Don't Miss a Beet

From Farm to Shelf – COVID’s Impact on Global Supply Chains

November 03, 2020 Kermit Nash, Jonathan Havens Season 1 Episode 1
Don't Miss a Beet
From Farm to Shelf – COVID’s Impact on Global Supply Chains
Show Notes Transcript

In this episode, host Jonathan Havens speaks with Kermit Nash, both of whom are co-chairs of Saul Ewing Arnstein & Lehr’s Food, Beverage and Agribusiness (FBA) Practice, about how the COVID-19 pandemic has disrupted the production and distribution of food and beverage products—from dairy farms having to dump milk that would spoil before it reached its destination to disruptions with food supply going to schools, conventions and restaurants. Kermit addresses some positive impacts on the industry, such as how sourcing local food and organic/better-for-you food products have really flourished during the pandemic and how we saw direct interaction among those on the regulatory, production and consumption sides in pivoting from large bulk packaging to smaller packaging.

Jonathan: Thank you so much for joining us for the first installment of our food, beverage and agribusiness podcast series, "Don't Miss a Beet." We appreciate you entertaining our feeble attempts at lawyer humor with the title of our podcast. My name is Jonathan Havens. I'm the co-chair of both Saul Ewing's Food, Beverage and Agribusiness Practice and the Firm's Cannabis Law Practice based in our Baltimore office. I am honored to be joined today by my partner and my fellow Food, Beverage and Agribusiness Group co-chair Kermit Nash, who is based in our Minneapolis office. So a quick rundown for what we're going to be talking about today. Kermit is going to share his thoughts on the COVID-19 pandemic, how it has impacted the agribusiness industry and where he sees the industry headed.  Before we jump into those meaty topics, no pun intended, pun somewhat intended, Kermit, I'm curious to hear how you first came to work with agribusiness clients. 

Kermit: Well, good morning, Jonathan. Thanks.  That's a good question.  I'm a recovering farm kid and so I was introduced to agriculture probably sooner than I even realized. And there's something about being in a farm environment. You've heard the adage, you can take the kid off the farm, but you can't take the farm out of the kid. And that was certainly true for me. When I finished law school, it became evident to me that now it was my network still largely in agriculture. But, if you had to pick an industry where there would always be demand for key services, as well as some type of a market where people are always needing something, it was going to be agriculture. So whether it be food production, processing,  supply chain issues and even regulatory issues, this has been probably the most rewarding type of practice I could have ever imagined. Yet, not being on the farm. So we joke that I'm still getting my revenge by being involved in agriculture. I'm just not sitting on the tractor every day. 

Jonathan: Got it. That's great. So two things that you and I have discussed throughout the pandemic, and it's hard to believe that we've been discussing these issues since  leading into March, starting really March in earnest, but are supply chain issues, supply chain considerations, and how the agribusiness sector is particularly vulnerable to COVID because of the in-person nature of the industry. So what do you think COVID has taught us about global supply chains and maybe supply chain vulnerabilities? And I know obviously we're in the middle of this, so it's hard to necessarily step back and learn lessons, but  we've talked about this issue before. Just what are your initial impressions about what COVID has taught us about the global nature of supply chains? 

Kermit: Yeah, I think that's a good place to start. And just a general observation, I think we're still at the very tip of the iceberg in discovering what the impacts really are. Any student of history would understand that all great  military leaders are only as successful as their supply chains.  And so if you're able to disrupt a supply chain of a great army,  you're going to be more successful then probably the larger of the armies because it's all about getting supplies to where they need to be at the right time and the right place in the right manner. So I think there's a lot of discussion still happening today about how did this happen and lessons learned. And I think it might be a little too soon to start pointing out silver linings, but I do think we need to talk about some of those things because we still have a largely disjointed supply chain. And in our work, we see folks from production all the way to the last mile and because every single element of that is going to have some type of legal challenge, but certainly business challenges. And so from our standpoint, we see those disruptions as being something that although the food supply chain has been around since the beginning of time, how products get from, whether it be the farm to the fork or anywhere in between, has changed dramatically. So today I would say it's still largely disrupted, although there's been a lot of really unique things that have happened both on the regulatory side, as well as how the market adapts.  And one of the things that I've always just marveled at is that if you want to see creativity and agility, just look in the agribusiness market because farmers and those who are in production have an uncanny way of trying to repurpose and redirect products to where they need to go. People still need to eat.  And even though a lot of the disruptions have occurred where the product is going to end up, somehow agribusiness, farmers and everyone in between have found a way to get products where they need to go. So it's hard to talk about this without mentioning kind of the international aspects of this. And we can get into this a little bit later. But I think we have this myopic view that supply chain disruptions only impact whether or not we get what we want in our refrigerator or at the local restaurant on the curbside. That's not it at all. A lot of disruptions that we're still encountering are happening right now as the beginning of a school year, in the fall where a lot of that food supply would go into schools, hospitality, conventions, restaurants, and that's still been very disruptive. So a lot of the learnings and the things that are happening are still being unwound before us. 

Jonathan: That's great. So just the other day, you and I were talking about meat and poultry processing, and how those industries have been hit particularly hard by COVID, again due to the in-person nature of the industry. What are you hearing from clients and friends about how they're remaining open and how they're protecting their employees? I know this is a bit of a sensitive topic because of liability issues and many in industry are wanting Congress to go that extra mile to protect those essential businesses that have to show up in person. They don't have any choice. Right? If they're not in person they're not operating. So I know that's, I know it's a lot, but just what are your general thoughts about meat and poultry processing during COVID and what are you hearing from clients and friends? 

Kermit: Yeah, there's a catharsis in this. And I think it's part of the lessons learned exercise that we're all starting to go through. And that is there's no industry that it's quicker and more agile in adapting to technology and improvements, upgrades, lean, you name it. The problem is that in some sectors, especially in agribusiness and the protein side, it's still very much manual. There are great machines and things that can be incorporated into certain types of processing. But at the end of the day, a lot of that work is done on the line. A lot of it is done manually. And so that close interaction between employees, even vendors who may be coming into environments where they have to be in close contact, even all the PPE supplies and masking and distancing for as much as people want to keep themselves safe, they're still going be personal interaction. So I think in retrospect, when all is said and done in this, a lot of these spikes in COVID that are happening in certain rural areas where there might be a meat packing plant or production, those things may never be solved as quickly as perhaps canneries or having the ability to process food and mechanically without having human interaction. So we've seen some unbelievable efforts on the part of business owners to keep their employees safe, and despite those efforts, you still have people are going to get sick. But that being said, they are deemed to be critical infrastructure and so the food businesses have to stay in business. And so oddly enough, even though neither you or I are labor or employment lawyers, this has become a key issue for us in trying to counsel clients and figuring out how do we stay open. How do we keep providing products to our customers and how do we keep our people safe? So some of the insights are still developing, but following the CDC guidelines have been fantastic because some of these things as though they're common sense, and we would expect that everyone to do it, some things are just a little bit too difficult when you're interacting inches away from each other. 

Jonathan: And, I teed up the issue about liability and employers who are staying open. I know something that you and I talked about a few days ago was legislation and liability protection for employers. Any updates to share on that front? Or is it still a fluid situation and we're still waiting to see  what sort of solution Congress advances, if any?

Kermit: I think it's still a little fluid and we're planting a flag in the ground when we do this podcast, I think it's going to have a lot of shelf life. But as of today, Congress has not passed the next phase of the COVID Act or even a phase two of the CARES Act. But one of the things that I think both parties are agreeing on is some liability shield. So the proposed liability shield can go back to December, 2019 when the first instance was identified, but then carry forward for five years. The reason why that's so important is employers need to have some confidence that if they're going to provide all the safety measures that have been provided to them, that they have to make sure that they're not going to be sued simply by bringing people back to work. And I think that's particularly true in food and agriculture, but more broadly if you're in a manufacturing setting and even though you're not on the frontline of food, but you might be in packaging, processing, distribution, things like that. That liability shield is going to be really important. Just like worker's comp was many years ago when that was put in place, giving not only workers, but employers, some understanding of how the rules of engagement are gonna work. 

Jonathan: That's great insight. And I think we both know that the amount of litigation that occurs particularly in the food, bev and agribusiness sector is significant. It takes a lot of attention away from your day-to-day operations. And so I think especially stakeholders in these sectors are keenly interested in what Congress is going to do there. So I appreciate that insight. So it's hard to see anything positive from COVID. And I certainly don't want to necessarily talk about silver lining, but hopefully we can talk about some things that might be positive or lessons learned that make these sectors better in the long run. But you know, there seem to be opportunities, maybe they're medium term, longer term opportunities, but there seem to be opportunities in the agribusiness sector relating to COVID and I'm more thinking about attractiveness to investors. What are you hearing from clients, either operators or investors or both about potential opportunities as we come out of COVID? What are people looking at? What trends are emerging? Again we're somewhat in the early stages of this, we're still in the throes of the pandemic so it's hard to pull lessons from this, but we are starting to see some investment opportunities emerging, so I'm wondering what you're seeing those are. 

Kermit:  I think the question is insightful because we are starting to see something which is true in nature is anytime you have devastation, you know, up from the ashes is new life. And so it seems like there's new opportunities sprouting out of this even now. And so just a couple of top of mind, I'll go all the way to kind of the last mile and that is the ability for these restaurants and food suppliers to be able to interact directly with consumers. And so that last mile always was very complicated, which is how do you get your products? You know, is it the local grocery store or is it the local co-op? Do we have some products delivered to us? And in which case, those are all good. But what we saw is that local farmers and local producers, all of a sudden we're not only in vogue, but they were absolutely critical, which is if you need to get staple products, you weren't going to get it from your normal distribution chain. You had to get it local, so sourcing local is something that has come full circle where before it was something kind of niche-y and cool, like going to the farmer's market, buying something maybe organic, or you can go and see where your products came from. It became necessary. The other thing is that the organic and the better for you markets did extremely well through the pandemic. And typically what happens when slightly higher or sometimes much higher products priced in grocery stores kind of get left on the shelf because people are making economic decisions as opposed to just consumption decisions. And so they'll go buy the 79-cent dozen eggs versus the $4 dozen eggs because they don't need organic. They just need eggs. Those markets did extremely well through the pandemic. And so I think it's more than a silver lining. It means that people, even though they might be a little compressed are still trying to buy products which are better for them and feed their families with better products. The other thing I'll just mention, because I think there's a host of things, is that investors are looking for ways that you can provide not only sustainability and the products, but really have the flexibility in being able to shift products where they need to go and at the right time. And so they're looking for businesses that are more nimble, meaning yes, you can have a really good supply contract for multiple years going into a school district or the government or somewhere like that, but they really believe that the local market being able to get into vending directly, supply, letting people have better interaction, and even being able to pivot from package size, something as simple as, hey, can we break this down, or is there an opportunity for us to use slightly different ingredients if the global supply chain may be disrupted and the government actually responded and said yes. So to me, I'm encouraged because for the first time in a long time, you saw that direct interaction with those who are on the regulatory side with those who are in the production side and those who were in the consumption side. That doesn't happen very often. So from our perspective, you can look at that and go, wow, it's funny that a crisis should bring those three legs of the stool together, but they did. And they did it in a very remarkable way. There's probably some people who deserve credit, but they'll never get credit. From our standpoint, some things actually worked out pretty well. 

Jonathan:  Yeah. The notion of throwing out the playbook because the playbook just doesn't apply to the current situation. I think there can be synergies. There can be efficiencies that are leveraged. I think the examples that you mentioned are great ones. So last topic, we think about supply chain and delay from source to shelf or source to table. We heard in the early throes of COVID, in March and April, dairy farmers that were essentially having to throw away supply because they just couldn't find a home for it, or it couldn't be transported quickly enough and it was spoiled. Or we heard about perishable commodities and again, similar issues. Have we learned anything, have those situations smoothed out? Are they still challenges? What are you hearing on those fronts? 

Kermit: Again, very insightful question and some of the examples that you listed are those that I use when people ask this question, even in just casual conversation about what's going on. We saw that in states like Florida where you had producers dumping milk, yet there was milk shortages just 10 miles away where people needed it the most. And you just kind of remark and say that can't happen. You can't have protein producers stopping taking animals and having animals destroyed and never get to market when market shelves are completely empty, when people are willing to buy whatever they can just to make sure they've got a supply and granted a little bit of that was driven by panic. I think there are still challenges. And I think that story is going to continue to be written. The Congress did do a couple things and they did a couple of things right, which was allowing people to pivot from large bulk packaging into smaller packaging. The dairy industry is still working out some of the kinks that this produced, but prices haven't been great. There's a number of much larger issues that a pandemic actually was able to highlight even further that maybe the issue wasn't the pandemic, but the pandemic providing a light where now people can look at and say, so those supply chain issues have been around for a long time. Now they absolutely have to be fixed. I think the other thing that people don't realize is that we're still in phase one of a large ag deal with China. In the midst of everything, we are now seeing record amounts of soybeans and corn being sold to China because a big portion of our food supply and process food supply actually comes back from China. The ability for us to think locally about, okay, so we don't have products coming in from overseas. And oh by the way, we still have products in the United States that can't go to other countries because there are bans on certain types of products. Taiwan still doesn't allow U.S. beef and pork. So the world got really small,really fast. So our ability to look locally and say, how do we source locally and get it to the markets where it needs to be is getting better. I don't envy the current administration because they had to fix problems that have been around for a long time and the next administration, whoever it is, is going to have to continue to fix those problems. But hopefully it doesn't take a pandemic to shed more light on the issues where we need to streamline and bring efficiency and better products to the market. 

Jonathan: Well, I think that's  the time we have for today.  I'm excited  to kick off this podcast series and really appreciate you, Kermit, being our first guest. I think others have a pretty high bar to meet in the conversations. What I would invite our listeners to do is if you have questions, comments, things you'd like us to discuss, things you've been hearing about but would like fleshed out, we would love to hear from you so we look forward to your feedback. We hope you enjoy this first episode and be sure to tune in for future episodes. With that we will sign off and thanks so much again, Kermit,really appreciate it. 

Kermit: Thank you, Jonathan.