Our Overcentralized Food Supply Chain is Breaking Down

One of the most important weaknesses in our way of life exposed by the response to the COVID-19 pandemic is our centralized and efficiency-obsessed food supply chain. Concerns about employee safety in our nation’s food processing facilities, combined with the shutdown of schools, hotels, and many restaurants, have distorted farmers’ incentives and resulted in shortages at grocery stores and fast-food restaurants. The solution begins with recognizing that our trade policies are contrary to our national interest and that our regulatory regime is contrary to a risk-mitigating, redundant food system.

Miscalculating Risk

Though supply chain issues are not limited to meat production, meat shortages at large retailers and fast-food restaurants are capturing headlines. Packing plants that are equipped to supply food service locations cannot easily shift their production to retail meat delivery. The story is similar for dairy: Food service customers such as hotels and restaurants use 2.5-gallon bags of milk instead of the familiar 1-gallon jugs. This has resulted in a dramatic rise in wholesale meat prices — that is, prices paid by retailers.

The simultaneous closure or reduced capacity of processors due to concerns about the spread of COVID-19 among employees has resulted in a dramatic reduction in the slaughter of cattle and hogs. In Kansas, for instance, the COVID-19 infection rate is relatively low outside the larger urban areas — except in the three counties in which large meat processors are located. This reduction in demand for animals has caused a crash in prices that leave farmers and ranchers with few options. Facing low prices for those animals, many are faced with the decision to euthanize the animals. The result of this is a reduction in food available to consumers in the coming weeks and months.

This misalignment of incentives, destroying food while shelves go bare, is not a natural feature of food production. Rather, it is a result of a food supply chain that is designed for maximum efficiency in good times with little to no provision for crises. In February and March, meatpackers increased the amount of meat in cold storage in preparation for the complications COVID-19 would bring. However, this preparation was insufficient.

Economies of scale have incentivized the creation of large, geographically concentrated facilities for feeding and processing meat animals. While this has resulted in a lower-priced food product for the end consumer, it has exposed us to significant risks of supply chain disruption. Additionally, President Trump’s executive order deeming packing plants as essential businesses has so far been unsuccessful, as meatpackers have been unable to ensure the safety of their workers.

All of this amounts to a massive policy failure: the failure to calculate the risk of supply chain disruption accurately and to craft policy that incentivizes the creation of redundancies or excess capacity. While there are many small meatpacking facilities dotted across the country, these facilities are not inspected by the USDA, so their products cannot be sold in retail stores. Additionally, due to the COVID-19 policy-induced panic, these facilities are already booked to capacity through the end of the year.

A Better Way Forward

Three key policy changes will help solve our current problems and provide incentives to adapt our food system to the risks we face.

In addition to President Trump’s executive order, the federal government should require country-of-origin labeling for all meat products sold in the United States. This would boost consumer awareness of our dependence on an international supply chain that is not resistant to pandemics. Though some international meat trade is necessary given that the average person will not happily eat organ meat products, country-of-origin labeling would empower consumers with the information to influence the supply chain to fit their needs.

In addition, the Trump administration should empower states to sue the Chinese Communist Party for its failure to contain COVID-19. Smithfield Foods, one of the largest pork producers in the U.S., is now a subsidiary of a Chinese company and subject to undue influence from the Chinese Communist Party. The U.S. trade deficit with China has facilitated the purchase of many important businesses in the U.S. Through its intentional or incompetent exposure of the world to COVID-19, the Chinese Communist Party has proven that it cannot be trusted.

Perhaps most importantly, the USDA should loosen its regulatory grip on meat processing. In 2017, Rep. Thomas Massie introduced the PRIME Act to do just that. The bill would effectively devolve meat processing regulation to the state level.

Under the PRIME Act, any meat processed in a given state could be distributed to food service and grocery locations within that state even if the processing facility is not inspected by the USDA. Currently, slaughter facilities are only exempt from USDA regulation “if the meat is slaughtered for personal, household, guest, and employee uses.” There is no reason states cannot handle their own food safety inspection. Devolving this regulation to the states is a wise move given the risk mitigation it would engender.

These policy changes would incentivize redundancies and increase self-sufficiency in the food system. The resulting system would be less efficient (when judged purely by the standard of minimizing the cost of production and transportation), but it would shield us from some of the risk of pandemics and hostile action by foreign powers.

An industrial policy that puts families first must ensure a robust, local food supply.

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