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Expect 'Widespread' Near-Term Meat Shortages, Supply Chain Expert Says

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Expect 'Widespread' Near-Term Meat Shortages, Supply Chain Expert Says

Tyson Foods, Inc. (NYSE: TSN) CFO Stewart Glendinning said one week ago on CNBC there is "no need to panic" over the beef supply chain amid multiple processing plant closures due to the coronavirus pandemic. Since then, the company's public comments have painted a more concerning picture.

Tyson board chairman John Tyson wrote in a full-page advertisement published in multiple publications over the weekend that "the food supply chain is breaking." His comments sound troublesome, but just how worried should consumers and investors be?

Benzinga had the opportunity to interview Dr. Sanchoy Das, a professor of mechanical and industrial engineering at the New Jersey Institute of Technology. Das is an expert in supply chains with a specialty in warehousing and distribution operations.

Processing Plants Tyson's 'Weakest Points'

The high concentration of workers in Tyson's processing plants makes it impossible to practice safe social distancing, Das told Benzinga in an email.

Since employees are working tirelessly in very close proximity, processing plants represent "the weakest points" in Tyson's supply chain, he said. 

"So there's no doubt that these are most affected by the virus and the first to see significant stress," he said. "As a result, shorter supplies will likely result in higher meat prices in supermarkets."

Tyson's Glendinning also told CNBC in the interview that one of the plant closures in Washington is "small."

Even if this is the case, a small plant produces enough beef in one day to feed 4 million people. But the bigger problem for Tyson is that if the pandemic can force the closure of a "small" plant, there is no reason why the infection can't spread in a bigger plant, Das said. 

From an investor perspective, Tyson's weakened supply chain could result in lower revenue and potential worker liability issues, he said. 

Unplanned Disruption For Tyson

During the best of times, Tyson would find it complicated to redirect resources away from closed plants to functional ones.

Needless to say, the COVID-19 pandemic is far from a normal circumstance, and the problem could be compounded as more and more facilities close their doors, Das said. 

It will be difficult enough just to determine which facilities are fully operational and can handle increased loads, he said. On top of that, there are higher transport costs to consider if protein needs to be shipped over longer than usual distances.

Companies like Tyson typically have contingency plans to mitigate supply disruptions or any product issues with the meat itself, Das said. This was the case during the mad cow disease scare, and Tyson likely had contingency plans developed across the industry and vetted by relevant associations, he said. 

Coronavirus is an infectious disease and "very likely was not" on any disruption planning list, Das told Benzinga, adding that Tyson and peer companies are likely to add the scenario to future contingency plans.  

Expect 'Widespread' Meat Shortages 

Tyson is among the largest meat distributors in the U.S., and if it is seeing company-wide plant closures, "widespread shortages" will be seen in grocery stores in the near-term, Das said.

Even if Tyson is "doing a good job" against terrible headwinds, it is doing so against the risk of more employee infections and more closures, he said. 

The meat supply chain is flush with hundreds of millions of pounds of frozen meat in warehouses, and this should last at least eight weeks in the supply chain, Das said.  

In comparison, fresh products last two to three weeks, so as the supply of readily available fresh products falls, demand for frozen meats will rise, he said. 

Related Links:

Food Supply Chain In Peril As Plants Close Amid COVID-19 Pandemic

Smithfield Closes One Of Nation's Largest Pork Plants, Says Meat Supply 'Close To The Edge'

 

 

 

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