How the Coronavirus is Affecting Food Processing

No one is spared from concern about the coronavirus, and the COVID-19 disease that it causes. But the food and beverage industry is facing some unique difficulties. It is unquestionably vital; it usually requires employees to work in proximity on a plant floor; it produces and, especially, distributes according to finely tuned models that are difficult to adjust quickly.

Probably the most far-reaching effect of the coronacrisis, at least so far, is the need to avoid public gatherings. This has led to an unprecedented contraction of the restaurant and other hospitality sectors, reducing many locations to takeout or delivery only. For many food processors, the immediate effect is to switch supply efforts from foodservice to retail channels, as consumers are forced to eat at home.

Sourcing Impacted by Coronavirus

While putting together our April cover story, we also asked readers about R&D Trends for 2020. We were able to ask several questions about coronavirus and how it was impacting product development. The following chart was indicative of how processors were feeling about sourcing and the origins of their ingredients. To get the results of the complete R&D Survey when it is available, be sure to sign-up for an advance copy. 

This is especially true with meat, says Derrell Peel, an extension livestock marketing specialist at Oklahoma State University. In his newsletter, Peel wrote, “For beef, there is immediate demand for more processing, packaging and shipping of beef for retail sale and less processing and shipping of meat through food service distribution channels.”

That’s what processors who supply both markets are doing. Tyson Foods and Sanderson Farms both switched resources into retail, with Sanderson considering, as of mid-March, converting two plants to the smaller-piece production and packaging needed for grocery stores. Perdue Farms has “shifted our total production slightly to accommodate the variation in demand, with an increase toward retail,” says spokesperson Diane Souder. Cargill had been producing in a ratio of 60% retail, 40% foodservice; by late March, it had shifted to 85% and 15%, respectively.

Bolthouse Farms, the vegetable packer/beverage maker sold off last year by Campbell Soup, reports a surge in retail orders. “We are working around the clock to fill these increased orders and have diverted resources and supply from our foodservice business to fulfill the increased demand from retail,” says CEO Jeff Dunn.

Across the board

The spike in retail, at least early in the crisis, has affected small processors as well.

Spinato’s Fine Foods, a small processor based in Tempe, Ariz., is ramping up retail production and considering adding a second shift.

“Foodservice has ground to a halt. The spike in retail has more than made up for that temporary dip,” says Keith Schroeder, CEO of High Road Craft Brands, an ice-cream processor based in Marietta, Ga., with annual sales of about $30 million.

Spinato’s Fine Foods, which started as a pizzeria chain in Tempe, Ariz., and established a retail division in 2010, has seen an increase of up to 30% in its retail business. “Brick-and-mortar has definitely increased,” says Todd Niezgodzki, vice president of sales. “We have seen an uptick in POs [purchase orders] just in the last four days, and some of those were even changed after they were sent.”

Andrew Lorenz, president of We R Food Safety!, a compliance consulting firm mostly for the meat industry, says some of his smaller clients are processing five times more hamburger: “Our small to midsize meat production facilities are really hitting it hard.”

Both pantry basics, like meat, milk and nonperishable center-store items, and comfort foods seem to be popular. Some of the biggest jumps in demand, by product category, came in:

• Meat. Fresh and frozen meat sales rose 77% for the week of March 15 compared with last year, while deli meat was up 40%.
• Milk. Long on the decline, liquid milk rose 32% for the week ending March 14.
• Salty snacks. Potato chip sales were up 30% for the week ending March 14 according to Nielsen, while popcorn and pretzels were up about 47%.

The rise in retail demand was rooted, at least initially, in two overwhelming consumer fears: that they would be forced to self-quarantine (or have quarantines imposed upon them) and be unable to shop for food, and that commodities would start running out. The situation led to images of bare supermarket shelves – something that most Americans hadn’t ever seen.

Processors and retailers alike were quick to assure the public that there was plenty of food available, and that the problem was simply that consumers were buying more than they needed.

“As long as customers just buy what they need and don't hoard, there will be no problems at all – there's plenty of food in the supply chain,” Kroger CEO Rodney McMullen told USA Today. FDA commissioner Stephen Hahn pleaded with Americans on March 17 to buy only enough food to last a week.

Peter Bolstorff, executive vice president with the Assn. for Supply Chain Management, also attributes stocking problems to a surge in panic buying. He says the grocery supply chain is normally robust, with replenishment systems based on history-based forecasts.

“When you get a run on products, a spike based on some collective reason like paranoia, you’re going to get immediate replenishment challenges,” Bolstorff says. “But if the spike is not sustained – meaning, it’s for maybe three days at a time, and then everybody wakes up and realizes ‘now I have enough’ – the supply chains for the grocery systems are mature enough where they’re going to, over time, replenish themselves.”

However, there are indications that the food supply chain may have been done in, at least temporarily, by its own efficiency. For more than a decade, there was a general imperative to slim down supply chains of all kinds, reducing inventory as much as possible. Food retailers took to this trend enthusiastically, allowing them to pare down stocks in back rooms and warehouses.

But both processors and retailers found this just-in-time strategy incapable of handling the surge in demand touched off by coronavirus. General Mills and other major manufacturers started bypassing their own warehouses in favor of shipping directly to wholesalers or trade customers’ warehouses. Grocers have been abandoning algorithms that have guided – and, in some cases, automatically placed – purchase orders in favor of getting on the phone and arranging purchases with suppliers.

“Just-in-time purchasing has been thrown out the window,” Dave Hirz, CEO of grocery chain Smart & Final, told the Wall Street Journal.

Labor problems

The coronacrisis has had profound implications for food industry operations, especially in labor.

For the most part, the good manufacturing practices that almost all food facilities have in place for sanitation should be sufficient to stop the coronavirus from spreading on food, equipment or packaging. The virus is as vulnerable to standard sanitizers as any other pathogen.

“The good thing for the food industry as a whole is that the sanitizers they use for normal, everyday cleaning are effective,” says Lorenz of We R Food Safety.

PepsiCo said in a statement on its website: “Based on industry guidelines from multiple health authorities, including the EFSA [European Food Safety Authority] and FDA, there is no evidence that food or food packaging is associated with the transmission of COVID-19 and that no recalls are anticipated if a person who works in a food or beverage production facility is diagnosed.

“Global health agencies have made clear the most effective thing we can do to fight COVID-19 is to practice good hygiene, and we are taking this advice very seriously,” the soda and snacks giant continued. “We have increased cleaning frequency at all facilities globally, re-emphasized the importance of proper handwashing, and we are expanding the availability of hand sanitizer in our facilities.”

But food plants will have to make adjustments. As is often the case, the trickiest variable is people.

Large food companies like Kraft Heinz and Cargill have made the same adjustments as most corporations, such as telling whomever can work from home to do so and limiting air travel to essential trips.

Atlantic Natural Foods, a processor of plant-based analogue seafood, closed its offices in San Diego and Baton Rouge, La., which performed management oversight and “backroom” business services, respectively; on-site operations are limited to its manufacturing facility in Nashville, N.C. (as well as a joint venture in Thailand).

But floor work isn’t something that can be done remotely. And that has unavoidable implications in the coronacrisis.

The virus can live up to three days on stainless steel, according to the National Institutes of Health. (Interestingly, the NIH says it lasts only four hours on copper, but copper in processing plants is mostly limited to occasional use in piping and certain kinds of vessels.) That means danger of transmission through equipment and other work surfaces.

The way to fight that, according to the FDA, is by having workers follow the same procedures that everyone is becoming familiar with: frequent hand washing and infrequent face-touching. Cornell University’s Institute for Food Safety takes it a step further, recommending that when disposable gloves are used, they should be changed, not only after touching any filth, but whenever workers touch their face or hair.

“Social distancing” is another important aspect of fighting the spread of coronavirus. Food plants may not be social venues, but workers often have to perform tasks in proximity of others. Lorenz says many companies are trying to impose as much isolation as possible on the plant floor.

“The people on a line are now a team. They don’t break with the rest of the people,” he says. “They isolate themselves in between breaks. The breakroom is cleaned and sanitized. Instead of doing it once a day like you normally do it, or once a shift, now you’re doing it between each break cycle.”

Doing so sometimes requires shifting workers around. Hazelnut Growers of Oregon, an agricultural co-op, has had to do so at its 120,000-sq.-ft. plant in Aurora.

“We immediately executed a plan to ramp up our sanitation staff following our quality SOPs for this type of contingency, [and] dedicated a minimum number of required staff to operate our plant while meeting all customer orders,” says Chief Operating Officer Greg Thorsgard.

Dealing with sickness

But the biggest potential labor problem, by far, is how to keep sick workers out of your plant – and what to do when you get one.

“The primary concern for them is employees,” Lorenz says. “How do you isolate, how do you separate employees? How do you identify who’s sick and who’s not sick? What do you do if somebody is sick?”

As of press time, cases of food plant employees testing positive for coronavirus have been rare, with only five widely reported: at an Anheuser-Busch plant in Cartersville, Ga., a Sanderson Farms plant in McComb, Miss., a Smithfield Foods plant in Sioux City, S.D., a Perdue Farms plant in Perry, Ga., and two at Jel Sert’s West Chicago, Ill., plant. Of the processors contacted by Food Processing, only Hazelnut Growers acknowledged having an employee report symptoms consistent with COVID-19, and that person, immediately quarantined, soon recovered.

The crisis, however, is still in its initial stages. The biggest problem is that the virus’s incubation period averages five days, but can go as long as 14, meaning workers can be contagious for that long before they start experiencing symptoms. Even worse, it’s possible to transmit COVID-19 while remaining asymptomatic.

For these reasons, the perfunctory screening practices, such as monitoring forehead temperatures with remote scan guns, which some companies have started instituting, are unlikely to make much difference. Most are relying on self-reporting – urging employees to stay home if they have even a small suspicion they might be sick.

Companies can’t count on federal inspectors to help them, either. The FDA suspended most routine in-plant inspections on March 18, although “for-cause” inspections will still take place. (The USDA’s Food Safety and Inspection Service, on the other hand, says it will maintain routine in-plant inspection of meat, poultry and egg facilities.)

Hiring ramps up

Some companies, both big and small, are augmenting their labor forces to handle the increased demand. PepsiCo announced on March 23 that it plans to hire 6,000 more workers over the next several months, and Mondelēz International plans to hire 1,000 more. On the other end of the scale, Spinato’s Fine Foods has increased employees, brought in temps and is considering a second shift.

In some ways, smaller companies, especially if they use contract manufacturers, are in a better position to respond to the coronacrisis. Alkaline Water Co., a bottler with about $40 million in annual sales, uses seven or eight (the number varies seasonally) co-packers. So far, they have been able to make up absences with new hires, especially in the western U.S., says CEO Ricky Wright.

“It’s rectified itself in the West very quickly because obviously you’ve got a lot of closings of other types of businesses in the hospitality arena,” Wright says.

That same dynamic ensures that Alkaline Water will be able to get co-packers to ramp up production, which it probably will need; demand for March was up 70% over the previous year (compared with a 46% seasonal bump in normal years).

“The smaller guys like me who have managed to find a number of different co-packers, I think are able to provide better than a lot of some of the guys who are in a single plant and they’re at max capacity,” Wright says. “We’re able to turn to our manufacturers and say, ‘Hey, look, I know you’re dropping some business out of your hospitality industry [customers]. We’ll fill that void.’”

Smaller manufacturers with their own plants also have an advantage, Lorenz says: They’re are more likely than larger plants to impose safety distancing on their workers. “The smaller to mid-sized operators are probably going to be in better shape in the long run, just because they’re able to isolate down more,” he says. “But if you’re bringing 2,000 employees into a facility, statistics say you’re going to get hit.”

Motivation

Big or small, food processors are going to have to find a way to keep their employees motivated to come to work and, not to put too fine a point on it, risk their health to keep America fed.

There are signs of grumbling among food workers, in manufacturing as well as retail. A Perdue Farms plant in Kathleen, Ga., saw a brief wildcat walkout by about 50 workers on March 23 protesting what they alleged were unsanitary conditions, with one of them remarking to a local TV station, “We’re risking our life for chicken.”

Some companies are responding with extra incentives. J.M. Smucker Co. is paying workers a $1,500 bonus; JBS SA, a $600 bonus to unionized workers; Conagra Brands, $500. Cargill, Campbell Soup and National Beef are giving hourly workers a $2 bump.

Supplies will be another potential sore point, especially when they originate overseas. Much of the raw ingredients for artificial sweeteners come from China, where the coronavirus originated – which presents a supply challenge. This is exacerbated by processor customers seeking to lock in supplies.

Apura Ingredients had several customers try to order 12 months of sweetener at once, says company president Nancy Hughes. She says Apura is working with that customer on a feasible delivery schedule, adding, “I don’t see these challenges going away anytime soon, as we are all learning how to deal with a pandemic.”

Packaging is another consideration. Wright says that Alkaline Water took steps to lock in an adequate supply of PET bottles, but sees it as a potential industrywide problem: “The biggest impediment to the industry come summertime will be the guys who have not been able to line up their containers.”

Food manufacturers make vital goods, for which demand is increasing at least in the short term, with relatively few labor disruptions. Even as the country suffers, that’s a good position to be in.

So far.