Economic Tidbits

Tradeoffs To Efficiency

U.S. agriculture has built a tremendously efficient food supply chain starting with farmers and ranchers and ending with retailers and consumers. When it runs smoothly, consumers can go to a store, restaurant, or even online, and purchase the variety and quantity of food they desire at an affordable cost.

Unfortunately, producers, processors, retailers, and consumers are learning this year with the COVID-19 pandemic the tradeoffs to this efficiency. Purdue University agricultural economist, Jayson Lusk, in a recent blog provides an excellent background on the nature of problem (The Scale of the Problem, April 29, 2020, www.jaysonlusk.com):

Poultry, hog, and to a somewhat lesser extent, cattle, production operates on a just-in-time basis. From the day a sow (a mama pig) becomes pregnant, a chain of events is set in motion that will result in a pig being sent to the packing plant in approximately 300 days. The well-orchestrated supply chain involves the coordination of many players operating in a timely manner. Once piglets are born, they move to a farrowing house for three weeks. Then, they are moved to another barn or farm in a nursery for seven weeks. After that, hogs are moved again to growing or finishing barn for about 16 weeks…

…If the finished pigs, who weigh about 280lbs, are unable to head to the packing plant, there is no room in the barn to receive the new batch of pigs from the nursery. If the nursery isn’t vacated, there is no room for the piglets. All the while, new piglets are being born with nowhere to go. Thus, the closure of packing plants leaves farmers with no good options.

It is possible to hold onto the finished pigs for a bit longer and change diets or barn temperature to slow down growth, but this is costly and doesn’t stop the flow of new pigs into the system. Producers could put more hogs in the barn, but this could create animal welfare problems and expose animals to disease. This is also a reason hogs aren’t moved outside (such a move would expose animals to weather, diseases, and parasites), in addition to the fact that most hog producers do not have the pens and equipment to comfortably house hundreds of hogs in this way…

…Here is where the scale of the problem really kicks in. We have a national pork processing capacity of about 500,000 head per day. Latest data suggests that because of plant closures and slowdowns, we are processing about 40 percent fewer pigs, which means an extra 500,000*0.4 = 200,000 pigs that are left on the farm. Every. Single. Day. Do that for five days, and that’s 1 million “excess” pigs left on the farm.

Efficiency has its benefits: abundant food; less costs; affordable food; more dollars to invest/consume in other areas of the economy; and more. Tradeoffs to this efficiency are rearing their ugly heads this year through disrupted supply chains, euthanizing animals, and dumping milk. Perhaps this year’s events will serve as a learning experience and a more resilient system will emerge.

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