Is the Turning Point for the Pork Industry Next Spring?
Everyone has their eye on next spring to be the big fork in the road or the big reveal as to how our current situation in the U.S. and global economy will find its pathway to a resolution (of inflation primarily). It is estimated that the U.S. portion of savings which was accumulated during the two years of COVID-19 restrictions will be exhausted at that point (even though the rate of savings is negative now, the stockpile is still there). This will help trigger the capitulation of consumers which keeps demand from cooling down under the weight of sequential, large interest rate increases and rising unemployment.
Remember payphones?
Employment, especially in the pork industry, is in short supply already and is resistant to increases largely due to the other alternatives that offer better salaries, possible work-from-home and better work environment than a hog building. In addition, the sentinel rate of $15.00/hour which was pushed on a national basis as a “fair” wage and therefore the “correct” rate of pay for minimum wage has as planned, created the benchmark which many industries are simply unable to match. This of course is leading to automation and the proliferation of “phone trees” and every other possible way to eliminate workers.
Stroll through any of the big box department stores and you will find very few cash registers with someone checking people out. Not only are most of the aisles for leaving the store self-service checkout, but many companies have created a phone app which the customer uses as a portable cash register to swipe the bar codes and pay through a saved credit card avoiding even the self-service checkout lanes. Change is coming fast. Remember how quickly payphones disappeared?
There is no doubt all of this is changing the future of animal agriculture. The glory days associated with constant incremental growth and periodic explosive growth are likely slowing and dramatically coming to an end. Even in the reset of a new business cycle coming near the end of next year (we hope), it seems plausible that both costs of new investment and costs and conditions of labor will prevent animal agriculture from the pattern of growth that it has enjoyed since the late 1980s.
For instance, the new Wholestone Foods processing plant that’s under construction will create a buy up of production companies by existing packers that want to remain in the business long term. Why? When the kill flow opens in the new plant, lots of hogs will no longer be available. In the last round of new plant openings a few years ago, existing packers not only bought some companies, but they also negotiated expansions for long-term contracted pig suppliers, including providing some of the capital or whatever was needed to move the deals along. Will they be able to do this again or will we see an older plant or two close?
A new generation to accommodate
We are finally at the point where differentiated pork and pork products, such as antibiotic free and humanly raised, are no longer tiny niches, albeit still niches. This portion of demand will make the investment in big throughput, generic pork systems less profitable if expansion at the traditional levels are attempted. Keep in mind that as boomers fade, millennials will be the dominant consumer (in the U.S.) and their philosophical counterparts elsewhere. They do not prize the same demand attributes of their parents and grandparents. They are more likely to demand climate-conscious production as well as a host of other attributes which are not really about the meat or taste. That’s why the pork complex is scrambling to measure sustainability, for instance.
The impact of declining global per capita income
Don’t bother looking at the “potential demand” in countries which do not now consume pork at very high levels but have either large populations or growing populations. It is not the number of people that generates demand, but rather the level of (per capita) income. Although global income levels were rising in the recent past, the COVID-19 disaster and its follow-on “solutions” have dramatically pushed the consequences on those groups least able to manage them (the lower middle class and the poor globally).
We expect a decline in global per capita income for a few or possibly several years unless governments simply establish income levels and send it to people. Most people believe Asia will become the new global demand center with rising incomes and some “passes,” at least initially, on production methods which do not directly support food attributes.
The good news is pork production systems of the future will be much more technology-driven, with lots of automation. The biggest change will be that these systems will be driven by big data methods. This transformation will not be about expansion as much as it will initially be about efficiency while producing enhanced food attributes. Read better tasting and more nutritious food which supports sustainable production. We believe it will be glorious if it turns out anywhere near what we are currently imagining and working on.
More from Farm Journal's PORK:
Inflation: How Can We Tame the Beast?
