Omicron’s Effect on Food Demand and The Supply Chain
Social media posts are showing empty store shelves. OpenTable reports dine-in restaurant meals are down 22% in late January compared to pre-pandemic data.
Dr. Michael Swanson, ag economist at Wells Fargo, says the COVID-19 pandemic continues to reshape food economics. The omicron wave is bringing its own undulation to the trends of where and how food is consumed.
“At the beginning of the pandemic, we saw a major drop at dine-in eating—more at home consumption,” he says. “Then we got away home consumption with a very strong robust restaurant recovery, but it's really kind of plateaued and softened just a little bit in the last couple of months with Omicron.”
Swanson says grocery stores are showing above average growth currently.
“Whereas, for many years we were seeing a shift away from spending for at-home eating, but now that is growing at two or three times,” he says. “I wouldn't be surprised as we put Omicron behind us that we're going to see a restaurant recovery in the summer. But right now the supermarket is still doing quite well on a historical basis.”
Swanson says shoppers are seeing higher at-store prices as food inflation is tallying in at 6%, compared to normal year-to-year rises of 1%.
“This is not a food inflation spike driven by a lack of ingredients. We certainly have great crops in the United States. We owe the farmers such a debt of gratitude when it comes to their ability to produce,” he says.
Rather, the increase is prices are coming from food manufacturing and distribution levels.
“We're still down about two and a half million people in total employment. So as we see people come back into the labor market in 2022 that's going to help mitigate some of the problems we're having with supply chain. It’s going to allow factories to run better. It's going to allow packaging prices to come back down. It's going to give a lot of restaurants better staff. So I think the food inflation spike–which has been primarily driven by that labor situation–is going to be a little bit self regulating.”
Regarding shortages that are photographed and shared on social media, Swanson says those are spot shortages–not widespread or long term issues.
“The American food chain is still very, very robust. And there are spot shortages and it's easy to see them and they're true at that point in time and that location, but it's not the same thing as the entire system having an issue,” Swanson says. “When we see them, it's probably more a weather event such as a blizzard or an ice storm somewhere and the trucks couldn't roll that week, or it is a particular brand’s issue with packaging.”
Regarding imported fresh fruits and vegetables—both their quality and quantity, Swanson says there have been issues, but there has also been development of new dedicated resources which are shining now.
“Mexico has become a much bigger part of our fresh fruits and vegetables supply chain. There's a lot of dedicated logistics with cold storage, trucks, and the brokerage. It is impressive they know how to move this product and they're moving it well,” he says.
He shares the example of avocadoes, which have only increased in price 1%.
“Avocado and guacamole have become really popular. Most people should know but maybe they don't that most of our avocado is coming from Mexico and Peru. And we've seen a lot of expansion down there,” he says.
He does highlight that container shipments have been more exposed to issues.
“Things that come in and container, especially through the Long Beach/LA system, there's a lot more problems there,” he says. “I was talking to a citrus packer late last year and they've had a lot of fruit end up at Asia that wasn't considered acceptable because of the delays in transit. So yes, we're seeing that on our receiving side especially coming from Peru or Chile in a container.”
