Covid-19 and the protein industry

Gordon Butland

As Covid-19 spreads globally we start to identify the potential consequences, that can be divided into the following categories: demand, logistics and labor availability. It is important to monitor these issues, especially local and export demand, in order to make timely decisions that ensure uninterrupted production. Asian Agribiz asked Gordon Butland of G&S Agriconsultants Co Ltd, Thailand, for his thoughts on the evolving situation.

Demand

Firstly demand, and what is happening in the USA and UK are good examples. As quarantine measures and travel restrictions are voluntarily or compulsorily enforced, dining out is drastically reduced. Fast food outlets will close, but still operate drive through outlets and delivery services.

However, on March 22, 2020 McDonald’s in the UK has announced that it is closing all stores including drive-throughs. This will affect about 1,500 tons/month of further processed product from Thailand. It is likely that Brazilian beef and possibly some chicken exports will be affected. If stores in the rest of Europe follow suit the effect will escalate.

In 2019, Thailand exported 585,000 tons of further processed product of which 227,000 went to the EU and nearly 300,000 went to Japan. Total revenue was over USD 2 billion. Exports of raw product were 385,000 tons of which 119,000 went to Japan and 82,000 went to Europe.

A significant quantity was sold to other Asian countries outside of China and Japan. Shipments to China from Thailand are now back to normal, but the products imported by China, mid-wing, feet and bone-in-leg represent only 22% of the bird.

The maintenance of the European breast meat market is fundamental for the Thai industry.

“. . . as economies slow down or close completely, demand for protein will suffer.”

In Thailand, the economy depends significantly on tourism, and this is now reduced to almost zero. Shopping malls, restaurants, services are now closed, and tens of thousands of people have left Bangkok for the provinces. Street vendors will continue to operate normally, and this will help local demand.

Many Thais will have no income as there is no safety net put in place like in the USA and Europe. A sharp drop in domestic demand is expected and companies are now starting to reduce housing of chicks, and May and June output will drop.

There have been few deaths so far, but as the number rises, more and more of the population will not leave home. The short-term cycle in the industry is about nine weeks from setting eggs to finished product. So, in order to avoid incurring high costs, especially with feed, it is necessary to realistically forecast demand going forward.

Other countries in Asia are like Thailand in many respects, but they do not have to worry about export demand. As economies slow down or close completely, demand for protein will suffer.

Logistics and supply chain

China is a good example of the severe consequences of Covid-19 on the logistic chains. Ports became congested, as no labor was available to unload vessels and transport the products. Internally, feed could not be delivered to farms, leading to large losses, and ingredients could not be delivered to feedmills.

Thailand has a good road network and deliveries of raw materials to farms and birds to processing plants are not expected to have problems.

In Asia, the Philippines has the most complex logistical issues. Much of the breeding is carried out in Mindanao and the hatching eggs sent to Luzon. However, domestic flights are being cancelled as Manila is under lockdown.

“. . . a reduction in available labor across the supply chain.”

In India, 80 cities are in lockdown until March 31. The effects of this on food, especially chicken, consumption remains to be seen.

Currently ports in Europe are still operating normally but this could change if the spread of the virus affects port and transport workers who are healthy enough and can get to work. The availability of containers is also going to be a bottleneck in the immediate future as many containers have not returned from China yet. There are already additional costs for sea freight to many regions.

The availability of vitamins and key feed additives could be affected as many originate in China. Recently, Evonik, a major supplier of amino acids declared force-majeure for the delivery of ThreAmino, the third most important amino acid. However, there are no shortages currently.

Labor availability

Administrative staff can work from home and with today’s communication technology, they can be efficient. However, slaughterhouse and farm personnel must be present and involves an agglomeration of hundreds and even thousands of people who are in close contact with each other. In this instance, is not possible to maintain the social distance that is recommended. People must change clothes and shower in close proximity.

Most plant workers in Thailand live near plants and no disruption is expected, except if any employee is found to be infected.

So far there is no news of any plant in Europe, USA, Brazil or Thailand being closed because of an employee being tested positive. Hopefully this will continue. All companies are taking necessary precautions and implementing even stricter sanitary procedures than are normally in place, but as the virus can be spread by apparently healthy people who show no signs of any health problem, it will be surprising if no plants are affected, especially as it now seems that contagion can occur through the air.

As the virus spreads there will be an increase in workers opting for self-isolation, and this will lead to a reduction in available labor across the supply chain.

Conclusions

After the euphoric reaction to the benefits for the poultry industry from the African Swine Fever, Covid-19 has appeared and, at a minimum will reduce or eliminate many of the positives from ASF.

It is important to monitor all the issues above, especially local and export demand, in order to make the timely decisions that will certainly be needed.

Have you been experiencing supply chain difficulties?

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