COVID-19; Flour, Yeast, and Milk; Elasticity of Supply

It’s April 4th, 2020 and governments across the country and the world are telling their citizens to stay home and not to congregate in groups. Restaurants are closed, unemployment rates are skyrocketing, and toilet paper is hard to come by.

Toilet paper? Shortages in medical equipment makes some sense: During a pandemic, demand for medical supplies skyrockets and can easily outpace supply. But people aren’t going to the bathroom more just because they have to stay home. So why are stores and consumers around the country faced with toilet paper shortages?

The answer lies in a concept called elasticity of supply. As it turns out, elasticity (or rather, inelasticity of supply) explains not only the toilet paper shortage, but also shortages of a number of baking staples! Before we get to baking, though, let’s discuss toilet paper. People are not, in fact, going to bathroom more just because they are staying at home. But they are going to bathroom more at home, rather than at work or school. Commercial toilet paper— what is produced for businesses and public buildings like airports and schools—is essentially a different product from the toilet paper consumers buy for their homes. Commercial toilet paper tends to be thinner (as well all know, unfortunately) and comes in large rolls that won’t fit on the toilet paper holders in your home. Because of this, factories that produce commercial toilet paper may require retrofitting to produce toilet paper aimed directly at consumers—thicker, smaller rolls, with more attractive packaging. As a consequence, the market is set up to meet the normal demand for toilet paper generally, but the supply chain—the factories, companies, and distribution networks—that produce toilet paper cannot easily and immediately retool to produce the kind of toilet paper that the consumers demand in increased quantities when they have to stay at home. The supply of toilet paper is, in other words, relatively inelastic. Here’s a great article to read more about this issue.

What about the food industry? People (or maybe just me) are just now starting to notice the empty shelves where flour usually goes. And, if you look a little closer, you’ll see that the area that normally houses yeast is probably empty too. How about milk? The individual consumer demand for milk has increased, but what about the overall demand for milk? And how is the supply side reacting?

Let’s talk about these three things today: flour, yeast, and milk. Then I'm going to end with one of my favorite recipes that has all three.

Now that people are at home with their families, roommates, or living solo, what should they do with their time? Well, apparently I am not the only one that thinks that baking seems like a pretty good option! Baking with yeast seems like an even better idea. Why? Well, it takes time. Unlike cookies or brownies that you can whip up in 20 minutes and be done baking in an hour, baking with yeast requires you to wait. And time, my friends, is certainly not in short supply these days. With croissants, for example, you need at least a couple of days to make them. Other people are turning to sourdough breads, which again take long periods of time: this recipe for sourdough bread on King Arthur Flour takes 12 hours and 35 minues while this one takes 23 hours and 45 minutes. Why, you ask? Well, according to my college roommate Liz Fairley, who now works for King Arthur, the extra time to rise helps develop the flavor. Meanwhile, if you want to get serious, this sourdough starter takes 5 (!) days, which allows it to become strong an active so that you can use it for many future loaves.

What’s the problem with this increase in baking? Well, as with any increase in demand, the supply side needs to respond. Yeast manufacturers, for example, were not ready for a 647% increases in demand. That’s a big increase. Flour similarly needs to be restocked and resupplied. And that’s what manufacturers are doing, making more flour (and, I presume, yeast). I talked with a friend who works at a flour company, and she said that their factories are at full capacity. It turns out that there is enough wheat (the base ingredient for flour) to satisfy the increased demand. But that wheat has to be turned into flour. In the short-run, flour companies cannot just build more factories to make more flour, so it takes some time to get enough flour to respond to this demand. In other words, the supply is constrained by manufacturing limitations, rather than a lack of raw materials.

And then what do they have to do after they make the flour? They have to ship it. Well, if you haven’t noticed, there is a lot of shipping going on right now. With most stores closed and everyone at home, online shopping and the associated demand for delivery services has spiked. I mean, Amazon isn’t even offering it’s typical two-day shipping right now as a result of increased demand. Adding to this problem, at least according to this article, truck drivers have been quitting out of fear of contracting COVID. So, what this amounts to is that flour companies are going to have to find more truck drivers to deliver flour.

Let’s recap the flour (and yeast) markets: Increased demand as people have more time on their hands and are baking. Manufacturers can and are increasing production, but it takes some time. Costs are likely a little higher (per item) now as more labor (including truck drivers) needs to be hired. All in all, shortages as firms adjust.

What’s going on in the milk market? That’s a different story. As we already said, grocery store demand is increasing for milk. But… milk farmers are dumping milk. That seems odd. We just talked about the flour market running to catch up to greater demand. What is going on?

This issue relates to supply again, but in a slightly different way, and more similar to the toilet paper. A month ago, milk was being delivered to grocery stores, schools, AND restaurants. Schools are closed. Restaurants are struggling for business. That leaves grocery stores. So, like toilet paper, you would think any increase in demand for milk at home could be satisfied from supply that had previously been going to schools and restaurants.

It turns out, though, a large percentage of milk production goes to producing cheese. A statistic from this article even states that 90% of the milk produced in Wisconsin goes to producing cheese. Further, it takes 10 pounds of milk to produce 1 pound of cheese.

Ok, so what do we know so far: (A) Fewer people are going to restaurants and more people are buying food from the grocery stores. (B) Milk is used to produce cheese.

We need one more fact: (C) Restaurants buy different types of cheese and more cheese than retail consumers. Restaurants might want one type of cheese (barrel cheese to be sliced up), while families want wedges of cheese. Further, consumers want smaller quantities than bulk-buying restaurants. It takes time for producers to adjust to producing the kind of cheese the market is now demanding.

Another thing to consider is that the packaging for wholesale and retail cheese are different. Even if you could quickly switch from producing one type of cheese for another, recreating packaging also takes time.

Let’s add on two more issues: (D) Schools are closed. If anyone remembers their elementary school days, you’ll remember drinking milk out of cartons. (E) Finally, exports of milk are slowing down.

All of this is to say, there is actually a DECREASE in demand for milk overall. The increase in demand for milk at grocery stores is offset by a decrease in demand from cheese manufacturers, who cannot immediately retool cheese production to the kind of cheese the market demands, as well as from schools, restaurants, and export markets.

What has this led to? Milk dumping. While people are demanding more milk from the grocery store, farmers are having to dump milk before it goes bad. It’s an odd problem. One that relates to changes in demand and difficulties in adjusting supply quickly.

In economic terms, we say that the supply is not perfectly elastic . It takes some time to respond. As demand rises, suppliers will react, but they cannot always react immediately. For the dairy industry, they have to adjust what types of cheese they turn the milk into. And what to do if there is excess milk.

So, for now, we might see short supplies of flour and yeast. And, while we might see milk on the shelves, there is more going on behind the scene.

And now, just to be cruel to those who are having trouble finding these key ingredients, I’m going to share with you one of my favorite bread recipes. It also just happens to involve flour, yeast, and milk. This recipe is pretty easy and not very time consuming. But, as with most (all?) recipes on King Arthur Flour, it is delicious.

English Muffin Toasting Bread from King Arthur Flour https://www.kingarthurflour.com/recipes/english-muffin-toasting-bread-recipe

While I’m going to give you the recipe below, I’d encourage you to go to their website. They have over 500 reviews, and even a special blog post on this recipe. Further, below I give you the kind of “dumbed down” version. They are much more precise in their recipe.

Ingredients:

3 cups (~ 360g) All-Purpose Flour

1 Tbsp (~14g) sugar

1 1/2 teaspoons salt

1/4 teaspoon baking soda

1 tablespoon instant yeast (although I’ve used a single yeast package (2 1/4 tsp.) before, and it works fine)

1 cup milk

1/4 cup water

2 tablespoons vegetable oil

cornmeal, to sprinkle in pan – trust me, this adds a lot!

In a mixing bowl (preferably from your stand mixer), stir together the dry ingredients (flour, sugar, salt, baking soda, and yeast).

In another, heat-proof, bowl, add the milk, water, and vegetable oil. Heat up in the microwave until warm, but not hot.

Add the warmed liquid to the dry ingredients and mix using your stand mixer for one minute.

Grease a loaf pan with baking spray and then sprinkle cornmeal on the bottom and sides of the pan. Pour the dough into the pan, spread out, cover with a towel, and let it rest for about an hour.

About 15 minutes before it is done, start preheating your oven to 400 degrees. When it is ready, remove the towel and bake the bread for around 25 minutes. It will be golden brown on top and smell delicious when it is done.

Remove from the oven, let it cool for just a few minutes, and then take it out of the pan and let it cool on a wire rack. Letting it cool on the rack helps get the bottom crispy. Yum.

The bread is obviously delicious warm, but I find it actually better once it is cooled and you can slice, add a little butter, and toast it. For those that like jam on their bread, go right ahead!