First It Was Toilet Paper... Get Ready for the Next Big Shortage

By Berna Barshay

Thursday, April 30, 2020

Meat shortages are coming…

After spending most of April scavenging for toilet paper, Americans may find themselves in a similar predicament in May when they go looking for bacon and pork chops. As Barron’s reports…

Since the beginning of April, meatpacking plants across the country have been forced to shut in response to viral outbreaks that have infected thousands of workers. Meatpackers work in tight spaces and breathe recirculated air during long shifts, which makes it easy for the virus to transmit across the thousands of workers in a single plant. The United Food & Commercial Workers union estimates that 20 workers in meatpacking and food processing have already died from COVID-19.

Meatpacking plants have proven to be the workplace equivalent of a nursing home or a prison in terms of COVID-19 spread. At one point last week, the Smithfield pork processing plant in Sioux Falls, South Dakota was the site of the single-largest COVID-19 outbreak in the U.S., with more than 900 confirmed cases. Adding to the public health risk, meat-processing plants tend to be located in rural areas, where hospital and ICU beds are limited.

The design of meat-processing plants makes social distancing extremely challenging. Not only do workers stand shoulder-to-shoulder on fast-moving assembly lines, but they also share crowded changing rooms and cafeterias. Outbreak mitigation techniques should help plants stay open and allow shuttered ones to reopen. But a safer plant will almost certainly be less productive… so reduced supplies of meat seem inevitable as long as the coronavirus is with us.

Sick and absent workers also drag down plant production. And replacing sick workers is difficult – butchering and other processes require extensive training, and can be dangerous if attempted by the unskilled.

Many plants have already been closed in April because of outbreaks, and as a result, industry-wide processing capacity has been reduced by an estimated 25% for pork and 10% for beef.

And the problem is getting worse… As John Tyson, the chairman of Tyson Foods (TSN) – one of the largest American producers of meat and poultry – wrote in a blog post this week…

The food supply chain is vulnerable. As pork, beef, and chicken plants are being forced to close, even for short periods of time, millions of pounds of meat will disappear from the supply chain. As a result, there will be limited supply of our products available in grocery stores until we are able to reopen our facilities that are currently closed… The food supply chain is breaking.

Tyson Foods has been hit hard by the coronavirus, with 44% of employees at its Waterloo, Iowa plant testing positive for COVID-19. At least six of the company’s workers have died.

The risk to pork production is especially severe because of industry consolidation. According to Politico, about 70% of America’s pork-packing capacity comes from just 20 plants across the country, with about two-thirds of that output coming from plants either in Iowa or near the border with Iowa. Beef processing is similarly concentrated, with 10 plants accounting for 60% of national production.

Stock up on meat while you can…

While you may have already experienced bare meat shelves at the grocery store, chances are those shortages were due to breakages in the supply chain. Large reserves of meat in cold storage mean that we haven’t run out yet… But as we get into May, those reserves will be depleted.

In a bid to avoid shortages, President Donald Trump earlier this week invoked the Defense Powers Act to require that meatpacking plants stay open. But his orders may not fix the problem. As plant owners rush to add personal protective equipment (“PPE”) and temperature scans to their plants, they’re limited in what they can do to protect workers given their structural challenges.

Unsafe work conditions in the meatpacking industry were a primary inspiration for the organized labor movement at the beginning of the 20th century. The publication of Upton Sinclair’s The Jungle in 1906 highlighted the perils of working at a meat-processing plant, and spurred advocacy for worker safety.

More than a century later, the industry remains one of America’s most unionized – with the majority of the beef and pork we consume in the U.S. getting processed at a union factory.

And unions are already fighting back. As Stuart Appelbaum, president of the Retail, Wholesale, and Department Store Union told Politico…

We only wish that this administration cared as much about the lives of working people as it does about meat, pork and poultry products… If they want to keep the meat and poultry supply chain healthy, they need to make sure that workers are safe and healthy.

A lack of inspectors to ensure food product and worker safety may become another potential bottleneck to meat production. According to industry news source Modern Farmer, the U.S. Department of Agriculture (“USDA”) has been sending inspectors into plants with active outbreaks, even ones already shuttered for COVID-19. Now the inspectors are getting sick…

[The USDA’s Food Safety and Inspection Service (“FSIS”)] has not stated how many of its inspectors have tested positive for COVID-19, though several reports put the number at over 100, and there has been at least one death.

In a phone call with Food Safety News, an FSIS representative confirmed that inspectors are still, as per their usual jobs, being rotated amongst plants. The spokesperson did not reject the claims that FSIS is not providing its inspectors with safety gear, nor that its official policy is to work until symptoms arise.

On a more hopeful note, in a New York Times Opinion piece yesterday, a worker at a JBS (JBSAY) beef processing plant, who lost two colleagues to COVID-19, outlined the safety improvements taking hold at her plant…

Before this closure, people had started to panic. Social distancing was limited. Employees didn’t cover their mouths. In meatpacking plants, workers are piled up on top of one another, often touching because there are so many of us. Many decided to stay at home on leave because they were afraid of becoming infected or of spreading the coronavirus to their families.

In this pandemic we have to live day to day. Now we feel a bit more secure. Employees’ temperatures are taken the moment they walk inside to start their shift. Each person is given a mask and a face shield to wear. There are more hand sanitizer stations, and workers are given time to wash their hands. In the cafeteria, the tables are separated so that people don’t have contact.

On the floor there are guides so that people know how far apart they should be from one another. There are signs in multiple languages, reminding people to wash their hands often, wear a mask and stay at least six feet apart. Supervisors monitor the flow of employees to make sure there is distancing in the hallways and break areas.

Workers aren’t the only ones who will suffer during meat shortages…

The big publicly traded U.S. meatpacking companies are Tyson Foods, JBS, and Hormel Foods (HRL).

They’re all trading down because of the earnings hit they will suffer because of missed revenues and increasing expenses, but a shock to the meat supply will have a ripple effect through many other sectors.

Restaurants and packaged-goods companies will suffer with food inflation, and grocers will likely see more items out of stock. But as much as any corporation, the group with the most at risk here is the American consumer. Investors and meat lovers with extra room in their freezer would be wise to stock up ASAP ahead of likely shortages and the price increases that will accompany them.

COVID-19 quieted any discussion about breaking up Big Tech…

Last week, I sat in on a Harvard Business School Club of New York Zoom interview with business journalist Kara Swisher, who covers telecom, media, and technology (“TMT”) and Silicon Valley.

Her lively commentary covered a lot of ground, but what stood out was Swisher’s argument that Big Tech will emerge from the coronavirus era even stronger than before… and I agree.

Swisher sees nothing out there that can weaken the hold of the “big four” – Amazon (AMZN), Apple (AAPL), Facebook (FB), and Google’s parent company Alphabet (GOOGL). In fact, Swisher says they’ll use this period of disruption to poach top-tier talent around Silicon Valley and greater corporate America.

During the Q&A, I asked if she thought the coronavirus would reduce the appetite to break up Big Tech. She’s confident that tech will get a pass on any former concerns about monopoly status. As she put it, “That train was heading out of the station, now it’s stopped.” If she’s right – and I think she is – this would obviously be a bullish long-term tailwind for the tech giants.

At the session I covered in Tuesday’s Empire Financial Daily, serial entrepreneur and billionaire Mark Cuban also declared the break-up of Big Tech dead on arrival, but for different reasons. Cuban is a giant bull on artificial intelligence (“AI”), an area in which he thinks the U.S. is drastically underinvesting. “Whoever controls AI will control the world,” he said, adding that our massive underinvestment will ultimately become a security risk if it’s not addressed.

Since our national AI strategy is largely outsourced to Big Tech, Cuban thinks the political resolve to break these firms up will only weaken further over time.

Swisher had a list of winners and losers from the COVID-19 crisis…

The veteran Silicon Valley journalist pulled no punches in listing companies within her coverage that the crisis has disproportionately harmed, including:

  • Ride-sharing companies Lyft (LYFT) and Uber (UBER), with the caveat that it’s worse for Lyft because at least the Uber Eats food-delivery service offsets the lack of rideshares for Uber
  • Movie theaters
  • Airbnb, as the legacy hotel companies will be hitting back hard
  • Airlines

I generally agree with her assessment, but I think she was even more spot-on in identifying potential winners, which included:

  • Home food delivery
  • E-commerce and online-shopping companies
  • Big Tech in general (and in particular, Amazon)
  • Autonomous driving

Of course, no one has done more work and research on autonomous driving than my colleague Whitney Tilson. He recently put together a phenomenal presentation on what the future of self-driving cars might look like… and even shares the name and ticker of his favorite investment in the space. You can watch it here.

Finally, we’ll end with a bit of humor for everyone stuck homeschooling a young child these days…

Most people who (like me) are teaching grade-school children while attempting to juggle working from home are pretty stressed out.

This parody piece from humor website McSweeney’s – “Emails From My Children’s School Before 8:00 AM During the COVID-19 Crisis” – sums it up well. Here’s a brief excerpt (though I encourage you to read the whole brilliant thing):

Monday, April 27, 2020, 6:00 AM
Good morning! This is an email to let you know that we will be sending another email later this afternoon. That email will contain a special passcode, and in a separate email, we will send you the link that requires this passcode. After that, we will be sending email updates in fifteen-minute intervals with meeting times you will have to remember for the upcoming week…

We will be sending out homework assignments in the five apps on your child’s iPad that they must access daily. These assignments will be posted in no particular order, and there is no search function, so you will have to scroll down through 200 weeks of posts to find them. In addition to these times, please refer to the Inbox on your child’s iPad for further notifications on the 3D marble sculpture in the spirit of Michelangelo’s David that we expect him to carve up for Tuesday.

May the force be with us!


Berna Barshay
April 30, 2020

Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.