This is part two of our three part series on resilient supply chains. It is part of our larger series on Healing America, a proposal we published earlier this year that charts a path that policymakers can follow to avoid issues that arise when policy lags behind food and agtech investment and innovation in three key areas. Check out other pieces on rural renaissance and part 1 in our resilient supply chain series on digitization, and look out for additional articles on resilient supply chains and nutrition as national security coming out soon.
Food production, processing and distribution in the US have become highly consolidated over the last half century. The centralized model is efficient in terms of production and allows food companies to benefit from economies of scale but it also involves lengthy and rigid supply chains with much higher costs in the event of a disruption.
The limitations of the centralized model became apparent from the outset of the pandemic, particularly in the meat sector where Covid exposed challenges with the long production cycle and centralized processing facilities characteristic of the US meat industry. All the major meat processing companies including Smithfield, JBS, Cargill, and Tyson either shut down or slowed down their processing facilities due to the rampant spread of Covid-19 through unprotected workers at close quarters.
These disruptions had such a magnified impact because there are relatively few meat processing and packaging plants in the US. Five companies now control more than 60 percent of the chicken market, four companies process over 80 percent of American beef, and three companies control 63 percent of hog processing in the US. Just one meatpacking plant in Sioux Falls, South Dakota is responsible for 5 percent of US pork production. When that plant as well as a few others closed in April, meat production dropped to 40 percent below 2019 levels. In addition to creating supply chain vulnerabilities, this consolidation has been devastating for small and mid-sized farms. Over the last five years the farmer’s share of the price of beef dropped from 51.5 percent to 37.3 percent, while the price of beef increased over the same time period.
The White House recently released a wide ranging executive order aimed at addressing consolidation throughout the economy which includes a special focus on actions the USDA could take to address competition in the meat industry and promote market fairness. It seeks to make it easier and safer for farmers to bring and win claims against monopolies by strengthening and modernizing the Packers and Stockyards Act, a 100 year old law designed to protect poultry and hog farmers and cattle ranchers from unfair, deceptive, and anti-competitive practices in their respective markets.
The order also directs the USDA to revise the standards for meat to be labeled as “Product of the USA.” This will help farmers who are currently being squeezed out by foreign corporations using misleading labels--right now meat can be labeled ‘Product of USA’ if it is produced elsewhere and only processed in the US. Lastly, the order directs the USDA to develop a plan to improve market access and differentiation opportunities for farmers by “supporting alternative food distribution systems like farmers markets and developing standards and labels so that consumers can choose to buy products that treat farmers fairly.”
This order will help support the innovation and entrepreneurship that is already working to create a more diversified, sustainable and equitable meat sector and paving the way for decentralized and alternative meat supply chains. These supply chains have fewer bottleneck opportunities in the event of a disruption, put more control back in the hands of producers and enable consumers with a range of preferences to tailor their meat purchasing decisions in ways that cater to their needs.
Decentralized Meat Supply Chains
Short, decentralized supply chains underlying local and regional food systems can be more nimble as they respond to consumer demand making the supply chain less vulnerable to large scale disruptions. Smaller farms and processing plants may also be conducive to fair competition, reduce the risk of widespread contamination, lower meat’s carbon footprint, and support rural communities. Food sectors, such as organics or grass fed that decentralize animal agriculture, will continue to gain traction as awareness of the importance of supply chain adaptability and resilience grows.
S2G portfolio company, Farmer Focus, is developing decentralized, resilient poultry supply chains by partnering with independent family poultry farms in a sector that is particularly prone to farmer exploitation. Many poultry farmers in the US are part of an integrator model, which controls the hatchery and almost every input. This means farmers hold most of the risk with limited potential for reward. With Farmer Focus, farmers purchase and own their birds and inputs from independent suppliers to ensure accountability and ability to seek compensation for claims. The company is built on transparency and puts a Farm ID on every pack of chicken which allows buyers to trace the product back to the farm and learn about the standards used there.
Farmer Focus’s work could not be more in line with the recent executive order. The company puts decision making and ownership into the hands of farmers allowing them to grow profitably while also providing traceable organic meat. The greater resiliency inherent in their approach became clear at the outset of the pandemic. While many large meat processing companies saw significant disruptions, Farmer Focus experienced far fewer issues because of the distributed and community oriented nature of their operation. This enabled the company to have a Covid plan in place by February 29 and a response team set up by March 2, long before most major companies had implemented any sort of Covid initiative.
The preparation and continued diligence from the Farmer Focus team led to the percentage of Covid cases in their production facilities remaining at or below the percentage of cases in Virginia throughout the pandemic with a limited number of cases coming from outside and only one case of community spread in their non-production facilities. During a time when meat processing workers were some of the country’s most vulnerable, Farmer Focus brought home the WorkSafe Award for the 3rd consecutive year.
Alternative protein production, such as plant based proteins and cell based meats, present another opportunity to move towards more resilient and decentralized supply chains and reduce the environmental impacts of current meat production processes. If alternative meats achieve 30 percent of US market share on a combined basis, the resulting efficiency could eliminate 30 to 50 billion pounds of feed, free up a farming land mass roughly the size of Massachusetts, and could lead to more than 80 percent reductions in carbon emissions and water use for the agricultural sector.
Additionally, at a time when we’re seeing a drop in the supply of many meat products due to labor shortages, speed lines in pork processing facilities being capped or states such as California passing animal care requirements, alternative meats could provide a steady supply of protein with much less labor and contention over animal welfare issues. Cultured meat in particular enables the consumer to have the real meat experience but without the need for concentrated animal farming and with a huge reduction in resource use.
Our portfolio company, Future Meat Technologies, is creating cost efficient, non-GMO meat produced directly from animal cells without the need to raise or harvest animals. The company is one of a few that has gotten cellular meat near a commercially viable price point, bringing them closer to making cell based meat an affordable product that can be produced anywhere. This month they announced the establishment of a functioning cultured meat facility, a significant milestone in the commercialization of their technology. Each facility only requires a handful of laborers to monitor production and oversee the cleanliness of each plant enabling smaller plants to exist around the country and near high-demand areas like cities to shorten and decentralize supply chains.
Policy to Enable Decentralization
In addition to the recent executive order, there are a number of ways the government can continue to support decentralized and alternative meat supply chains. The high-risk and multidisciplinary science and engineering questions at the center of cell-cultured and plant-based protein production remain a barrier to private investment in R&D. But many companies have fairly similar needs related to technological development, bioprocess design, feedstock and ingredient identification making alternative protein an ideal target for federal investment. Public support for collaborative and multidisciplinary public-private partnerships aimed at alternative meat R&D can be used by all companies across the sector and address some fundamental questions to ensure that alternative proteins are affordable and accessible. Studies have shown that every dollar invested in agricultural research creates $20 in economic activity. Public funding for alternative protein research will also promote continued US leadership in innovation and problem solving. Additionally, clear and efficient regulations for these foods can help more products come to market safely and properly labeled.
Decentralization will also necessitate making investments in local and diversified food system infrastructure now in order to safeguard supply chains from future disruptions. We support increasing federal investment in incentives for local and regional producers to accelerate the adoption of technology and operational expansion. Investments in innovation such as genetics, robotics and computation can bring down the cost of production allowing regional producers to compete more effectively on a cost unit basis.
Decentralization can enable food systems which have fewer potential fail points, bring food production closer to consumption, even out the playing field for smaller diversified farms, optimize for input usage and freshness, improve logistical efficiency, and make personalization more affordable for the consumer. While creating decentralized infrastructure to prepare for future hypotheticals might incur present day costs, those investments will pay off over time by not only minimizing losses but boosting productivity and digital capabilities while strengthening the entire industry ecosystem.