The State of the Food Industry and Its Machinery and Equipment
Otto Cuyler
It’s been another unusual week -- one that you would only guess came from a bizarre, futuristic screenplay from Tim Burton. Last week, Vice President Mike Pence, head of the federal COVID-19 Task Force, announced that his team is weighing a plan to provide coronavirus tests and other solutions to U.S. food-processing plants, as a way to soothe workers’ fears and keep the country’s food system functioning through the pandemic, according to the Wall Street Journal.
This week, we conducted a number of phone interviews with food industry plant and operations managers in the US. The number one current concern of operating an essential food plant was, as one manager stated it, “LOL” (or Lack of Labor). As plant workers contract the illness, they lose those workers, but also other workers may become reluctant to be in that environment. “So instead of operating all five of our processing lines, we can only run three.”
The announcement by President Trump -- that he is looking at policies to limit or eliminate immigration and cut payment to seasonal workers -- will serve to exacerbate both the difficulty of migrant workers as well as limit the number of workers to plant, maintain, harvest and process food products.
Food safety standards in this country are already very strict. Generally, all food plants are taking temperatures of workers and essential visitors as they enter the plant and turn back anyone with observed symptoms. Through an article in RollCall, the Food and Drug Administration (FDA) states that there is no evidence that COVID-19 can be transmitted by food or packaging on food. They also state that “there is no food shortage”.
A significant number of meat and poultry plants, however, have closed in the last two weeks out of concern for their workers. Most meat and poultry operations are set up with line workers in very close proximity. Last week, Smithfield Foods, the world's largest pork producer, shut down a pork processing plant that accounts for up to 5 percent of production after more than 500 of its workers were infected. One worker died from COVID-19. There is talk on The Hill around directing personal protective equipment (PPE) and testing resources to the food processing industry to keep it safe and productive.
According to The Hill, there are numerous supply chain disconnects as the world adjusts to buying almost exclusively through grocery supply lines vs. restaurant and food service supply lines. Even as some grocery store aisles are empty and food banks clamor for donations, some agricultural businesses are resorting to spilling or throwing away huge quantities of food.
Some $5 billion of fresh fruits and vegetables have already gone to waste, according to the Produce Marketing Association, an industry trade group. Some dairies have been pouring thousands of gallons of milk down the drain. The reason is that the country's supply chains are set for normal times, when people get a significant amount of food from restaurants and many kids eat lunch and drink a carton of milk at school. Those supply chains are struggling to adapt to the lockdown reality in which most Americans are confined to their homes.
As to the value of used machinery and equipment, we have interviewed a number of principals in the used food machinery sales and food related auction industries. Generally, there is some surprise in the fact that those auctions that have gone forward in the last 6 weeks have produced “better than expected” results in terms of attendance and hammer prices compared to pre-COVID auction sales. We can call it a cautious optimism. This is a very fluid situation. We will report further going forward.
Regarding the valuation business around the food industry, there seems to be a slight pause as lenders, appraisers and food processing facilities figure out how to work from home and navigate the new protocols for dealing with this unprecedented scenario. It is our feeling that all of these folks will work through this in the next few weeks and that appraisal inspections will get back on track with greater use of technology (Facetime, Zoom, etc.) to gather on-site information. This will provide the “best you can do” services under the circumstances”.
As my Dad always told me, when persuading this reluctant teenager to join his food machinery dealership some 50 years ago, “Everyone has to eat.” The industry, historically, has always found a way.
Otto Cuyler is the President and CEO of Cuyler FoodPro Appraisal, a 80-year-old appraisal and consulting firm based in Rochester, New York. Cuyler FoodPro serves asset-based lenders, leasing companies and end-user food processors providing expert valuation services based on decades of buying, selling and liquidating food processing and packaging machinery worldwide.