Why food price inflation is not inevitable

Retail price inflation is hitting consumers hard this new year. A recent study by KPMG documented that consumers faced a 22% increase in grocery bills and inflation hit a 31-year high in the fourth quarter of 2021, led by double-digit jumps in the prices of meat, poultry and fish. Inflation has been driven by companies on the food chain’s commanding heights attracting huge profits throughout the pandemic. It is certainly not inevitable.

By passing higher costs downstream, companies have taken full advantage of rising fuel and input prices, supply chain congestion and increasing labor costs to drive their profit margins to the highest rates since 1950. Meat prices have been the largest contributor to rising consumer costs, and have attracted the attention of the White House and antitrust regulators. Beef, pork and poultry prices account for a quarter of the increase in food prices. Four conglomerates control 55-85% of these markets, including Tyson, GPS, Marfrig and Seaboard. Their combined earnings increased over 120% and net income increased by 500%. They announced more than $1 billion in new dividends and stock buybacks, in addition to the $3 billion already distributed to shareholders since the pandemic began. These profits fell on the shoulders of the meat processing workers. More than 59,000 meat sector workers have contracted Covid-19 and 300 have died since the pandemic began. Meanwhile, Tyson, who has overseen record exports of chicken abroad during the pandemic while sounding the alarm about shortages, noted during a recent earnings call that their pricing measures allowed them to make more money from beef while selling less.

Similarly, in the FMCG segment, PepsiCo has reported a 5% price increase as of July 2021, resulting in $8 billion in net income and $5.8 billion in shareholder dividends. Coca-Cola also announced plans to raise prices, resulting in a roughly 15% increase in net income through 2020. Hershey’s

ADM and Con-Agra saw double-digit net income increases during 2020 and Kraft-Heinz saw triple increases, although sales were flat. Kellogg’s CEO noted that consumer demand remained high despite the price hikes.

Retailers widely have reversed these trends. When supplier costs rise collectively, grocery stores tend to go through increases and then some, so that their gross margins also increase. I know this from experience, but don’t take my words seriously. CEO Kroger explained that the nation’s largest grocer does best when inflation is at 3-4%, while CEO Albertson felt that customers can afford higher prices when the economy is growing and they have cash to spend. Kroger

Albertson, the target

And the general dollar

Everyone saw double-digit net income growth during 2020. Walgreens

“Income growth is well up to triple digits. Ahold Delhaize’s net income is up 23% during 2020, despite sales down 5%. Dollar Tree

, which recently raised prices to $1.25, increased net income by 62% during 2020, as well as a 10% increase in gross profit. All of this comes less than a year after an initial round of pandemic profits for major food retailers, which saw $2 billion in buybacks of Kroger and Walton family shares add $45 billion to their fortunes.

In theory, competitive markets should push profit margins close to zero, as long as consumers have plenty of choices in any given category, among other hypothetical factors. Four or fewer companies control 93% of soda sales, 83% of mayonnaise, 80% of chocolate fudge, 75% of yogurt, 76% of frozen meat counterparts, 72% of breakfast cereals, and 66% of Frozen pizza, 60% off bread, 80% off toothpaste and 80% off toilet paper sales. Grocery store count has fallen 30% in the last 25 years and only 4 companies accounted for two-thirds of all grocery sales in 2019. Walmart

It alone consumes $1 out of every $3 grocery consumer nationally and up to 90% in some metro areas, yet Walmart’s share of groceries is twice that of A&P when it was scrapped through federal action and power cuts by Robinson. -Patman Code, nearly a century ago.

These massive profits also reduce the bait-and-switch approach that higher wages and associated labor costs lead to inflation. More than 99.99% of workers do not set prices. And that small subset of retail managers, CPG class, and price-setting analysts are responsible for the profitability goals set by the executives and the boards they report to, with the goal of keeping investors happy with the constant flow of buybacks and dividends. The lack of these goals means that these people are unemployed. Even steady Federal Reserve Chairman Jerome Powell said recently that “wages are not a big part of high inflation”.

So what can be done?

Economists are divided over what to do about inflation. Are we waiting for it? Or if the Federal Reserve raises interest rates, risk a slump and austerity stagnation that would recoup any workers’ recent gains. Consider Paul Volcker, 1979. There is another option, more in line with the prevailing economic sense of consumer welfare. Public servants can impose price controls on key sectors of the economy. Price controls regulate what large companies can charge customers. This is not a new idea. Franklin Roosevelt employed more than 160,000 price control officials during World War II “on goods from scrap steel to shoes to milk” and even Republican Richard Nixon became involved in price setting in the early 1970s. Price controls can act as a public policy lever to prevent upward redistribution of wealth in the food industry, as well as prevent further food insecurity, such as what 1 in 4 Americans faced just over a year ago and what increasingly black Americans are facing. Price controls can be conceivable to the point of prompting retailers and manufacturers to lower prices to pre-existing levels and make stable profits for the time being.

Another tool is the enforcement of antitrust laws, such as Robinson-Patman, which are supposed to prevent major retail companies from engaging in the kinds of anti-competitive behavior that appear to be prevalent now. In the context of strengthening supply chains and preventing future bottlenecks and disruptions, the FTC is currently examining the relationships between major retailers and CPG companies and how commercial spending and market dominance allow national chains to outsmart independents and “mom & pop” stores. For decades, researchers like Philip Howard have documented how retail consolidation drives up food prices. One possible outcome should be obvious: Breaking down large foods into smaller ingredients has to compete for harder customers. The scale does not produce efficiency in the food industry, but only enables shareholder priority.

And why should food always be a commodity? Rather than being rooted in the doctrine of pricing and margin, perhaps those in the food industry should prioritize rights and responsibilities in the food system? Healthy and fresh food should be a human right and it is our responsibility to make sure that everyone has access to it, a noble goal all things considered. There is always the potential to develop more food cooperatives or expand the public food sector, in the form of municipal facilities, or non-profit food centers such as the Common Market. Or encourage and write courageous grassroots efforts such as Ithaca’s Healthy Food For All, LA’s SUPRMRKT, Farmshare Austin, or Philly’s Soil Generation.

Or even have the broader agenda be to fully support fresh, healthy foods when buying. SNAP, which already accounts for up to 12% of total food retail sales, can be expanded to a more comprehensive solution for the individual payer. More than 60% of SNAP beneficiaries cite high prices as a barrier to healthy eating, and inflation will only make this worse. So why not cover a wider range of foods and enforce better standards for quality and sourcing, such as those formulated by the HEAL Food Alliance and the Good Food Communities?

Food inflation is not inevitable, and is purely a consequence of prioritizing the aims of capital over the needs of the people. We have the opportunity to take advantage of the current crisis to build a more equitable, humane and sustainable food system, now more than ever.


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