A monthly column written for Beef Central by US meat and livestock industry commentator, Steve Kay, publisher of US Cattle Buyers Weekly
THIS year’s COVID-19 pandemic has impacted the US meat and poultry industry in several significant ways.
The first is that beef, pork and chicken processors initially saw production severely curtailed by worker illnesses and absenteeism.
This resulted in companies spending well in excess of US$1 billion on numerous measures inside and outside plants to protect their workers and encourage them to return to work.
A third impact is that widespread restaurant closures and restrictions have transferred consumers’ food dollars from foodservice to retail establishments even more than occurred during the great 2007-2009 recession. Such spending is unlikely to return to a normal 50:50 split until the pandemic dramatically recedes or until the majority of Americans are vaccinated against the virus.
US meat and poultry companies have acted on numerous fronts to protect their workers, at huge expense. Tyson Foods, the largest US processor, incurred direct incremental expenses associated with the impact of COVID-19 totaling approximately US$200 million and US$540 million for its fourth quarter (ended October 2) and twelve months of fiscal year 2020, respectively, it says.
It expects such costs to decline to US $330 million in fiscal 2021.
Tyson’s COVID–related direct incremental expenses primarily included team member costs associated with worker health and availability and production facility downtime, the company says. They included direct costs for personal protection equipment, production facility sanitization, COVID-19 testing, donations, product downgrades and rendered product, partially offset by CARES Act credits.
Other indirect costs associated with COVID-19 were not reflected in this amount, including costs associated with raw materials, distribution and transportation, plant underutilization and reconfiguration, premiums paid to cattle producers and pricing discounts, it says. Tyson even set up special health clinics at its plants.
Meanwhile, Tyson sold far more beef to retail outlets in fiscal 2020 than in 2019, in large part because of the impact of the COVID-19 pandemic on foodservice establishments from March onwards. Tyson’s retail beef sales totaled US$8.155 billion, up US$735 million on 2019’s US$7.42b. Its foodservice sales totaled US$3.669b, down US$482 million from 2019’s US$4.151b. Beef sales in 2020 were thus 2.2 times larger to retail than to foodservice, versus 1.78 times in 2019.
Tyson’s international beef sales in 2020 totaled US$2.183b, while industrial and other sales totaled US$1.345b. Its pork sales in 2020 totaled US$1.59b to retail, US$403 million to foodservice, US$1.026b to international and US$1.244b to industrial.
Walmart was by far Tyson’s largest customer, accounting for 18.7 percent of total sales. Tyson sold product in 145 countries and export sales from the US totaled US$4.0b.
Changes in where Americans spend their food dollars
The COVID-19 pandemic has altered, at least for a while, where Americans spend their food dollars, but not how much they spend relative to their disposable personal income (DPI). The proportion is 10pc and has not changed in the past 20 years. In contrast, the average percentage between 1960 and 2000 declined from 17pc to 9.9pc.
DPI is the amount of money that Americans have left to spend or save after paying taxes, says USDA’s Economic Research Service (ERS), which compiled the data. From 1960 to 2000, Americans spent less of their incomes on food purchased from supermarkets, convenience stores, warehouse club stores, supercenters and other retailers (food at home), says ERS.
The share of DPI spent on food at home fell from 13.7pc in 1960 to 5.7pc in 2000. Over the same period, the share of disposable income spent on food purchased from restaurants, fast food places, schools and other away-from-home eating places (food away from home) rose from 3.3pc to 4.2pc, says ERS.
The declining share of income spent on food at home in the US over 1960 to 2000 in part reflects rising disposable incomes and efficiencies in the US food system, says ERS. This kept inflation for food-at-home prices generally low.
Higher incomes mean food at home can take up a smaller share of income and allow for more funds for the generally more expensive option of eating out. Average DPI in the US, adjusted for inflation, grew 3.3pc per year from 1965 to 1985 and 2.8pc per year from 1986 to 2000. But since 2000, the average rate of increase of DPI has slowed to 1.9pc per year from 2001 and 2019, says ERS.
The share of DPI spent on food at home continued to decline after 2000 but at a slower pace, says ERS. This slower decline could reflect Americans opting to prepare more meals at home, as they did during the 2007-09 recession and its aftermath. It also could reflect Americans purchasing more expensive grocery store options, such as pre-cut vegetables and fruits, imported out-of-season foods, organic products and prepared dishes than they did in earlier decades, says ERS.
The share of DPI spent on food away from home held steady at 4.4pc during the 2007-2009 recession before reaching 4.7pc in 2019, compared with the 4.9pc of DPI spent on food at home, says ERS. Food-away-from-home prices also grew more than prices for food at home in the last two decades, which may have contributed to the rising share of DPI spent on food away from home. Food-away-from-home prices increased by 68.3pc between 2000 and 2019, and food-at-home prices rose by 44pc says ERS.