This article was published in the June 2022 issue of Pet Food Processing. Read it and other articles from this issue in our June digital edition.
Headlines of Pet Food Processing articles over the last year have highlighted increasing pet ownership, expanding pet food sales, exciting developments in production and packaging, and escalating pet food exports — all harbingers of a growing, robust sector. But tucked in amongst the forward-looking stories about new ingredients and expanding opportunities are headlines that speak to the challenges of pet food manufacturing. Writers mention complications with ingredient procurement, packaging sourcing, finding and retaining employees, managing freight, and potential risks to the availability of meat and poultry products due to livestock diseases. Regulatory hurdles also hamper some sectors of the pet food industry.
Certainly, the COVID-19 pandemic has contributed to the problems faced by many manufacturers, but most of the issues predate March 2020. What is the root cause of these problems? What have businesses and federal and state governments done to address the shortage of truckers, employees, ingredients and packaging? What are the forecasts for recovery and what are ongoing (and new) stressors in the pet food aisle? And perhaps most importantly, what is being done to address these challenges?
The bottlenecks stifling transportation are not new — they have been developing for years. At a recent American Feed Industry Association (AFIA) conference, Andrew Hwang, manager of maritime business development and international marketing at the Port of Oakland, explained that some of the challenges ports have been experiencing have been going on for years and were only exacerbated during the pandemic. These trials include things such as: ships getting larger, meaning more cargo needs to be unloaded, yet there is less space for them to dock or turn around; the need for modern cranes that can operate at higher speeds, given older cranes can’t support new vessels; traffic congestion; lack of parking for truckers; and more.
Many ports are currently conducting studies on land use, transportation issues, truck operations/container parking, economic impacts, utility infrastructure and environment/air quality — to evaluate what they will need in the future. Long-term investment is needed to truly solve these issues.
The American Trucking Association (ATA) reports that there is a current shortage of 80,000 truck drivers across the country, up from a shortage of 60,000 drivers heading into the pandemic. Increasing wages are helping to ease the shortage, but skyrocketing fuel prices continue to plague the sector. In 2019, the median salary for truck drivers was a bit over $45,000 per year; it now stands around $56,500. The ATA estimates average pay for truck drivers has increased more than 25% since 2019. Recently, Walmart announced its starting pay range for new truck drivers is between $95,000 and $110,000 compared to the $87,500 average, which new drivers were paid last year.
Over 100 companies have responded to the US Department of Transportation’s (DOT) reduction in red tape and have developed registered apprenticeship programs. Similar measures have encouraged an increase in the issuance of commercial driving licenses by state DOTs. The Safe Driver Apprenticeship Pilot Program removed obstacles for drivers under the age of 21 to safely explore trucking careers, including interstate driving opportunities.
While the wage increases and regulatory measures may reduce the shortage of drivers in the near term, when coupled with increasing fuel costs and the normalizing of demand for consumer goods, the long-range forecast for trucking remains uncertain.
“Constant labor issues and a shortage of cargo containers to move bulk materials are creating challenges on manufacturers and suppliers of packaging supplies,” wrote Louise Calderwood, American Feed Industry Association.
The AFIA supported the federal response to congested ports through passage of the Ocean Shipping Reform Act, which will make it more difficult for ocean carriers to refuse American goods loads that are ready to be shipped from US ports. The act requires carriers to prove they’re being reasonable when they levy late fees for cargo, prohibit carriers from unreasonably refusing to load cargo at US ports, and gives authority to the Federal Maritime Commission to launch an investigation into a carrier’s potentially questionable business practices.
President Joe Biden signed the Ocean Shipping Reform Act of 2022 into law on June 16, following the US House of Representatives’ passage of the bill on June 13.
It is also hoped that the $1 trillion Infrastructure Act will have a noticeable impact on the economy and transportation in the short term. The law commits $550 billion to transportation projects, the utility grid and broadband. It also invests $110 billion in roads and bridges, along with $65 billion for high-speed internet. All of these public assets are essential for maintaining modern business.
Finding and retaining employees
Economies are reopening from COVID-induced lockdowns amid widespread reports of employers unable to find the workers they need. Across the globe, employers are challenged to meet their workforce needs. The problem isn’t unique to the United States; the United Kingdom, Canada, Australia and parts of the European Union are facing similar shortages.
Employers in the United States added a record 6.6 million jobs during 2021, an increase unseen since 1976. A combination of rollout of the COVID vaccine and passage of the massive $1.9 trillion pandemic relief package signed in March 2021 have contributed to the surge in new jobs. The unemployment rate is hovering around 4%. According to the US Bureau of Labor Statistics, the pay rate in manufacturing jobs is inching upward from $26.69 per hour in March 2021 to $27.96 per hour in March 2022.
But despite all this optimism, employers are still scrambling to fill positions in all aspects of pet food manufacturing. The AFIA interviewed animal food industry experts for their input on the topic and a key takeaway was that the industry must ensure employees are paid fairly, overtime is equally shared, employee relations issues are successfully resolved, and we don’t forget that people are our most important asset and to treat them as such. Pet food companies participating in a panel discussion at the recent AFIA Pet Food Conference also shared that accommodations for family needs is an essential component for retaining employees.
Animal fat supplies are tight in the marketplace. The recent Institute for Feed Education and Research (IFEEDER) pet food consumption report, conducted in 2020, indicates that beef and animal fats are the fourth- and fifth-largest categories of animal ingredients in pet food by volume, with more than 300,000 tons used each year combined. As fuel refiners add “renewable diesel” to their product mixes, they’re buying up stocks of the fats used to process biodiesel, including animal fats. Increased diversion of these ingredients into biofuels over the last year has driven up global prices for all classes of animal fats.
Animal diseases are impacting the marketplace as well. African swine fever (ASF) has been top of mind for industry members and government officials alike since its emergence in the Dominican Republic last July. The US Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) had already been preparing for a “what if” ASF outbreak situation. However, efforts have significantly increased, and all stakeholders are engaged.
Of particular concern to pet food exporters are implications for the APHIS Veterinary Services 16-4 form, required for the export of animal products, which states that ASF and other diseases do not exist in the United States. Almost all pet food and treats are exported using the VS 16-4, which has been negotiated into existing export protocols. In the event of an ASF outbreak, the VS 16-4 would become invalid because the United States would no longer be able to claim ASF “does not exist” in the United States. Currently, this would stop the export of pet food and treats containing any animal products, not just pork. The AFIA is actively working with APHIS to address the necessary changes to the VS 16-4 form to maintain export opportunities for pet food and treats.
Meanwhile, the current outbreak of highly pathogenic avian influenza (HPAI) across the country is concerning because it could further reduce the availability of poultry-based ingredients in pet food if the virus continues to spread and infect more commercial poultry operations. Outbreaks of HPAI in Canada are already limiting imports of ingredients to the United States from some Canadian provinces. Furthermore, the outbreak has a negative impact on US exports containing poultry products. APHIS has regionalization agreements set up with individual countries, but they are inconsistent. Many countries refuse to recognize both World Organization for Animal Health (OIE) standardized regionalization protocols and the approved mitigation steps for pet food products. One bright spot is that China is agreeing to its commitment made during the phase one trade agreement and following the regionalization protocols. The AFIA is engaging with APHIS to provide scientific information where necessary to help support the safety assessment of pet food and pet food products to regain market access.
“The war in Ukraine and sanctions on Russia will have an additional impact on ingredient availability in the United States,” wrote Louise Calderwood, American Feed Industry Association.
The war in Ukraine and sanctions on Russia will have an additional impact on ingredient availability in the United States. Europe is already feeling the effects of limited availability of some raw materials, such as sunflower oil, and there are also concerns relating to white fish and wider impacts on the global grain markets. Disruption to logistics and the availability of Russian fertilizer are creating a shock to the market. Ukraine is the European Union’s fourth-biggest external provider of food. The EU has traditionally received over half of its corn imports, around a fifth of soft wheat imports, and a quarter of its vegetable oil from Ukraine.
The problems affecting pet food manufacturers are also hitting the manufacturers of packaging materials. Supply chain disruptions continue to affect the food and packaging industry, with limited supplies of packaging materials, primarily glass, containerboard, cardboard and aluminum. Constant labor issues and a shortage of cargo containers to move bulk materials are creating challenges on manufacturers and suppliers of packaging supplies.
The industry is seeing some points of recovery. In 2021, the Texas ice storm and Gulf coast hurricanes knocked out a significant portion of production capacity and drove prices up 30% to 50%. Despite an increase in production expected later this year, resin prices in the United States remain high — the result of strong demand, supply chain issues, higher feedstock costs and the war in Ukraine.
The media is reporting shortages of canned pet food and one of the underlying causes of empty spots on store shelves is China’s power crisis. The aluminum used to package canned pet food requires magnesium to harden the alloy. With soaring electricity prices threatening to shut down entire power grids in certain regions, the Chinese government is reducing its energy-intensive magnesium production and therefore reducing the manufacture of aluminum cans necessary to package pet food. Difficult-to-source supplies of other raw materials (e.g., silicon), tariffs and spiraling natural gas prices are adding to the challenges of aluminum production. US aluminum producers were warning of the shortage last year and don’t expect to see the pressure to ease through the rest of 2022.
Federal regulatory actions
On Feb. 7, the US Food and Drug Administration (FDA) announced that routine inspections would resume and, during a webinar with AFIA members in April, staff from the FDA’s Center for Veterinary Medicine indicated that they intend to revert to unannounced inspections. This move is made despite the improved efficiency of the inspection process for regulators and the pet food industry alike when inspections were pre-announced as a safety measure in response to the COVID-19 pandemic.
Given the interruptions to inspections brought about by the pandemic, it is difficult to deduce inspectional patterns and trends, but there are a few things the pet food industry can expect. The focus on food safety is increasing and comprehensive inspections will continue. While comprehensive inspections — which may include the regulations for bovine spongiform encephalopathy (BSE), current good manufacturing practices, Preventive Controls for Animal Food, sanitary transportation and foreign supplier verification — may take longer and the scope may change during the inspection, they should reduce the total number of times that inspectors are on site at pet food facilities.
It appears the federal government is suffering from some of the same labor shortages as the private sector. It is always a struggle to obtain the required APHIS review of pet food exports to Canada and labor shortages within APHIS are slowing the process even more to get the inspections and paperwork completed on time.
Manufacturers are also running into issues with the US Fish and Wildlife Service, including the timeliness and burden of having to document any game being exported in pet food products as well as obtain several types of permits. Outdated regulations have caused some manufacturers many challenges that they reconsidered including some wild animal ingredients in their product lines.
In spite of the challenges facing all parts of pet food manufacturing, store shelves still have myriad options for feeding pets and meeting consumers desires for pet treats and snacks. Some of the issues, such as transportation and packaging, should ease over the coming years while others, like human resources and regulations, may continue to plague the industry well into the future. What is certain is that pet food businesses will continue to evolve and advance in the development of new foods for pets.
For more regulatory news affecting the pet food market, visit our Regulatory page.