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Drivers of consumption volatility

Article originally written by Peter Haydon for Australian Pork Newspaper

The COVID-19 pandemic has significantly disrupted our lives in recent weeks and is causing a high degree of demand and supply volatility. For our industry, this is in turn is causing a high degree of volatility, particularly for uncontracted pigs. As I see it, there are five causes to the short-term situation.

1. Grocery shopping increased as people substituted food eaten out-of-home to in-home. In the pre-pandemic stable market, about 74 percent of food was bought for in-home consumption and 26 percent for out of home. Consumer behaviour changed rapidly and in the main two weeks of madness, as cafés and restaurants shut, that changed to about 90 percent in-home and 10 percent takeaway (although that’s probably risen to about 15+ percent now). So, substitution should have increased grocery food sales by about 22 percent. Nielsen data reveals that in the four weeks to 22 March, grocery dollar sales increased 34 percent, fresh meat 25 percent and processed meat 18 percent versus the same 4 weeks year ago. This change saw a rapid increase in retail meat sales, a little faster than I expected. The problem is, foodservice is a major source of demand for cuts like ribs and bellies. Restrictions in these stores haves impacted these two cuts in particular and that has driven down wholesale carcase value.

2. People bought more of the meat they are most familiar with. See chart below. These also tended to be mainly more of relatively cheap cuts. So, consumers now have higher volumes in stock at home.

Graph showing percentage contribution to total meath volume growth by protein cut. Beef mince driving the freezer stock up followed by chicken breast; bacon in the top 5.
APL calculation based in part on data reported by Nielsen through its Homescan Service for the meat category 4 weeks to 22/03/2020 vs year ago, for the total Australia market, according to the Nielsen standard product hierarchy. Copyright © 2020, The Nielsen Company

3. There were weeks in the period from March to Easter where grocery sales were 35 percent plus up on the same week a year ago, that’s when in-home stocks went through the roof. This is when the shelves were bare of any meat. That means people have some unfamiliar cuts and species in their freezers. That’s why APL has doubled versatility and “how to cook” activities to ensure people know how to use their pork and have a satisfying eating experience. This has included traditional media, but also podcasts, catch-up TV, YouTube, Facebook, Instagram and digital partnerships, to get our messages to consumers whilst they are trapped in their houses!

4. Like any balanced system, when the meat supply system is rocked by extreme actions, it responds by over-reacting. This, I believe, has undesirable consequences. Firstly, pigs and beef mince get pulled forward to satisfy demand. Everyone knows that has to end (people probably aren’t eating more), but no-one knows when. So, we are now experiencing a system that is over-supplying what was panic-bought in previous weeks. Secondly, we are experiencing in-home destocking to some extent. That may occur quickly, but also may occur slowly.

5. Some commercial players will see this change as disastrous and for others it’ll be an opportunity. Wholesalers that supply retail will see the opportunities at the expense of businesses that focus on foodservice. Some supply chains were able to flex very quickly, while others are still adjusting. During this time, with the added complexities of government COVID-19 restrictions, freight changes and border controls predicting supply flows will be difficult and prices for pigs will be volatile. That’s unfortunate given this time of year, when pork production improves.

For exporters, the near standstill of international plane movements has added further headaches. APL has been collaborating with exporters to keep those channels open. The world is still short of pork, we are trying to get more options for sales. We are looking to support further gains in international sales which showed growth in February in Vietnam, as well as Hong Kong and Singapore.

We are still investigating every option including potential government funded charity meat donation of roast pork for Foodbank and other similar organisations. The over-supply of some meat in the week commencing 20 April postponed those conversations, but we will have another go.

This is a challenging time for everyone, and the situation is evolving quickly. Our consumers are changing their behaviours, but we’ll keep working to help them get some pork on their forks.

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