By Mark R. Smith, Contributing Writer
Who saw this coming earlier this year?
Material shortages. Supply chain interruptions. Distribution networks halted. Amidst a worldwide pandemic.
Yet, the trials of today are leading to new ideas, many directed toward a post-pandemic agriculture industry with new demands and new approaches that will hopefully result in new solutions as a world of tumult spins forward in fits and starts.
But for now, the agriculture sector is dealing with the hand dealt. “Every industrial sector was hit hard,” said Charlie Walker, site selection lead with Madison, Wisconsin-based Ady Advantage. “The agriculture sector experienced COVID-19 as a triple-punch, because it was just getting through the tariff battles, low commodity prices and several quarters of poor weather conditions.”
But then came the shock. “So just when it appeared some positive upward activity might occur in the agriculture industry,” he said, “COVID-19 landed a most powerful punch.”
The Chain
Walker said a few Ady Advantage clients were preparing to increase exports and take advantage of the growing niche of specialty restaurant and hospitality markets − but like many companies, were forced to alter new game plans quickly.
“Many agriculture and food processing companies, when COVID-19 first hit, experienced it in the form of supply difficulties, such as obtaining raw ingredients like artificial sugars from China,” he said, “while others experienced it during the fear of self-quarantine.”
That fear produced a short-term rise in retail demand. “We were busy assisting some [clients] in switching supply efforts from food service to retail channels, as hospital and school cafeterias, universities and restaurants closed,” said Walker. “Almost overnight, many companies had to switch to smaller units of production and packaging for grocery stores.”
What COVID-19 did was “forced companies to shore up their supply chains and rethink the ‘just in time’ strategy, which makes it difficult to handle surge demand for products,” he said. “Companies at first were now faced with making sure that they could provide retail with its needed products; at the same time, retailers worked to assure their customers that there was plenty of food available. And that pressure was passed down the supply chain.
“In fact,” said Walker, “some clients have even bypassed their own warehouses in favor of shipping directly to wholesalers or trade customers’ warehouses.”
New Tech
Another aspect of COVID-19 is faster use of new technologies. Walker said companies have even accelerated the use of artificial intelligence and machine learning algorithms to improve supply chain performance.
“Data analytics use has been a ‘go-to tool’ and a key in helping companies find alternative suppliers for those essential ingredients, packaging solutions, and critical production supplies,” he said. “We believe that one positive action coming out of post COVID-19 is there will be an acceleration of adopting automation within the industry, which might elevate some issues, such as worker safety and staffing, increased quality and helping solve increased SKU (stock keeping unit) variety demands.”
If the pandemic has shown the agriculture industry anything, Walker said, “it’s that it only takes one incident for a factory to be decimated and shut down. Protective equipment has always been vital for operating an agriculture operation safely and keeping workers and animals healthy. The agriculture industry has taken extraordinary measures to protect their workforce during the pandemic.”
Going forward, he expects that this commonplace activity will be given a higher importance and a community that formally integrates Personal Protective Equipment and social distancing workforce training programs will be better positioned in [the] labor matrix analysis used in helping determine future site locations.
“The need to get a location up and running quickly to meet market demand is always balanced with costs,” he said, “and post COVID-19 workforce costs are being recalculated in terms of physical space needs, training and safety.”
Walker said that some Ady clients have expressed an interest in doing what, even earlier this year, they wouldn’t have: considering smaller, less population-dense communities, avoiding the COVID-19 experience of public transportation shutdowns, alleviating worker safety concerns and experiencing possible lower operating costs, while comprehending the impact on access to market costs.
“Companies are trending toward a movement to a more automated facility to deal with the new realities of production floor spacing in a post COVID-19 world,” he said. “Automation and production designs typically make older vacant buildings less feasible, and with low interest rates, new construction within an excellent location makes more sense.”
Spreading Out
Harwood Schaeffer, director of the Agricultural Policy Analysis Center, in Knoxville, Tennessee is also on board with different geographic spacing of various plants.
“The challenge is that we’ve developed a very concentrated agricultural processing industry, where we all the sudden start taking all of the employees out of a couple of meat processing plants that are out of action and move them to bigger places,” Schaeffer said. “Given the impact of COVID-19, it makes better sense that the plants should be smaller and all spread out. That way, if one has to go offline, that’s less of a problem in the supply chain.”
He offered this example: “If a plant is closed for two weeks or whatever length of time, think about the processing costs in the interim. They need to redesign their footprint to brace for this,” he said. “They won’t need as many workers per plant so they can be in smaller cities, though they need to be close to enough for one-day travel. That was more the case 15-20 years ago. At one time, one plant did not produce or process even one percent of the nation’s pork.”
He cited reports, for instance, that suggest that the Smithfeld plant in Sioux Falls (S.D.) plant processed more than five percent of the country’s pork. “That’s too much in one place. That changes the site criteria.”
So if that happens at another large plant, double that number. And so on. “It’s happened intermittently throughout the country,” said Schaeffer, “and know that many of the workers were working side-by-side.”
“Having too many people crammed into a more urban area these days isn’t the best option,” he said. “Going forward, plants may be redesigned to spread out the workers, so they’re not working shoulder-to-shoulder, as well as not concentrating [as much] production in one huge, or a number of large, facilities.”
He wonders if, in terms of site selection, companies moving to smaller facilities that are more evenly spread across the landscape might be a better idea.
“If a hog doesn’t go through a Smithfield plant, for instance, the company loses money on processing, as well as the grower’s side,” said Schaeffer. “With hog production, you have vertical integration; that means that the plant that processes it also raised the animal. So, they get hit on both sides.”
Bottom line, if the ag industry doesn’t switch gears, that could mean trouble.
“If we don’t end up getting the plants set up in a more resilient manner for the future,” Schaeffer said, “that could be a problem. With the current setup, they have economic efficiency, but not resiliency. It is not out of the realm of possibility that something similar to COVID-19 could happen again. Plants need to be designed with this in mind.”
As for growing fruits and vegetables, those endeavors call for expansive land sites on good transportation lines. “Where those companies set up is determined by geographic areas that produce apples, pears, squash, zucchini, etc.,” he said. “Packing sheds have to be near the field. And they can be in many places around the country. That can be to do with the weather in a certain area, which determines which crops are grown in an area.”
Building It
While building new facilities is a hot topic, that doesn’t necessarily mean they’ll be popping up soon in a neighborhood near you. The Austin Company, of Cleveland, has built many facilities for companies within the ag industry and projects that were under construction during the past two years are being completed, “but many new projects have been put on hold due to the COVID-19 interruption,” said Frank Spano, executive advisor.
“During this time there are concerns in new startup hiring and training for companies that were hoping to come online in 2020, which especially applies to the high-skilled tech workers. It’s a temporary problem that we all hope will not be an issue as we enter 2021,” Spano said.
And how long will this major impact last? “We’re thinking that it’ll be a year to 18 months that we have to be concerned with social distancing in the workforce and in building design,” he said. “There could also be a slower production schedule and shortened hours of operation by the companies affected.”
But one aspect of the ag industry (and others) that COVID-19 didn’t preempt was planning. “I think when this fog does lift,” he said, “there will be a pent-up demand for industrial expansion.
“So business will come back, but you also have to be wary of a possible resurgence of the virus in the fall. It has to weigh on a person’s mind. The test will be this fall when schools reopen and then the progression into winter. Until there’s a vaccine, I think people will step back a little,” Spano said, “but people will adapt.”
From a logistics standpoint, there is a lot of work that has to be done, from production to distribution to the public. That has for the most part held up. Delivery companies are still advertising for more jobs in that sector, from distribution centers to selected retail stores.
Coming Months
“The most optimistic comment Spano can make,” he said, “is that whenever this ends, there may be an increase in needs for new industrial buildings with an emphasis on the agricultural sectors.”
Another critical component for company growth should center around “reshoring,” the production of many goods coming back ashore to the U.S. from China and Asia. “These products should include pharmaceuticals, Personal Protective Equipment and other production that is so critical to the medical and technology related industries,” he said. “I believe the lesson learned here is these products need to be produced in the United States for livelihood of our nation.”
Moving ahead, more observations and projections of what awaits in the ag field aren’t hard to find.
“Anyone can make an educated guess about what’s going to happen,” said Jay Garner, president of Garner Economics, in Atlanta. “If we’d had had this conversation several months ago, no one would have foreseen a shortage in meat or vegetables − or the world getting turned upside-down.”
What Garner does not see changing from food processors, however, is the focus on food safety. “That’s paramount and it will never go away,” he said. “The main reason for this spring’s plant closings were the lack of trained workers to replace those who had to go into quarantine due to getting COVID-19. There were lots of them within significant COVID hot spots.”
Before the pandemic, the U.S. was at full employment, he said. What’s changed is that “now we have not so much of a people shortage, but a skilled labor shortage. What I tell my economic development friends is to not take your foot off the gas when it comes to working with training centers and community colleges. They will continue to be on the front lines of skilling people up.”
While in recent years he sees the community colleges as the unsung heroes in the training arena, they’ve finally been getting their due, Garner noted.
“We still need more people with the skills to work in a food processing plant, for one, and process the herd, or fruits and vegetables. We normally have strong demand in the food market, which relies on grocers, as well as restaurants − which have a higher demand than grocers and employ the wait staff. Food service workers were among the top five in-demand positions, according to U.S. Bureau of Labor Statistics. And it all came to a halt,” Garner said, “in close to one day.”
As for the coming months, “many people are hoping for a V-shaped recovery, but what the Fed has been saying is that it will be more like a W-shaped recovery,” Garner said. “We had the strongest economy in the world at the end of February, and today it’s about as weak at was in The Great Depression.”
While he predicts an economic improvement this summer, he said, it will be stymied “by a second wave of the virus in fall and winter before we eventually have a vaccine, which Dr. [Anthony] Fauci [of the National Institutes of Health’s National Institute of Allergy and Infectious Diseases] said we could have within the year.”
Reset and Go
What to look for as the agriculture industry moves ahead? Unlike some of his peers, Garner doesn’t think “we’ll see meat production facilities get smaller and more spread out because of the virus. The food and beverage sector has always operated on smaller margins, and the large facilities are what have made it profitable.”
“It’s all about economies of scale,” he said. “They’re designed be profitable based on size. Smaller facilities typically means smaller margins, which could mean higher cost for products to the consumer; however, there is much talk about the regionalization of the supply chain in medical supplies and pharma.”
“That will happen, cost be damned,” Garner said, “but you never know based on the reality at a given time that we’re dealing with.”
About the Author: Odenton, Maryland-based Mark R. Smith joined Expansion Solution after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.