Sonari Glinton:
In the spring and summer of 2020, David Saltz was on a mission.
David Saltz:
Without exaggerating, I went to every Walmart, every target I went to dollar stores, hardware stores. It was almost as if it was some sort of surreal joke being played on me.
Sonari Glinton:
This was no joke and he was not alone.
David Saltz:
I would run into people doing the same thing, looking at these bare shelves and standing back and squinting. And then I would say, "Where is all the cat food?" And the person would look over at me with these big eyes and go, "I don't know what in the heck is going on here."
Sonari Glinton:
It wasn't just cat food. All kinds of pet food had been in short supply and your pet's supply chain troubles start all the way, well, at the beginning. I'm Sonari Glinton on this episode of Now What's Next, an original podcast for Morgan Stanley. How a shortage of raw ingredients could change what our pets eat and what we eat in years to come.
David Saltz:
Hey, Tiger. You hungry? You want some food?
Sonari Glinton:
David Saltz is an IT professional. He lives in Auburn, Massachusetts. That's about an hour west of Boston. He lives there with his two cats. Frankie, who's not too particular.
David Saltz:
If I threw some dirt gravel on the floor, he'd eat it.
Sonari Glinton:
And then there's Tiger. She was a kitten when David brought her home.
David Saltz:
So I raised my daughter as a single father. And a couple of days after my daughter finished kindergarten, as her reward for being such a super student, we got Tiger. Well, my daughter is in college now and Tiger probably always bonded more with me, to be honest. We've been through a lot. 16 years is a lot of time together.
Sonari Glinton:
Over the years, Tiger lost some teeth and had trouble eating dry food. And after trying out many, many brands, David found a wet food Tiger would actually eat.
David Saltz:
If I dare give her anything else, she may take a bite or two of it. More often than not, however, she quite literally will turn her nose in the air, almost like a cartoon cat, turn tail and walk away. It's almost enough to make you laugh.
Sonari Glinton:
Almost. Almost, but it wasn't so funny the spring of 2020, when David couldn't find Tiger's favorite food anywhere. So what the heck was going on? And in many cases, what is still going on? As we've learned in this series, there's rarely a single supply chain problem behind all these shortages. In the case of pet food, canned pet food in particular, it started with demand. A lot of people got pets during the pandemic. In April and May of 2020, there was a 250% increase in Google searches on cat and dog adoptions. Now, those searches translated into about a 7% growth in pet ownership overall.
Sonari Glinton:
It's another example of unprecedented buying that stressed the supply chain. All those pets had to be fed. Chewy.com, a website for pet food and accessories, saw sales go up almost 50%. But other factors played a role as well. Labor shortages at manufacturing plants, not enough truck drivers to move food and ingredients around, a shortage of aluminum to make the cans, not to mention competition from an unexpected source that led to one of the biggest issues, a shortage of raw ingredients, something we'll get into in a moment. But David wasn't thinking about all that when he looked for Tiger's favorite food in those early pandemic days.
David Saltz:
I exhausted visiting every potential brick and mortar store, and I'm just going to estimate and say within 15 to 20 miles of my house. Tiger's a member of my family and during 2020, because it wasn't quite the year from hell enough for all of us, I actually also lost a couple of other pets. We lost our dog and we lost another cat. So I had that on top of me, without being able to provide Tiger, let's face it sustenance, I felt completely helpless.
Sonari Glinton:
Every now and then, he'd find a case of 24 cans, about enough to feed Tiger for maybe 12 days. But then there would be nothing again. And he set up stock alerts and checked the manufacturer's website and he even wrote them directly.
David Saltz:
Maybe they can tell me, "Hey, you know what? We did have a factory shut down for three months, but it just opened up last week. So you can expect that it'll be back in your stores soon."
Sonari Glinton:
When David heard back, the company directed him to specific stores nearby that should have had Tiger's food in stock. They didn't. Defeated, he decided to post to Reddit.
David Saltz:
Asking the world, "Anybody else in the same boat as me?"
Sonari Glinton:
And a lot of people were.
David Saltz:
I got replies from different parts of the United States, people geographically very distant from me, speaking about wet cat food in general. None of us knew what was going on. None of us really had an answer.
Sonari Glinton:
Pet food shelves were never completely empty, but certain flavors or brands could be really hard to come by or would surface unpredictably. David found the stock got a bit better at the start of the year, but still-
David Saltz:
I just cannot find a steady, a reliable supply.
Sonari Glinton:
The brand that makes Tiger's food was definitely not the only company dealing with these shortages, and Dana Brooks knows why.
Dana Brooks:
Absolutely. I'm Dana Brooks, President and CEO of the Pet Food Institute in Washington D.C.
Sonari Glinton:
Dana's had an interesting life. She grew up on a catfish farm and got a degree in agriculture. She moved to D.C. Over two decades ago to represent farmers, but pets have always been a big part of her life and she's seen firsthand how really important they can be.
Dana Brooks:
My mom was really struggling with the loss of my dad. And what motivated her to get up out of bed and to just truthfully to be alive was a pet.
Sonari Glinton:
That's true for so many of us. Dana had expected to represent farmers for the rest of her life until an opportunity came up at the Pet Food Institute, an industry group of pet food makers.
Dana Brooks:
The night before my final interview, my mom called and she said that her dog was not well. And when I got off the phone with my mom, I was like, "That's my why." I want to work there because nutrition, good health makes our pets live longer lives, and it's because of a pet that's made my mom live a longer, healthier, happier life.
Sonari Glinton:
Given your interest and your desire to help folks out, how has the last 18 months been for the pet food industry?
Dana Brooks:
It has been a challenging time for us. Just like in human food, we've experienced the same supply chain challenges, logistics ingredient supply.
Sonari Glinton:
Ingredient supply. Let's zero in on that wobbly link in the supply chain when it comes to pet food. There are a lot of ingredients and Dana says it's important to remember that while humans can eat junk food and then balance it out later with healthier food-
Dana Brooks:
Everything that goes into that dog or cat food in the can has to meet the nutritional needs for a complete balance for your pet.
Sonari Glinton:
So what is in a complete and balanced meal for a pet? Now I'm home holding a can of dog food and the label says beef, chicken, animal liver, meat byproducts, dried carrots, dried peas, potato starch, flavor, salt, vitamin, minerals, water. So let's start at the beginning, meat. Almost a quarter of livestock agriculture goes towards pet food. Yep. And the meat industry was hit hard by the pandemic. COVID shut down meat packing plants, closed restaurants and hotels, and those closures, believe it or not, had a direct impact on the raw ingredients that were needed for pet food.
Dana Brooks:
It wasn't that the meat wasn't available, it was that the manufacturers had to do changed the way they process the meat from being restaurant style or larger food service to home packaging.
Sonari Glinton:
Because we shifted from dining out to dining in, and that created demand to shock in the meat industry, which rippled over to pet food. So let's break down this part of the supply chain. A lot of meat products are typically channeled through restaurants and large scale food services. But during the pandemic, people ate at home, you know it, you did it. People started stocking up. I did. And actually we hoarded cheaper and easier to prepare meats like ground beef, pork chops, and chicken breasts. That shift changed the cuts of meat that were available to pet food processing plants and those plants weren't equipped to handle them.
Dana Brooks:
We may have to change out our manufacturing practice to take a different cut of the product to make sure that it can be processed in the same likeness as what was before. And that was an extreme disruption.
Sonari Glinton:
Changing something on an assembly line or a manufacturing line can cause huge delays. You don't change an assembly line on a dime. But it wasn't just shift in demand that shocked the meat industry, the labor supply changed as well. There was enough meat, but workers to process it got sick, plants closed. In May 2020, beef and pork processing was down nearly 40% over the year before. Labor shortages, ricochet from plants to transportation to warehousing and beyond. And then there are all the problems associated with one of the most important meats for humans and pets.
Dana Brooks:
Chicken. Chicken, chicken, chicken. Chicken is very good for our pets. They get the protein, they also get the... There's fat. It's a good product, but what happened was getting the chicken that we needed, it was a massive problem.
Sonari Glinton:
Demand for chicken soared, and reserves, yes, there are chicken reserves, are at the lowest levels in a decade. The supply of chicken was down in part because, well, extreme weather. Storms and record hold in the Midwest and south wiped out chicken crops and knocked out power in local processing plants. And then to pile on to all of this, there was a shortage of truck drivers, more expensive feed and shutdowns at plants. All of it made a hard time even harder.
Dana Brooks:
My heart hurts for the farmers, I'm from Arkansas, so we're a big poultry state, that when they couldn't get their product to market, they just lost their crop, you could say. And it's not like they could flip a switch and turn it back on. They've got to breed again.
Sonari Glinton:
Obviously, this affected the food that we eat as well, not just for our pets.
Dana Brooks:
I think a majority of people in the United States really didn't see that connection, agriculture, human food, and then pet food.
Sonari Glinton:
The impacts ripple throughout the supply chain and it gets more complicated when you factor in the ingredients that often come from far away.
Dana Brooks:
The minerals or some of the vitamins that are required, the bigger challenge for us is just getting them into the United States. So that'll go back to our shipping and transportation challenges.
Sonari Glinton:
And then there are also tariffs on some of those ingredients, the minerals and amino acids. So not only is it hard to get the ingredients, it's getting more expensive to make the pet food.
Dana Brooks:
Our ingredient prices have gone up two to three, and sometimes four times pre pandemic levels. So we are sourcing, but we're paying a price for it.
Sonari Glinton:
If you're my mom, who has a cat and a dog, and she's already complaining about the price of the pet food, are you passing that on to consumers? Or how do you-
Dana Brooks:
That's definitely not one to one. We're trying not to, but in some cases you just have to. Our margins are getting tighter. We want to make sure we have choice out there to meet anybody's pocketbook.
Sonari Glinton:
And that brings us to another ingredient on this label, flavor. We don't often think of flavor as an added ingredient. But in the pet food industry, the flavor often comes from fats and oils that are rendered from meat. And Dana says these fats and oils are now in high demand.
Dana Brooks:
We're going to be competing against the renewable energy sector, specifically renewable diesel.
Sonari Glinton:
That's right. Some of the ingredients that make your pet's foods tasty and nutritious, those same fats and oils will get used to make biodiesel.
Dana Brooks:
It's cleaner and is more efficient and there are refineries that are lined up to go online, I think in the next year. And when that happens, we're going to see a significant shortage in fats and oils in the United States.
Sonari Glinton:
You can make biodiesel by combining alcohol with vegetable oil, animal fat, or recycled cooking grease. But because we consider a lot of animal fat not fit for human consumption, that makes it substantially cheaper than vegetable oil as an ingredient for biodiesel. Dana gets the need for renewable energy sources, but she says the impending competition for ingredients has her worried.
Dana Brooks:
And it's not that we're not willing to pay more for the product, we have concerns that the product won't be there.
Sonari Glinton:
Dana believes that there are big changes to come, including new ingredients.
Dana Brooks:
Some of our companies are also in the human food space, and they may be very integrated. So if they're doing something in their human food space, maybe plant based, cell based meat, then it stands to reason how they would want to see is it an option to go into pet food as well?
Sonari Glinton:
There's one option that has Dana particularly intrigued.
Dana Brooks:
I'm kind of excited to learn more about the insect based protein. Once you get past the ick factor and you think about it, it could be farmed and doesn't compete for human food, doesn't compete in renewable fuel right now. There's a lot more call and a lot more interest in it over the last year, specifically out of COVID.
Sonari Glinton:
Because of the supply chain problems and new competition for the key ingredients, the US pet food industry may have to rethink what's on the raw ingredient list and how they can source those reliable and sustainable ingredients. Now elsewhere in the world, that change is already upon us. In 2018, Europe permitted certain insects to be used in pet food and fish feed, and that's where Rachel Conte got on board.
Rachelle Cantet:
We work with free factories in France, the Netherlands and Germany. Okay, can I stop just a minute, close the door because that is my cat playing?
Sonari Glinton:
Rachel is the co-founder of Entoma Petfood, an insect based pet food company. For years, she worked in agriculture and finance. And as a pet owner, she saw a huge potential in bugs.
Rachelle Cantet:
The main reason we have chosen it is for the nutritional values. The insects have an amino acid content that is very rich. They have a very high content of protein. It's pretty similar to shrimps in term of protein level. There is also fatty acids, such as omegas. You will have vitamins like D, E-
Sonari Glinton:
That is right, Entoma uses mealworm and black soldier fly larva, and they are nutritious. It's important to remember that insects have also been consumed by humans in countries throughout Asia, Africa, and Europe for a very long time and are often considered a delicacy. But they also solve a number of supply chain problems. First, the insects used in pet food grow fast.
Rachelle Cantet:
They are actually used for production when they have 15 to 20 days of maturity, so it's very short.
Sonari Glinton:
Just 15 to 20 days. Even chicken is going to have a hard time competing with that life cycle. And while they're being grown, often on farms powered by renewable energy, they feed on vegetable scraps that would otherwise be thrown out.
Rachelle Cantet:
Skin of [vegetables, of beet roots 00:17:04], insect growers are buying from actually sugar industry, agro industry, all the vegetables that would've been thrown away.
Sonari Glinton:
And all the water they need eat is also in those vegetables. And when the insects reach maturity-
Rachelle Cantet:
They are pressed to have the solids out of... They're taking out the liquid. Then we could use the solid to do the extrusion process.
Sonari Glinton:
What's left this process into a kind of powder, which is then used to make the food. And then the rest of the insect is you used as fertilizer, and even in some cosmetics. Almost nothing gets thrown away.
Rachelle Cantet:
So that's also part of the eco-friendly process of the insect growing.
Sonari Glinton:
That eco-friendly part is... That's not a small thing. As I mentioned earlier, almost a quarter of meat agriculture goes towards pet food, and the carbon footprint of the meat supply chain, especially beef, is massive. The meat and dairy industries account for almost 15% of all man-made greenhouse gas emissions. Bugs just do not have that same impact.
Rachelle Cantet:
In fact, you can see that insect will consume more than 100 time less of CO2 than growing beef.
Sonari Glinton:
That's 100 times less carbon dioxide gas than producing beef. The environmental upsides are an important part of the reason entrepreneurs like Rachelle and governments like France and Holland are investing in insect based foods. Rachelle hopes that government initiatives will help drive down the cost of producing insect food because right now it's still really expensive.
Rachelle Cantet:
It's the most expensive animal protein you will find. It's better you on year, to be honest. But I think in the coming year, it should decrease.
Sonari Glinton:
The fact is mass producing insects for food is still new and they're still trying to get it right.
Rachelle Cantet:
Today, they're really investing in research and development to make good food, and tomorrow they will do it to have it profitable. That's really their goal.
Sonari Glinton:
At the moment, cost is one of the major hurdles. Another is getting some consumers who aren't used to thinking of insects as food past their ick factor. For Rachelle, it comes down to education.
Rachelle Cantet:
It doesn't bring disease. It's even more nutritious, and it's also like when you are thinking a dog and a cat, what would they eat in the nature? Do you think a cat will go to the river to catch salmon? In the nature, they will eat insects.
Sonari Glinton:
So given all the benefits of insect based food, it's a reliable source of protein, there's a sustainable supply chain. Is there a chance that it can become a staple of human food as well?
Rachelle Cantet:
So this is something I tried personally in a salad and so on. It has a good taste. I think we will see more and more startups serving and proposing naturally gastronomic food, I think. But probably nutritional food, like smoothies, for example, or protein bars.
Sonari Glinton:
Or flower for baking. Insect based human food may become a hit in years to come. But for now, companies like Rachelle's are focusing on the pet food market, and she only sees that market growing.
Rachelle Cantet:
If you want the food of the future, you will have to bring better ingredients, better nutritional value, and that product doesn't harm the planet.
Sonari Glinton:
Good, reliable, nutritious ingredients produced close to home? Well, they lighten the load of the supply chain and the environment, freeing up oils and fats for biodiesel. All of that sounds like a really promising future. Insect based pet food sales were expected to hit $7 billion globally in 2021, and are projected to reach over $17 billion in the next decade. But would Tiger, the cat that we heard at the beginning of the program, would Tiger give them a try? Well, her owner, David Saltz, is open to the idea.
David Saltz:
Personally, what would I think about feeding it to her? If it had the nutrition she wanted and she liked to eat it, I wouldn't have to think any deeper than that. I've actually, believe it or not, got a whole rest of my life to live that doesn't involve cat food. So if she's liking it and it's healthy, you got two thumbs up from me.
Sonari Glinton:
The pet food shortage wasn't just about pet food, it was about our food as well. When our eating habits shifted during the pandemic, they triggered a cascade of changes that affected the raw materials, that's the cuts of meat that were available to the pet food industry. When you combine that with a surge in demand, factory and processing plant shutdowns, transportation, and extreme weather, you put a lot of pressure on an already fragile supply chain. And there is the increased competition for the key ingredients, those oils and fats, from the growing biodiesel industry. All of it has been a wake up call, and it's forcing innovation that may help us solve some other looming problems like global warming and food insecurity. We'll be talking much more about that on our next and final episode of the season, How Climate Change is Affecting the Supply Chain. I'm Sonari Glinton, and this is Now What's Next, an original podcast from Morgan Stanley. Thank you for listening.
