Lumber, airfare, used cars, furniture…. and puppies?
It’s no secret that the coronavirus crisis and related lockdowns have sparked a number of bottlenecks and bottlenecks that have helped drive the price of certain goods – and even pets – soaring.
When it comes to puppies, the outbreak sparked a huge rush for loyal companions as millions found each other home and cuddled, be it corgi, collie, or cane corso. Pandemic puppy prices have increased anecdotally, and even sell-side analysts are now tracking the costs of Cockapoos and other crossbreeds.
Now dogs are emerging as yet another example of how a mismatch between supply and demand can lead to long supply disruptions. You could call it a variant of the bullwhip effect – where changes in demand are amplified as they reverberate supply chains and create extreme volatility in inventory levels. Here is an up-to-date definition of the phenomenon by Deutsche Bank strategist Luke Templeman:
“The bullwhip effect occurs when a decline in customer demand results in retailers running out of inventory. Wholesalers, in turn, respond to a lack of retail orders by subordinating themselves. This then leads to manufacturers slowing down production. Eventually the opposite happens. When customer demand returns, retailers are quick to order more goods, often too much, and wholesalers and factories are in short supply. There are bottlenecks and prices rise. Eventually production rises to levels well above the equilibrium level and this cascades down the chain. These sharp fluctuations in the availability of goods then go back and forth until an equilibrium is finally established.
Puppies started from a different position, with demand far exceeding supply. It takes a while for the litters to be produced, and in early 2020 no one predicted that Americans would adopt or buy more than 10 million dogs in a single year. (The American Kennel Club estimated in 2018 that the demand for domestic dogs is about 8 million annually, not counting population growth). The available dog pool – made up of shelters and breeders – was immediately too small to handle the surge in demand, which led to a scramble for additional supply.
Some shelters were emptied. Frauds abounded. Breeder waiting lists began to build up, and consumers became more creative when it came to sourcing new dogs – buying dogs from overseas breeders (often in difficult circumstances) or importing them from overseas rescue organizations in countries like China, and Afghanistan Thailand still had a lot of adoptable puppies compared to parts of America.
The influx of imported animals, while helping to increase supplies, has now created a backlash in the form of new restrictions. The U.S. Centers for Disease Control and Prevention announced this week that it would import dogs from more than a hundred countries for at. suspend at least a year. It’s about the number of dogs potentially entering the U.S. with fake rabies vaccination certificates, with a CDC doctor citing a 52% increase in the number of dogs entering the U.S. with fake vaccination cards in 2020 over the previous two years.
As the CDC put it in its announcement:
“CDC estimates 6% of all canine dogs imported into the US [sic] come from countries at high risk for canine rabies. Inadequately vaccinated dogs are not protected against rabies and pose a public health hazard. Rabies is fatal in both humans and animals, and importing even one rabid dog could spread it to humans, pets and wildlife. Canine rabies has been eliminated in the United States since 2007. This exposure will protect the health and safety of imported dogs by preventing the importation of dogs that are inadequately vaccinated against rabies and protect the health of the public from the reintroduction of canine rabies. “
Here, too, an aggravating factor plays a role, as transport disruptions and staff shortages have made the process of entry and exit of dogs into the USA difficult and hold airlines liable if a dog is refused entry and remains in their care. The CDC found that reduced flight schedules mean that “dogs denied entry have longer waiting times to return to their country of departure, leading in some cases to illness and even death”. And Forbes reported that: “The Covid-19 coronavirus pandemic has left only limited staff and resources to properly inspect the animals and their papers in the US ports of entry.”
While Americans returning from overseas with their pets may be granted exemptions from the ban, it is expected that this will have a major impact on breeders and rescue organizations. Foreign breeders and resellers have been effectively cut off, along with overseas animal shelters that can no longer send puppies to avid adopters in the US, effectively removing an additional “valve” for puppy supply.
Animal rescue organizations are responding to the CDC import ban on Instagram
Source: marleysmutts, Schlachthof_Überlebende, uppup_andaway on Instagram / Bloomberg
While a separate conversation clearly needs to be held about rabies risk and the pet business itself, pandemic puppies are becoming an example of a bullwhip effect of a different kind: One in which a boom in demand triggered a market reaction that is now being eradicated by new regulation. While predictions about future demand are always associated with uncertainty, things seem particularly rough right now when it comes to dogs.
Before it’s here, it’s at the Bloomberg Terminal.