How Pandemic Demand Shock Impacted the Supply Chain
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鈥淭he seismic food demand shock caused by the pandemic severely disrupted the food supply chain. This look back on how distribution channels struggled can provide lessons for future challenges.鈥
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Toilet paper. It is, in so many ways, both the symbol and storyteller of the pandemic supply chain. We all know at least part of the story: consumers听sheltering in place听were gripped by fear听that听they would run out of toilet paper. Demand soared as people began to hoard. Limits were placed on how much could be purchased, further fueling demand. The harder it was to get, the more frantic people became.听听
There was plenty of toilet paper to meet people鈥檚 needs. So why were store shelves empty?听Hoarding behavior is only part of the picture.听
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Consumers sheltering in place actually do need more toilet paper, because they are using it at home rather than at work. (Georgia-Pacific reports the average daily home use is about than average.) The toilet paper US consumers buy is a different product (2-ply and plush, to be exact), sold through different distribution channels from the 1-ply institutional tissue. It is packaged differently (think huge rolls) and shipped on pallets, not in colorful 12 packs.
From toilet paper to the food supply chain, diverting products produced and packaged for one market to sell to another market is no simple task. Across the globe, we saw jolting images in the media of while consumer grocery stores were getting erratic supplies and newly jobless .
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Interviewed at the height of the pandemic, Iowa farmer and Global Farmer Network board member Bill Horan said, 鈥淐hicken is being hoarded just like toilet paper.鈥 In a time of uncertainty, chicken is a familiar food many homes would deem essential. Like toilet paper, chicken is sold differently into the two market segments, in this case consumers and food service. According to the , meat department sales at grocery stores were up an incredible 70 percent (which meant processing plants were working overtime) in mid-March of 2020. At the same time, chicken farmers suffered the loss of nearly half their business when food service was essentially shut down across the country. That has chicken farmers spinning to keep up with dramatically different demand.
Many food products suffered from similar supply and demand shocks. Often, the issue is not that there isn鈥檛 enough product鈥攊t is getting the product in the hands of the folks who need it. As with all stories, there are two sides to this one: the issues of supply on one hand and demand on the other.
Demand
鈥淭he food supply in grocery stores, which works really well, is being pushed right now,鈥 says , professor of logistics and supply chain management at the at Arizona State University. 鈥淭he level of demand that the stores are seeing is probably not sustainable,鈥 when interviewed in early 2020. In fact, supermarket chains announced enormous spikes in sales.
Across the globe, the increase in consumer demand from grocery stores is only one piece of the picture. Food eaten away from home accounts for , and has been steadily . The pandemic鈥檚 world-wide shutdown of restaurants and institutions caused a seismic shift in demand.
Tom Super, vice president of communications at the United States鈥 National Chicken Council (NCC) said, 鈥淔ifty percent of business virtually vanished overnight. It鈥檚 not just restaurants鈥攊t鈥檚 schools, colleges, sports arenas. That鈥檚 fifty percent of the chicken we sell, gone.鈥
in the US, as well, which means half of beef revenues simply evaporated. The impact on the economy is staggering. In the US alone, beef sold . And it鈥檚 not just protein that was affected by the pandemic shutdowns: loss of food service demand decimated . Smaller farmers who sell locally not only lose restaurant sales, they lose revenue generated by farm-to-table school programs and farmers markets.
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Commodity products have their own pandemic-related demand issues, said farmer, Bill Horan. 鈥淲ith consumers sheltering in place, gasoline usage drops dramatically. Ten percent of all gasoline in this country is from ethanol, so now suddenly the ethanol market has collapsed, and it is a disaster. The price of corn has dropped from $4 to $3.鈥
鈥淚n demand shock, if you turn on the factories to meet unanticipated demand, at some point it will fall back down and you鈥檒l still be making extra,鈥 says Dale Rogers. That extra, he says, is what ends up in the enormous secondary market鈥攐r, in the case of perishables, getting dumped. New government programs emerged to divert wasted food to food pantries, while philanthropic organizations played a crucial role in shifting food to where it is needed most. Together, efforts like that get food to the jobless and the hungry while ensuring farmers were paid for their crops.
Supply
Farmers and producers continued tending land and livestock and can attest that those empty grocery store shelves were not about lack of food. They have literally tons of product normally shipped to food service that went to waste鈥攚hile consumer demand and the need to feed a suddenly soaring jobless population, skyrocketed.
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鈥淲e have a huge surplus of grains and we are happy to sell them,鈥 said Horan at the time. 鈥淭he input supply chain is fine in the US. We have fertilizer, herbicide, seeds. We have diesel fuel, and we have natural abundant rain. We look pretty solid. And in rural states, the pandemic is less of an issue. We鈥檙e going to survive and plant another crop.鈥
The issue is getting food to the right places.
鈥淰ariability is the enemy of supply chain management,鈥 says Dr Rogers. 鈥淪uppliers have triggers and processes that deal well with normal demand.鈥 A sharp spike鈥攐r a change in where that demand is coming from鈥攃an cause all kinds of disruptions.
Transportation
Pre-existing vulnerabilities become more acute in times of supply chain disruptions. In the US, says Dr Rogers, 鈥渨e鈥檝e had a truck driver shortage for the past ten years.鈥 The pandemic-induced need for more drivers caused a jump in transportation prices and a fall in capacity relative to demand.
On a global level, grounded planes and ports with also caused some slowdowns and disruptions in moving the food supply around. This was of greatest concern to regions that import much of their food, like Africa, the Philippines, and the Persian Gulf.
Labor and shutdowns
Early in the pandemic, COVID-19 spread like wildfire through warehouses and factories, causing complete, temporary shutdowns.
When a packing or processing plant must close for three weeks because too many closely-contained workers became infected, it creates a backlog of product that doesn鈥檛 enter the distribution channels. If that product is animals, they still have to be fed, and if it is harvested crop, it needs to be stored. Highly perishable product has to be dumped. All are clearly costly to producers, growers, and consumers.
The impact of these shutdowns on our food supply varies greatly based on the industry. A temporary shut down in a processing plant for produce or fast-growing livestock, such as chickens, might cause only a minor blip in availability to the public. That same closure in a meat packing plant can cause a more significant financial and logistical strain on the producer, who now has a backlog of mature animals that continue to need to be fed and tended.
Trade policies
As the pandemic accelerated, countries adopted different approaches to minimize the spread of the virus and protecting their economies. Some countries, like consumers, are panic buying (especially staple foods), others , and still others . All this led to knock-on effects on food availability that, while temporary, were highly disruptive, especially for the world鈥檚 poorest regions.
The toilet paper lesson
A few weeks after the toilet paper hoarding began, it was over. Supply chains adjusted to different types of demand and people had stocked up enough. Panic buying, it seems, is just that鈥攁 panic. And like a panic, it abates quickly.
Other supply chain disruptions proved harder to solve, notably computer chips, shortages of which crippled numerous industries. And that's the real lesson. In a supply chain crisis, the panic ebbs quickly but the long-term disruptions can endure much longer, sometimes even changing the way global trade takes place.