Time Magazine - U.S. Food Prices Are Up. Are the Food Corporations to Blame for Taking Advantage?

 

Food systems program manager Claire Kelloway discusses how to use antitrust to reign in corporate recklessness and create long-term food supply chain resiliency.

2021 was a bad year for grocery bills. Shoppers paid 6.4% more for groceries in November 2021 compared to November 2020, according to the consumer price index. All food prices were up a bit more than usual but the most dramatic price increases come from meat, pork cost 14% more than a year ago and beef cost 20% more. These increases are slowing, per consumer price data released January 12th, but show no signs of dropping to pre-pandemic levels anytime soon.

Food companies say rising prices are merely free markets at work—extreme weather and pandemic disruptions increased production costs and diminished the supply of food while demand increased in the U.S. and abroad as people started to emerge from the pandemic. But the Biden Administration and politicians such as Sen. Elizabeth Warren allege foul play. They argue that industry consolidation, especially in meat processing, helps a handful of corporations profit off inflation expectations by raising prices even further. In some respects, both sides are right.

Food companies do face legitimate increased costs and unique shortages, but these aren’t eating into their profits as economists might expect. In fact, the largest publicly traded companies have never had higher profit margins. Such record earnings suggest that food companies have sufficient market power to pass all their higher costs, and then some, onto consumers. Basic economic theory tells us that when a business charges too much, competitors will offer lower prices, take sales, and erode excessive profit. Sustained, exceptional corporate profits raise the question: how much are food companies really competing? And if corporate consolidation helps competitors raise prices together, what will it take to tame price gouging?

Food markets have been out of whack since the pandemic began. Meat prices first shot up as workers fell sick, plants shuttered, and as much as 40% of processing capacity went offline in spring 2020. Plants are back up and running but after some 86,000 meatpacking workers contracted COVID-19 and 423 died, according to a Congressional report, many meatpackers are struggling to fill openings and raising wages. Across the food supply chain workers are coming back from the pandemic and rejecting excessive hours, unsafe working conditions, and stagnant wages that haven’t kept up with productivity growth for over 40 years. For instance, in 1982 the base pay for meatpacking workers in the United Food and Commercial Workers (UFCW) union was $10.69 or $29.14 adjusted for inflation. In May 2020 the average hourly wage across the industry was $15.

While food companies focus on growing labor costs as the main source of their woes there are a bevy of other factors driving shortages and new expenses. Cattle and hog herds shrunk a bit last year in hard times. Wheat, corn, and other grain prices are at their highest since 2012 due to drought and high demand from China, raising key food input costs. Other crop prices such as sugar, tomatoes, and melons are also up due to extreme weather events. Even food packaging shortages persist after a cold snap shut down Texas plastic refineries. Throw in gnarled ports and shipping delays and companies are paying more to get food on grocery shelves. All the while demand remains high as restaurants reopen, Americans buy more food than pre-pandemic, and other countries import more U.S. beef and eggs.

Companies say that’s the whole story. But there’s evidence that monopolistic market structures are making things worse. Food production has consolidated dramatically since the 1970’s after changes in antitrust policy allowed more companies to buy up their competitors. Depending on who you ask, antitrust practitioners say markets are “oligopolistic” or dangerously concentrated when the top four firms control 40% to 50% of the market, or more. Higher levels of concentration give businesses more power to set prices and increase the likelihood of price-fixing or market manipulation. Today, the top four corporations control more than 60% of the U.S. market for pork, coffee, cookies, beer, and bread. In beef processing, baby food, pasta, and soda the top four companies control more than 80% of the U.S. market.

With tight control over production food companies have more power to exploit pandemic disruptions and unfairly raise prices. The White House recently argued as much in a brief published in December and a January roundtable with farmers and ranchers. Monopolistic price gouging is admittedly hard to prove, but the Federal Trade Commission is on the case. In late November the antitrust enforcer requested that Walmart, Kroger, Kraft, and Tyson, among others, hand over information in an investigation into price hikes and food shortages.

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