Prior to 2020, some of the biggest threats facing the US meat and poultry processing industry included a widespread labor shortage, a surge in popularity in plant-based, alternative meat products and the potential devastation of African swine fever, which crippled the domestic hog herd in China the previous 18 months but had not breached the borders of this country. Heading into an election year with domestic issues polarizing much of the country and plenty of question marks around trade agreements with key trading partners, the country was in a period of palpable uncertainty and volatility.
However, no one could have fathomed that the industry’s biggest story would indeed originate in China but was not a livestock-based foreign animal disease or an insurmountable trade impasse. The threat posed by coronavirus (COVID-19) started as an overseas trickle and seemingly overnight escalated to a global firehose, impacting the economies and the lives in every corner of the world. Meanwhile, amid a global crisis, some of the biggest companies in the meat and poultry sector were implicated in unprecedented allegations of price-fixing that put executives at many firms on their heels. Industry juggernauts, including JBS, Tyson Foods, Cargill, National Beef, Hormel, Smithfield, Sanderson Farms, Foster Farms and Pilgrim’s Pride faced battles on multiple fronts, many defending themselves in court in addition to coping with pandemic-related operational challenges and the spread of a deadly virus that swept through thousands of processing plants across the country.
As early as January of this year, international news headlines included the topic of a potentially dangerous virus that was linked to open-air, wet markets in China and was infecting a growing number of people. COVID-19 would go on to spread exponentially. By the end of January, cases were confirmed in Russia, Italy, the United Kingdom, China, Asia and major cities in Europe. Twelve confirmed cases were discovered in the United States by Feb. 5. Travel restrictions and regional quarantines were invoked as the spread of the virus included 25 countries with positive cases totaling more than 31,000 by Feb. 7. By the end of February, countries with confirmed cases topped 56, with global cases exceeding 84,000 and deaths approaching 3,000 across the globe, including the first reported death in the United States on Feb. 29. Public health officials in Washington state, Florida, California and Maryland declared a state of emergency in their states between Feb. 29 and March 5 over the coronavirus.
In late February, Jim Snee, chairman, president and chief executive officer of Hormel Foods Corp., mentioned the potential impact of COVID-19 while discussing the company’s first quarter performance.
“Our International team continues to manage through African swine fever, tariffs and the uncertainty caused by the recent outbreak of coronavirus in China,” Snee said. “We have started to see a negative impact on our business in China from the coronavirus outbreak, but we are not yet able to forecast the impact for the remainder of the year.”
China was also a topic discussed by Tyson Foods Inc.’s top executive in early February. During a conference call with analysts to discuss the company’s first-quarter performance, Noel White, who was CEO at the time, acknowledged the threat posed by COVID-19, specifically in China and the uncertainty about the pandemic’s scope.
“… once we get past the coronavirus incident, whenever that might be, I do think that there’s going to be a very strong demand coming out of that. But trying to estimate what that time period is going to be is not possible at this point,” he said.
At that time, the only predictable outcome was volatility in the global market, which had been poised for more demand-based growth.
“There is certainly the need,” White said, “and coronavirus has just clouded that a bit.”
Looking back over the past nine months, the pandemic was a dark cloud for the entire food industry and especially the meat and poultry processing sector.
On March 11, the World Health Organization declared the novel coronavirus outbreak a global pandemic. On March 19, the United Nations Secretary-General, António Guterres, said the pandemic was a global health crisis on a scale that had not been seen in the UN’s 75-year history and urged the world’s leaders to work together to offer an urgent and coordinated response. As of mid-November, more than 11 million total cases had been confirmed in the United States and deaths had surpassed 250,000. Globally, nearly 55 million cases had been confirmed and the virus had claimed an estimated 1.3 million lives.
According to the Food Environmental Reporting Network (FERA), as of mid-November, more than 49,000 frontline workers across 546 US meat plants tested positive for COVID-19 since March. Approximately 250 of those workers died, FERA reported.
As thousands of businesses, including foodservice outlets and others deemed non-essential, were shut down across the country and most schools shifted to at-home learning in the spring, meat and poultry processing companies began implementing travel bans, restricting access to their production facilities, limiting face-to-face meetings and exercising work-from-home options when possible. Cancellations and postponements of conferences and conventions, including dozens of meat and poultry industry events, were announced throughout the spring and summer, and have continued through the fall.
As early as March, with much of the world on lockdown, the majority of large-volume processing plants in the United States were implementing new safety measures. Temperature checks became a norm as part of wellness screenings of all employees entering company facilities each day. Face coverings for frontline workers became a new requirement in addition to implementation of social distancing measures to decrease the spread of the virus among employees who traditionally worked shoulder to shoulder with each other. As processors scrambled to make plants safer by practicing social distancing when possible, constructing workstation barriers, implementing more robust cleaning protocols and securing adequate supplies of personal protective equipment (PPE) for workers, guidance from city, state and federal public health officials poured in, creating confusion for some plant operators and causing scrutiny among labor groups and often misinformed mainstream media sources.
Most large companies in the processing segment made provisions to continue paying plant workers during closures and modified leave and pay policies to accommodate quarantined workers or those who could not work regular schedules due to interruptions in childcare and grade schools shifting to virtual learning. Many companies offered “hero” bonuses to workers who continued reporting to work during the crisis.
By mid-March, industry trade groups were realizing the impact of supply interruptions related to rising numbers of COVID-19 cases in processing plants. The National Pork Producers Council sent a letter to President Donald Trump stating concerns about the industry’s labor challenged status before the pandemic. Howard Roth, NPPC president, said in the letter that hog farmers were struggling to find a sustained supply of workers as unemployment rates dropped significantly in the first quarter.
He warned of “a serious market disruption” if the situation became worse, referencing the capacity shortage at plants and resulting collapse in pricing for market hogs that occurred about 20 years ago.
“Without a solution to the labor shortage on farms and in plants, this scenario may play out again,” he wrote.
On March 27, President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act helped employers fund refundable payroll tax credits and provided for the deferral of the employer portion of social security payments in addition to several other income tax provisions.
After much of the United States went into lockdown in April, “pivot” became the battle cry of businesses everywhere, including those in the food supply chain, as restrictions on public gatherings forced most restaurants to either close or transition to carryout or delivery models. Consumers flooded grocery stores, many binge buying and leaving a path of empty meat cases behind them. In many cases, retailers rationed high-demand items, including meat and poultry products as well as toilet paper, hand sanitizer and cleaning supplies.
Even before widespread lockdowns, Joe Pawlak, managing principal at Technomic warned that the restaurant industry was facing a dire future.
“This will be the worst year by far for the foodservice industry since we started tracking it in 1969,” he said. “The worst was in 2009, when we saw a 1% decline overall during the financial crisis,” he said in late March.
Keeping these facilities operational is critical to the food supply chain and we expect our partners across the country to work with us on this issue- Agriculture Secretary Sonny Perdue
As the year progressed, Pawlak’s prediction was unfortunately accurate.
Meanwhile, April and May were perhaps the most challenging for processors, as many packing plants closed for weeks at a time due to COVID outbreaks and labor shortages. Those that did remain open were often running as low as 50% of capacity. A shortage of workers resulting from a combination of illnesses and fear of becoming infected created a bottleneck of live animals at many plants and on farms, resulting in hundreds of thousands of healthy animals being euthanized. For pork producers and processors, April 29 was a day most would rather forget, as the number of unharvested pigs peaked at over 203,000 that day. The pork industry faced a mass depopulation situation of historic proportions. Surplus supplies of live animals caused back-ups in the poultry and beef sectors as well, but not on the scale of the pork industry.
President Trump issued an executive order on April 28, citing the Defense Production Act, to keep meat processing plants open to hold off possible shortages of beef, pork, chicken and other meats. The order was followed by US Secretary of Agriculture Sonny Perdue writing letters to governors and public health officials spelling out the “clear expectations for the implementation of President Donald J. Trump’s Executive Order,” signed the previous week.
“USDA expects state and local officials to work with these critical meat processing facilities to maintain operational status while protecting the health of their employees,” Perdue said. “Meat processing facilities are critical infrastructure and are essential to the national security of our nation.”
As positive cases at meat and poultry processing plants persisted and more plants were ordered to close, the leaders of some of the industry’s largest companies went public with their frustration and spelling out the dilemma they faced to lawmakers and public health officials.
Responding to a joint letter from Senators Cory Booker and Elizabeth Warren in June, which was critical of Smithfield Foods and other prominent companies’ responses to the pandemic, Smithfield’s president and CEO Ken Sullivan defended his company and the meat and poultry processing industry and the critical need for its operations to not be interrupted.
“Operating is not a question of profits; it is a question of necessity. We believe it is our obligation to help feed the country and support American farmers, now more than ever,” Sullivan’s letter said. “During this pandemic, our entire industry has been faced with an impossible choice: continue to operate to sustain our nation’s food supply or shutter in an attempt to entirely insulate our team members from risk. It is an awful choice; it is not one we wish on anyone.
“But it is impossible to keep protein on tables across America if our nation’s meat plants are not running.”
In a June 9 update on the pandemic, Secretary Perdue announced updated USDA data indicated that the 3,800-plus federally inspected meat and poultry plants in the United States were operating at more than 95% of the average capacity compared to the previous year, with poultry and beef facilities operating at 98% and pork plants at 95%.
Most companies have established strict screening and contact-tracing protocols and many processing facilities have offered mass COVID-19 testing of all employees. Some companies, including Tyson Foods, began a companywide COVID-19 testing and monitoring plan, which includes testing tens of thousands of workers each week. In July, the company also announced it would hire a chief medical officer and hire 200 nurses and administrative support to ensure compliance with guidance from the CDC and protect its 120,000-plus workers.
In Tyson’s 2020 annual report, published in November, the company summarized the challenges the pandemic created. Tyson said it incurred direct expenses related to COVID-19 of approximately $540 million.
“Operationally, we experienced slowdowns and temporary idling of production facilities due to team member absenteeism and choices we made to ensure team member health and safety,” the report said. “As a result, we have experienced lower levels of productivity and higher costs of production. This will likely continue in the short term until the effects of COVID-19 diminish. Each of our segments has also experienced a shift in demand from foodservice to retail during 2020; however, the volume increases in retail have not been sufficient to offset the decreases in foodservice. These current trends, including the combination of operational challenges and volume impacts, will likely continue into fiscal 2021 and have a negative impact on overall earnings.
“The ultimate impact of COVID-19 remains uncertain and will depend on future developments, including the duration and spread of the pandemic and related actions taken by federal, state and local government officials to prevent and manage disease spread, all of which are uncertain and cannot be predicted,” the company’s annual report stated.