COVID-19: Meat prices are high but farmers are hurting (+Texas Kolaches)

We’ve talked about how the increased demand for flour and yeast led to shortages in grocery stores as people stocked up on staples and had more time on their hands to experiment with bread baking. The shortages in flour and yeast were caused by people wanting to buy more and firms struggling to catch up. With these shifts in demand resulting in empty shelves, some grocery stores started placing limits on the amount you could buy.

Now these same grocery stores are placing limits on the amount of meat you can buy. This time, the shortage is for different reasons.

As you may have read, meat plants of all type (pork, chicken, and beef) are having to temporarily close because their employees are getting sick. Tyson’s has closed at least four plants (source) and Smithfield has closed at least that many (source).

In simple terms, we have less meat being processed.

How will that affect the meat market? Empty shelves? Potentially... but there are two responses which could reduce those shortages.

The first – increased prices.

At the price of pork prior to COVID-19 there was neither excessive meat on the shelves or people waiting in line to buy it. Then suddenly there is less pork available as factories have to shut down. As that happens, suppliers increase prices (and savvy consumers could offer higher prices) because the same number of people are not going to be able to get the same amount of meat at that old price.

What this amounts to is to higher prices. Higher prices are exactly what we are seeing. One store in Texas reports some meat prices increasing 100%, although most price increases are not that extreme (source). According to the BLS, meat prices rose 3.6% between March and April of 2020.

The second response by suppliers (specifically grocery stores) is to put a limit on the amount people can buy on a single trip to the store. Why are they doing this? With higher prices, fewer people will want to buy meat…. True, but...

As we saw with flour and yeast (and toilet paper), people will hoard meat. Yes, they will have to pay higher prices for it, but some people are willing to do this. What grocery stores are essentially trying to do is to limit spikes in demand from customers who fear there won’t be meat to buy in the future.

These limits also mean that the price has not reach equilibrium (quantity supplied equals quantity demanded). If the price rose even more, then people would buy even less meat until the stores would not have to place a limit. Why might the grocery stores not increase the price more and instead place a limit: it is likely about a desire not to take advantage of customers. Just like after a natural disaster, gas stations are not allowed to increase the price because it would be considered price gouging. Grocery stores don't want to be (or at least appear to be) price gouging consumers.

So, to review: 1) decreased supply of processed meat resulting in higher prices AND 2) grocery stores limiting the amount of meat people can buy to help curb spikes in demand.

The interesting (and unfortunate) twist in all of this is that while meat prices are high, farmers who usually sell their cattle are hurting. Why is this?

The disruption in the meat processing factories is limiting the demand for chickens, pigs, etc. Farmers are wanting to sell the animals they have, but there just aren’t enough buyers (the buyers in this case are the factories who process meat). What that amounts to is excess animals. In economic terms: a surplus. So… they are having to put some animals down before they can sell them. (There are, not surprisingly, people taking issue with this, but I’m not going to express an opinion on that.) The farmers are hurting financially as they spent money raising these animals with the intention of selling them but are no longer able to.

So, all in all, we have this strange situation where the price of meat is high but the farmers that raise the pigs, chickens, and cows are losing money. It’s because of a disruption in the middle-man – the supplier of meat to grocery stores who is also the purchaser of meat from the farmers.

Kolaches

If you do happen to get your hands on some pork, I recommend making these Kolaches from The Brewer and the Baker. Kolaches, as we call them in Texas, are a breakfast treat consisting of bread covering sausage, bacon, eggs, etc. My favorite kolaches have sausage and cheese inside, although I’ve also made them with bacon and cheese.

If you want the whole history and real name, you can read the blog posting below…. maybe over a warm kolache.

I followed the recipe from The Brewer and the Baker exactly and they turned out wonderful! Enjoy!