to long-term suppliers. 
Nor am I whining about loyalty. I have to make reciprocal decisions to protect my own business viability as well. Nonetheless it is a sobering wakeup call to my self-serving view of the world to find that agriculture is moving on without me. 
A similar incident occurred at the AFBF (Farm Bureau) meeting recently. It has been a singular privilege to have been active in Farm Bureau at numerous levels, and I have many valued friends in the organization. I am fairly familiar with their policy from my days as a county president. One of these positions was a firm belief that free trade optimizes the outcome for all involved. 
This changed in 2004. The AFBF delegate body approved a blatantly protectionist stance on selected commodities. Although the vote was razor thin, the fact that any majority at all was assembled revealed to me how far from the pack I was. Of course this is just one issue, but added to other subtle shifts lately, I think we are “drifting apart”, to use modern relationship jargon. 
Nor is it a direction I wish to go to in order to stay in the group. Loyalty to core beliefs is often more important than loyalty to groups or individuals. Farm Bureau shrewdly makes it difficult to register my disapproval by binding insurance policies to membership. Finding a new insurance agent when I really like the one I have is another hurdle altogether. So as far as the membership statistics the outside world sees, I remain another happy Farm Bureau member satisfied with policy decisions. 
To be sure, I have the option of mounting a grass-roots campaign to reverse this decision, but frankly, I sense the weight of insurance customers moving in the opposite direction. My best use of time is probably to start pricing a new farm policy. Either way, I am obviously no longer in sync with much of my profession. 
The latest jolt though, was President Bush’s 2005 budget. My position on the political chart has always been in the conservative Republican camp. This is where I thought the guy I voted for was anchored as well. But if planning more tax cuts in the face of $500B deficits, erecting trade barriers for politically powerful industries, attacking sincere dissent as craven disloyalty are the beliefs of conservative Republicans today, then I must be something else. Maybe I’m a liberal…Republican. I’ve heard there may be as many as 6 or 7 of us. 
Now all these perceptions could simply be fusty middle-aged crankiness. Perhaps I am just not well-informed or smart enough to understand my principles are outdated. Regardless, my painfully-acquired intellectual tools and moral compass are all that I have to guide my decisions. CNH, Farm Bureau, and the Republican Party are going where my conscience or circumstances prohibit. I suspect they won’t miss me at all. 
Nevertheless, I shall miss them. 

It is important to note I was mistaken about CNH - I did not know they were simply rolling out Class V and VI combines after the big boys. But not knowing this put a different machine on our farm.

Given the continued and intensified rightward drift of FB and its domination by insurance votes from the south, it may be well past time for me to switch to another insurance company. (Nope - still haven't moved) For that matter, I could be paying way too much for farm insurance for all I know.

Finally, to admit to being even a liberal Republican after the last few weeks makes me queasy. This is the party I should be affiliated with? I don't think I'm angry enough to fit in, and my interest in policy and problem-solving fits poorly with a group fascinated by passion and pessimism. 

Heck, I'm probably embarrassing them!