Inflation In US - Food Prices Continue To Rise Amid Pandemic

Inflation In US - Food Prices Continue To Rise Amid Pandemic

By Yash

The previous year was not good for the household grocery bills in the United States of America. The people in the country shelled out six percent more groceries in the previous year when compared to the two years before. This was according to the latest consumer price index. The food prices have increased a lot more than the typical inflation rate. But the food prices have grown the most in the meat sector. The beef prices have increased by more than fifteen percent, and the pork prices have increased by more than ten percent. The growth in these sectors is slowing. But there have been no signs of the food prices decreasing to the levels they had achieved before the coronavirus pandemic anytime in the near future. The food organizations state that the increase in the food prices is only the mechanisms of the free market doing their bit.


The disruption due to the pandemic and the extreme weather conditions have led to a growth in the cost of production and decreased the supply of food in the country while increasing the demand internationally and in the country. This is also because citizens have now started to emerge from the coronavirus pandemic. But the Federal Government and some politicians say that there is some foul play involved in the increase in food prices. They say that the consolidation of the industry, specifically in meat processing, is assisting a few firms in making profits from the expectations of inflation levels in the country by increasing the food prices more than before. Both sides are not wrong in these claims. The food organizations do have some specific shortages and increased prices. But these are not diminishing their profits as experts had predicted.


On the contrary, the biggest publicly traded firms have never had more profits than the present times. The record earnings during these times suggest that the food firms have enough power in the market to pass all the higher food prices and more to the end-users. The most basic economic theory informs that when a firm charges too much from its users, the rivals in the specific industry will give the goods at lower costs, take the volume of sales, and diminish the excessive profits made by that organization. Such exceptional and continuous profits raise significant queries from experts and the public alike. They are questioning the overall competition in the food industry in the country. They are also exploring the possibility of food industry firms getting together to increase the food prices together. The ways of restricting such practices have to be explored.


The Food Prices Have Been Out of Sync Since the Start of the Pandemic


Since the start of the pandemic, the food markets have been out of sync with the general public's sentiments. The costs of meat increased initially when the workers in the industry fell sick due to the coronavirus pandemic and the manufacturing plants shut down. Nearly half of the processing capabilities were shut down a couple of years ago. The manufacturing plants have now started up again. But a large number of workers in the industry had contracted the virus, and nearly five hundred of them had died, according to an official report from Congress. So, many firms in the meatpacking industry are now struggling to get new employees from the labor market, even after increasing the overall wages. Across the entire food supply chain, the employees are now making a comeback from the coronavirus pandemic. But they are now rejecting the stagnant wages, unsafe working conditions, and excessive hours.


These elements have not kept up with the growth in productivity in nearly half a century. For example, the meatpacking industry's base pay for union workers was ten dollars or thirty dollars adjusted for inflation. A couple of years ago, the average hourly wage across the entire food industry was about fourteen dollars. The food organizations have focused on the increasing costs of labor as a woe of the industry. But many other factors are driving the new expenses and the shortages. The hog and cattle herds have decreased a little in the past year due to the tough times. Other food prices, including corn and wheat, are also at their highest point in the past decade. This is because of drought and high demand from countries such as China. This has increased the food prices due to the parallel growth in the basic input costs of those industries.


The Food Prices of Other Crops Have Also Increased


The prices of other crops such as melons, tomatoes, and sugar have also increased because of the extreme weather conditions. The shortages in food packaging have also stayed constant after a cold snap led to a shutdown of plastic refineries in Texas. Delays in shipping and congested ports have also led firms to pay more to stock food on the grocery shelves. The demand from the end-user has also remained high as the restaurants have reopened. The citizens are buying more food than what was happening before the pandemic. Other nations are also importing more eggs and beef from the country. The firms say that is the complete story. But there is some evidence that the monopolistic market structures are making things worse than before.


The production of food has consolidated a lot in the past half a century after modifications in the antitrust policy that has permitted more firms to buy up their rivals in the industry. The antitrust practitioners are saying that the food markets are highly concentrated. This is because the top five organizations control nearly half of the market or more. Such greater concentration levels have given firms more power to set the costs and increase the likelihood of market manipulation or price fixing. Right now, the top five firms control more than half of the market in the nation for bread, beer, cookies, coffee, and pork. In the soda, pasta, baby food, and beef processing industry, the top five firms control more than seventy-five percent of the market in the country.


Food Prices Have Also Increased Because of a Consolidated Market


A few firms have control over the food industry. This has given them influence on food prices by such a big margin under the garb of inflation. There is a big indicator of the excessive monopolistic power in the country. This is the record profits by firms in the industry. If the increasing food prices only show the growth in the costs of production, the experts would not have predicted the net profits to increase. But they are still at historic levels right now. The non-finance firms are showing their biggest margins of profits in more than fifty years. The consolidation has made it much simpler for the firms to increase the food prices in collaboration. There is not a lot of pressure to compete aggressively in the market when there are only a few firms in the industry. They can see that all their rivals are charging higher food prices than before and making unprecedented profits.


Experts who do not agree with this theory say that the food sectors have been highly concentrated for a long time without increasing the food prices like it has been done right now. But others say that colluding firms do it under the garb of some other pretext to get away with such a sudden increase in costs. In this case, it is the overall high inflation. Even before the coronavirus pandemic, the food firms were charged with increasing food prices in more indirect ways. In the past eight years, the private plaintiffs have accused the meat firms of fixing the food prices by saying that the firms coordinated the supply cuts in all the big meat industries. In one case, this conspiracy led to a food prices increase of more than three hundred dollars on chicken annually.




Experts are pondering if the food prices can be controlled if corporate power has had a role in making the current inflation in the industry much worse than before. Earlier this year, the Federal Government rolled out a plan to increase competition in the food industry by starting new plants. But it will take the new rivals many years to get off the ground. It remains to be seen whether they will be successful in changing the present dynamics in pricing as well. For the present times, the antitrust enforcers can investigate the firms in the food industry for conspiracies in the fixing of costs. This might make these firms think again before further increases in food prices.