Submitted by dasko2 on Wed, 04/22/2020 - 11:08

The Round Barn: Meat Processing Plant Closures

 

released April 22, 2020

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News Reporter: Tyson, one of the world's largest meat processors, is suspending operations at one plant this week after more than two dozen workers contracted COVID-19.

News Reporter: Several cases of coronavirus have already been confirmed within the JBS facility in Greeley.

News Reporter: Smithfield Foods shut down its processing plant in Sioux Falls, South Dakota.

News Reporter: We have 431 active cases, and 238 of those -- more than half -- are employees of Smithfield.

Agriculture Secretary Perdue: For Americans who be might be worried about access to good food because of this, I want to assure you that the American food supply is strong, resilient, and safe.

Donald Trump: Today, I'm also announcing that Secretary Perdue, who happens to be right next to me -- handsome man -- and the Department of Agriculture will be implementing a $19 billion dollar relief program for our great farmers and ranchers as they cope with the fallout of the global pandemic. Very honored to be doing this.

Dr. Brian Aldridge: As you can see, the meat packing industry hasn't been spared the coronavirus pandemic. Smithfield Foods and Cargill, Tyson Foods and JBS USA have all shuttered plants due to COVID-19 outbreaks. In fact, the BBC reported that when the Sioux Falls, South Dakota Smithfield pork plant finally closed under pressure from the South Dakota's governor's office, the plant had become the number one hotspot in the U.S. Meanwhile, the Trump Administration assures us that our food system is resilient, and that billions in subsidies are on their way for farmers and for ranchers.

Why are we seeing outbreaks at meat processing plants? And what do these plant closures mean for the U.S. food production? Joining me is Jim Lowe, an expert in agribusiness and food production. I'm Brian Aldridge, also from the University of Illinois. And this is The Round Barn.

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Jim, welcome. Thanks again. It's great to be back with you on this podcast. Lots going on. We could talk about COVID-19 and all the different aspects of the outbreak for hours and hours. But today, we want to talk about these processing plants, particularly Smithfield. Smithfield has been the one that's been in the news. So, how did the Smithfield plant become what's described as the nation's number one hotspot for COVID-19 outbreaks?

Dr. Jim Lowe: Brian, I'm glad to be back. We haven't done this in a while, so this should be fun, to get back together, get the gang back together here. But we probably should preface all this -- we're recording this on Tuesday, April 21st, and this seems to change by the hour. So, it's in the morning on the 21st. Anything that's occurred after this point, we're not responsible for.

So, packing plants are an interesting deal, right? This Smithfield plant's got a tremendous amount of press, but they're actually not the first plant to close in the U.S. We had a plant in Columbus Junction, Iowa close two weeks ago today. They're going to open back up today. That was a Tyson plant. We certainly have had some beef plant closures out east; JBS and Cargill closed some plants out east, and that's continued to roll. But these packing plants are interesting, right, because these are kind of a modern marvel of efficiency, but they're very much an assembly line, particularly on the side of the plant where we do what we would call the fabrication or the cut side.

Maybe it's useful for everybody to understand, there's basically two halves of the packing plant. There's what we call the hot side, or the side where we do stunning, exsanguination, and then evisceration of that carcass. It's the part where the pig goes from a live pig into a carcass. That side of the plant is called hot because it's not cooled. The same thing happens in a beef plant. We strip the hide off the beef, we send it through, and we've not got this hanging half-carcass. And we put that in a cooler. And we typically put that in a cooler overnight because we want to drop that down to refrigerator temperature. Then it's going to come out the next day, and it goes into what would be called the cut side. That's where we take this half-carcass and break it into the primal cuts. And in a lot of cases, in a pork plant, much more than primal; we cut it down into individual muscles today. So, it's that cut side of the plant.

And if you can imagine this, you've got people standing in an assembly line. If it's a ham line, they're taking individual muscles off the ham, because we use those to make hams. There's a deboning process. So, it's pretty typical for those people to be standing almost shoulder to shoulder. Now, they're in frocks, and they're in gloves, and they've got a hard hat on, and they're generally wrapped up and bundled up, because it's cold in there -- it's 41 degrees or something, and there's a lot of air moving because they're trying to keep everything cold for food safety. But, these people are literally just standing shoulder to shoulder. And it's a cool environment. And you can see pretty easily, right, with that, and then you go to the lunchroom, and it's a typical cafeteria -- everybody goes to eat one time, they're all in close quarters, you sit shoulder to shoulder eating lunch. There's people touching their face, particularly when they're eating. And all of a sudden, you've got this transmission going on within the plant.

Aldridge: Jim, how many people would work at Smithfield, do you think?

Lowe: I think that plant's about 3,700 people or something. It's a lot.

Aldridge: Wow.

Lowe: And that's not a big plant. That's kind of an average plant in the United States. There's plants, certainly, a lot bigger than that, that employ a lot more people. So, it's a lot of people in a really close spot.

Aldridge: And high pressure, right? It's manufacturing, so there's an element of 'keep going fast' as well, right? They're not just sitting, hanging around, chatting.

Lowe: Yeah. I wouldn't call it a rushed pace, but it's a very steady pace. You take a ham, and you take the one muscle off that you're going to take off. This is Henry Ford manufacturing. We take a whole ham, and I don't debone the whole ham myself like if I was doing it at home, or if you're cutting a ham. I remove one part of the ham because that's my job, and I push the ham back on the line. Typically, there's a conveyor belt, and the big primal cut's coming down the conveyor. And you pull it off, and you do your thing, and you shove it back on, and the next guy takes it off. There's this real steady pace of doo-doo-doo-doo-doo, all day long. So, yeah, there's a consistent pace to the work. It's not like we can just stop and say, "Well, let's just run it at half speed."

Aldridge: And different shifts. Jim, would this be all-in/all-out? How many hours would this plant be working all day?

Lowe: Plants typically are one-shift and two-shift plants. A one-shift plant would work typically eight to nine hours a day. A two-shift plant's going to work 16 hours a day. They have to be down, I think it's six to eight hours overnight for cleaning. Even if they're running two shifts, they never run three shifts, because there's an entire cleaning crew that comes in overnight to clean the plant, wash it all down and sterilize it before the next day. That's how that works. So, yeah, it's either a one-shift or a two-shift.

They're going to work a full shift. They all work in unison, and they may take some breaks that are phased as the line works through, to use the lunchroom, facilities, etc., better. But basically, it's all in, everybody goes all day, carcasses show up all day long.

Aldridge: I remember, Jim, going into one with you. It's amazing how clean this is, right? The cleaning process, as far as food quality, it's the cleanest in the world, right? But, I remember going outside and feeling almost relieved because -- it's either warm and hot where all these carcasses are, or it's cold, so, going out is almost a relief. But yet, when you go in there, it's remarkably clean. But that means lots of water, lots of moisture. It's another-world experience to be in one of these plants in some way. The crowding -- it's very clean too, isn't it, but for COVID, it sounds like a great place to spread, even though it's clean for our food and hygienic.

Lowe: Right. And if you think about it, it's probably not the line where they are spreading things, because their hands are busy. They're not touching their face when they're on the line. But if you have 3,700 people work in a space, they're all going to go eat lunch -- or dinner, or whatever, depending on which shift they're on. They're going to take a midday break or a mid-shift break and go eat lunch,. And they all crowd into the lunchroom, and they're washing their hands, and then they go eat, and they're touching their face, wiping their faces off. If you're on the live side, it's hot, so you're standing there wiping your face off with a towel. Just think about the amount of contact.

Aldridge: Everything we've said about social distancing, they can't achieve in that work environment, in a way. No close proximity, don't touch your face -- all of that goes wrong just because of the nature of the work, in some way.

Lowe: It's exactly the opposite of social distancing.

Aldridge: Yeah. [laughs] 

Lowe: I think the untold story is that, we've talked about these plant closures, but because of that density, and as other packing plants have had positive people show up that work there, they've also now started to slow the plants down. A lot of the plans they're saying, "We're going to take 20% less per day because we're going to spread people out on the line. We're going to make the lunchroom less crowded. We're going to add some auxiliary space for the lunchroom so people can stay five or six feet apart from each other in the lunchroom." And that's all great, except now, instead of killing and processing 100 pigs, we're going to harvest and process 80 pigs. That doesn't sound like a big deal, except that when we think about what's going on in the U.S. food supply chain, we have the most efficient system in the world. These are really high-capital-expense items. I mean, it costs hundreds of millions of dollars to build a packing plant. And the costs to run the packing plant are the same whether I have 100 or 50. So, the packing plants have all kind of been built to run at 100. Everybody's full, and they're full all the time. So, I've got a supply chain to supply those plants that's at 100. And then I say, "Only 80." Now I have 20% that I don't know what I'm going to do with. What's going to happen?

I think, from the producer side today, we've certainly got this plant issue, plant closure, and that's the extreme. But the other bit is, we've slowed down all these other plants to try to do the right thing, have some worker safety and get some social distancing. Because we've got to remember, right -- these plants are in rural areas, which is a change. We've moved these concentrated, large facilities into rural spots that have not had a lot of COVID. So, they can be a source of community spread. Because they all collect and then they all go back out. It's kind of like a mini New York City, right? New York City, there's some data that would suggest that commute time was important because there was a lot of people going into New York City, and then they would come in, and they would go back out, and it would allow this spreading back and forth. That's kind of what a packing plant is doing for these rural communities. So, everybody's concerned that we back them off and distance them. But that's really created some backups in our supply chain on the live side.

Aldridge: Jim, what about food safety and COVID infections with all of these workers? Can COVID affect meat supplies or food supplies in any way?

Lowe: From a strict food safety point, there is no evidence whatsoever that we have any risk of transmitting COVID through the food supply, whether that's vegetables or, in our case, livestock. So, even though these plants have had some issues, there is certainly no rationale or reason to think that anything coming out of those plants would be contaminated with the SARS-CoV-2.

Aldridge: Jim, these are very high-throughput, highly efficient systems. Can a plant run at partial capacity? What's that look like? Is that possible?

Lowe: A plant can run at partial capacity. That just means, instead of having 10 people standing in the same area, I might have six people standing in that area. Instead of being two feet apart, now they can be six feet apart. What that means is that instead of putting out 100, I'm now going to put out 60, because each person isn't going to do more work. So, this Tyson plant in Columbus Junction that was closed for a couple weeks opening back up today, that's fully their intention. I don't know if they're going to cut it to 60%, but they're going to run a lot less people in the plant. Get social distancing, get some guards up so people aren't accidentally contacting each other. But that's going to impact the amount of pork that comes out of that plant in a day directly proportional to the number of people they reduce. So, there's going to be some big implications on total packing throughput. As we try to reduce the people density in the plant, that's also going to reduce the output of meat coming out of that plant.

Aldridge: Coming from Europe, there's also this homogenization of the product, isn't there, right? Because in these packing plants, every pig gets dealt with in a similar way. Whereas opposed to, in Europe, you'd have these markets which are a bit closer to the farms. So, I'd have a local market or a local abattoir in the local town. And one day, I could kill this group of animals; this day, I could kill the other one, because they were different products going through there, and different-aged pigs or different-aged cattle. But here, we have this efficient system, like any manufacturing system, that's been a homogenization of the product, and an efficiency and a cost effectiveness of that, as well. That's helped the scalability. In Europe now, those little slaughterhouses have shut down because they're just so inefficient, they were unsustainable. But here's a system that everybody thought was sustainable, and then in comes COVID, and you're like, "Ooh." It's a bit of a fragile food chain in that way.

Lowe: It's interesting, because even in Eastern Europe now, we still have quite a few packing houses that would be relatively small, they would tell you a big packing house might slaughter 1,000 a day. In a U.S. packing house, we slaughter 1,000 an hour, 1,100 an hour. It's eight or 10 times different, right? They've got huge unspent capacity in these plants. So, different parts of the world would have different impacts of these kinds of messes than what we have. But we have homogenized everything, from the pig that we raise to the cattle we raise to the way we process product. And a lot of that's been driven by what goes on at the grocery store. If I go to Walmart anywhere in the country, I want the same thing. Well, Kroger wants to sell the same thing as Walmart, and Costco wants to sell the same thing, and Jewel or whatever your other grocery chain is, IGA -- all of those basically want to sell the same thing. So it's commodity. It's like oil. Gas is gas is gas. A pork chop is a pork chop is a pork chop. It's this mass production of really identical things. We don't have any buffer. It's really chained to what's happening and how the system works.

Aldridge: And for food chains like McDonald's, fast food chains, they'd be suppliers that would be receiving a lot of these products as well, wouldn't they? Is it different for pigs and poultry than beef?

Lowe: Each of those has a different mix, because of what we sell. What's been somewhat interesting is, we've looked at both beef and pork, we've shifted demand. I don't know enough about chicken but I presume the same thing is going on on the chicken front. We've shifted on the pork side away from bellies, because we had bacon for everything. Raw green belly, uncured bellies, were like $2 a pound a year ago. They were $0.40 or $0.34 or something crazy yesterday. Basically, a live pig is worth $0.50 a pound, and the belly's worth $0.34, so I've got to process it and it's worth less than I get paid for the live pig. It's ridiculous. But that's because we aren't using restaurants. We're eating less bacon. We're making all this bacon for restaurants, we don't need that much bacon for restaurants, so bellies are piling up and we don't know what to do with them.

The opposite happened on the cattle side. We historically would have sold a lot of middle meat in the restaurants, middle meats being loins, rib chops, ribeyes and T bones and strips and all those things. We don't eat as much of that at home. We eat a lot of hamburger. We tend to eat more hamburger at home. So, the product mix has shifted. And then we've had this huge fall off in export demand. On the pork side, we're selling something like 30% of our value this year. When that's fallen off because the rest of the world is in the same mess we are, that's had huge implications on the demand side. So, pork side's been a little different than the beef side. Pork wholesale prices have dropped because of the reduction in demand because of this export thing. And now, neither the packer-processor or live production is making very much money right now. We're all kind of stinking it up because we can't get anything.

Beef has been interesting. Boxed beef prices, wholesale beef prices, continue to stay relatively high, because of demand for hamburger and beef and everything else. And yet, live cattle prices are terrible right now because they've been closing plants and they can't do stuff. So, we've got way more cattle than we've got packer capacity. So, we've got a supply-demand imbalance there. But yet, we've still got good demand for beef. So, on the beef side, the packers are just making a fortune right now, $400 or $500 a head. And the pig guys, we're doing that, divide by ten. They were making $40, $50 a head. Now they're not making any either. So, it's this mix of what's happening in the chain, and where are we or where are we not making money.

Aldridge: Who's at most risk? The consumers, you're saying they're okay. There's plenty of food. We're not worried about enough food. But certain levels of the food are making more profit, some less. Who's complaining? Who should be most fearful in this current crisis, as far as the food chain?

Lowe: We've got plenty of meat. I don't know if we can get it to the right people at the right time, but we've got a lot of meat. We don't need to worry about either food safety or food supply from a production standpoint. But from a distribution standpoint, right, we may have some challenges.

I think question, from who should be the most worried, short-term versus long-term, certainly in the short-term, livestock producers are really in trouble. They're losing massive amounts of money per head today. I mean, pig guys are probably losing $40-ish a head on average. We sell 200 pigs at a time, so every truck we sell, we lose $8,000. An individual breeding herd in the U.S., 2,500 sows, is going to sell five trucks of pigs a week. So they're losing $40,000 a week. You can only do that about so long before you decide you're going to run out of cash. And it looks like it's going to get worse this fall. We've got some really, really ugly times in the pig business. I think the longer-term concern is, what's it going to do to our packing arrangement? Will packers go broke? Will packers pull out of the industry if they continue to lose a lot of money?

I think it's going to restructure some things in the industry, whether we like it or not. We saw this in '98, we saw it in 2002, where we saw a massive consolidation on the live side, and some integration happening between live and packing. Something will happen. I don't know if that's exactly what's going to happen. But this is one of those life-changing moments that we're going to see a very different industry come out on the back end of this mess we've got going right now, whether we like it or not.

Aldridge: Last Friday, President Trump announced, was it $16 billion in subsidies for farmers and ranchers? How's that going to help? And if the system was resilient, which we thought it was, why is that needed? How is that going to be apportioned?

Lowe: $16 billion, I think, is a lot.

Aldridge: [laughs]

Lowe: When you get to a B, I think it's a lot. I don't know how many zeroes that is. So, this is an interesting package, right? We had a deal last summer over trade, the MFP payments that were made, market facilitation payments that were made primarily to crop farmers, a little bit to pigs, to make up for the tariffs going into China because of a loss of market. But this year, this package that's come out here last week, most of that -- from what I can see on Twitter, and we know Twitter is completely a reliable news source-

Aldridge: [laughs] 

Lowe: But, the commentary there -- ag Twitter is actually quite good. It's quite interesting. But, if you look at that, this apparently is the first time that the vast majority of subsidy or an emergency response program has gone to livestock instead of crops. There's a very small amount of this for crops.  That's a bit interesting. I think they announced a little bit of purchasing of goods. Historically that's what they've done to support livestock producers. I think the concern was, this time -- we talked a little bit about, the beef packers are making a ton of money. If they go buy more product to create demand, that that's going to distribute that money to packer-processors, and not directly to producers. So they said, "Well, let's reach out and write the check right to producers this time." So we're going to put a lot of money in the industry. Probably not enough to make up the gaping losses that are happening. But we're certainly going to dump a ton of money at these producers. And most of that is going to beef producers, which are losing a ton of money. But it'll be interesting to see, maybe, how the sausage got made on that one, as to why the beef guys got three or four times as much as pork producers have.

Aldridge: And how long will that last, Jim, that subsidy? Do you have a sense of that now? I know that's a recent announcement, but...

Lowe: No, we don't understand how that money is going to be allocated to producers, and whether it's going to be on inventory, and how much per head, etc, etc. It'll help. It'll help get some guys over the hump. I think one of the questions is, are we not letting capitalism work? We probably need to grind the industry down a bit. We need to take out producers. Nobody likes to hear that. But these are large, sophisticated businesses today, particularly on the pig side, and they probably need to re-ration capital. And incentives like this probably confuse that a bit. So, it'll be interesting to see if those tax dollars we're spending actually are effective at helping producers, or we just allow some market-distorting things to happen. And we never know until those things -- that's a five-year-from-now deal. But I think it's a feel-good right now, particularly in an election year, for everybody to jump off the cliff and start writing checks. But the question is, what's that impact going to be over the long haul? And we won't know. But there's certainly going to be some market distortion that may happen on that. 

Aldridge: Jim, were you in the industry surprised? Did the industry think it was resilient, and just find out that it isn't? Were there any heralds saying, "Hey, this system is fragile"? Not being ready, necessarily, for COVID, but being prepared for an interruption in some way? Were there heralds going, "Look out, this is coming"? Personally, were you surprised? Were you saying, "Oh, I thought we were more resilient, and we're not"?

Lowe: No, you knew the whole industry was set up to not tolerate disturbance very well, because every time we have a disturbance, it goes kind of ugly. We've had supply disturbances, we've hand demand disruptions and disturbances. In my career, we had an issue with high corn prices in '95. We had horribly low pig prices due to oversupply in '98. We had too many pigs in 2002. This is not an infrequent thing that happens to us, to go through crisis. But it's a commodity industry. We're not selling iPhones here, we're selling a commodity. And whether that commodity is oil or whether commodity's mining or whether that commodity's coal, selling copper or coal or oil or pigs, they're all commodities. So they're very cost-sensitive businesses. And when you get a lot of capital tied up, throughput matters. And so, you are incented to run the throttle as hard as you can run it, because that's actually how you dilute costs out of the system. And in a commodity business, a low-cost producer wins. So, the producers we have left on the market today are extremely efficient, exceptionally low-cost, and have understood how to maximize throughput to minimize costs in the system. So, when the rules change -- which is what's happened with COVID -- we are going to disrupt that process.

If you look at mining, you look at what's going on in the oil patch right now -- oil yesterday was negative two or something. They would pay you to take it. I realize that's in the futures, and that's a bit of a red herring, but it's the same basic discussion. Oil guys are incented to run them as hard as they can because it costs as much to drill the well whether they pump a gallon or a billion gallons out of that hole. That's where we're at in the pig business and the cattle business. Everybody's running it hard. We're going to have to sort out the market. What we're going to find out out of all this is who has good balance sheets and whose bankers are willing to stand behind them and continue to finance it. We'll sort that out at that point.

Aldridge: Jim, thanks for joining us. We hope that you've all enjoyed listening. We'd love to hear from you, too. You can find us on Twitter. Our handle is @TheRoundBarn1. Or, you can email us at theroundbarn@vetmed.illinois.edu. We may even share your comments on the next show. Please subscribe. Tell your friends about the show. It's available on iTunes or the podcatcher of your choice.

One last thing -- we offer here at Illinois a wide range of learning opportunities for folks who work with livestock and veterinarians, too. You can learn more about that online.vetmed.illinois.edu. Thank you for joining us, and thank you, Jim, for spending time with us.

Lowe: Thanks, Brian. Enjoyed it.

 

 

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