Grocery prices expected to remain high as pandemic roils supply chains

·6 min read

No, you're not imagining things. That piece of steak really is pricier than usual — and so are your eggs, bacon, and other household staples.

Grocery bills have been steadily rising in the United States as the coronavirus pandemic has continued to wreak havoc on supply chains and as businesses have faced worker shortages in recent months. Those disruptions have been exacerbated by higher demand, droughts, and major storms that have decimated crops and halted food production in some areas.

The consumer price index for food at home, which measures grocery prices, rose 3% in the last 12 months, according to August data released by the Bureau of Labor Statistics earlier this month. Meanwhile, the producer price index for food, which measures costs from the point of view of producers or wholesale prices, has gone up 12.7% since last August, the bureau reported.

The hike in food prices is part of broader inflation in the cost of goods and services that has been hitting people's pocketbooks at a time when money is already tight for those who have lost jobs or taken pay cuts due to the pandemic. Overall, the producer price index rose 8.3% in the last 12 months, the Bureau of Labor Statistics said — the most significant jump since it started calculating the number more than 10 years ago.

"Since the pandemic, supply chains have never been the same and likely won't normalize for at least six months," according to a report by Contingent Macro Advisors, a market research firm cited by the Associated Press. "Only then will we (and, more importantly, the Fed) get a true sense of the trend rate of producer inflation."

For households, the rise in wholesale prices for food producers, which are typically passed on to consumers in the long run, and the continued supply chain issues mean grocery bills are expected to remain high in the months to come.

The Department of Agriculture in its latest Food Price Outlook report said it expects food-at-home prices "to increase between 2.5% and 3.5%" this year and "between 1.5% and 2.5%" next year.

Food prices started rising before the coronavirus spread worldwide, mainly due to an African swine fever outbreak in China that increased the price of pork, according to the International Monetary Fund. Still, the pandemic has played a significant role in rising food prices. "At the start of the pandemic, food supply chain disruptions, a shift from food services (such as dining out) towards retail grocery, and consumer stockpiling (coupled with a sharp appreciation of the US dollar) pushed up consumer food price indices in many countries," the IMF wrote in June, concluding that it expected inflation in food prices for consumers to rise "about 3.2 percentage points and 1.75 percentage points on average in 2021 and 2022, respectively."

Meats, in particular, have been more expensive at U.S. grocery stores in the last year. The consumer price index for beef and veal, for instance, was up 12.2% between August 2020 and August 2021, the Bureau of Labor Statistics found, while eggs and pork were each up nearly 10%. Bacon has been exceptionally pricey, rising 17%.

"Prices have been driven up by strong domestic and international demand, high feed costs, and supply chain disruptions," USDA said in its outlook. "Winter storms and drought-impacted meat prices this spring, and processing facility closures due to cybersecurity attacks impacted beef and other meat production in May."

But the government said the price increases for meat aren't being caused by world events alone — it suspects consolidation among meat processors, which buy the livestock from farmers to slaughter and package it, is causing inflation as well.

"The President understands that families have been facing higher prices at the grocery store recently," three economic advisers to President Joe Biden wrote on Sept. 8. "Half of those recent increases are from meat prices — specifically, beef, pork, and poultry," the White House officials said. "Four large conglomerates control the majority of the market for each of these three products."

"The dynamic of a hyper-consolidated pinch point in the supply chain raises real questions about pandemic profiteering," the officials added. "The prices the processors pay to ranchers aren't increasing, but the prices collected by processors from retailers are going up."

The White House highlighted the USDA and Department of Justice's joint investigation into chicken processors for alleged price fixing among the steps the administration is taking to try to improve the meat-processing market.

The officials also announced that the Biden administration would use $500 million in funds from the last trillion-dollar stimulus package to allow the USDA to "provide grants, loans, and technical assistance to create new meat and poultry processing capacity" to compete with the larger packers, "forcing them to lower prices and actually earn their business, and provide farmers and ranchers access to better choices and fairer prices in local and regional food systems."

The White House said it will be working with Congress on passing legislation to improve cattle markets in particular.

In March, bipartisan groups of senators introduced two different bills aimed at improving transparency and encouraging competition in the beef industry. The first, co-sponsored by Nebraska Sen. Deb Fischer, a Republican, and Oregon Sen. Ron Wyden, a Democrat, seeks to arm ranchers with more information about what packers are paying other producers for their cattle so they are better equipped to negotiate fair prices, among other things.

"I've heard from family after family back home in Oregon who are feeling the squeeze of rising grocery costs and paying for rent and other necessities," Wyden said in a statement to the Washington Examiner. "While supply and demand issues brought on by the pandemic are a big reason why families are paying more for their hamburger at the supermarket, the predatory market practices by meat processors have been inflating prices for some time."

Wyden said those market practices are harming family ranchers in his state in particular, most of whom are located in Eastern Oregon. "Bringing transparency to the market is a must in addressing this issue," he said. "And with bipartisan support, I'm hopeful we will find a path forward to make this right for the families and small businesses being hurt most."

Wyden is also a sponsor of another bipartisan bill led by Iowa Sen. Chuck Grassley, a Republican. It takes a different approach to the issue, requiring processors to buy at least 50% of their cattle on the so-called spot market or open market.

"In my meetings with Iowans, I'm hearing increasing concern about inflation and the rising cost of essential goods, like gas and groceries," Grassley said in a statement to the Washington Examiner. "Meat prices are particularly concerning because the price at the market keeps going up even though producers struggle to get a decent price from meatpackers for their cattle."

Neither bill has advanced in Congress, but Grassley said he and Fischer are working on legislation together now and that he hopes a deadline to reauthorize a law related to reporting requirements in the meat industry will provide an opportunity to pass their bills.

"Cattle producers can't go another year with these price disparities," Grassley said. "So my goal is to attach our reform bill to the Livestock Mandatory Reporting Act reauthorization before the end of the year."

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Tags: Business, Supply chain, Food and Beverage, grocery stores, Inflation, Consumers, Economy, USDA, Congress

Original Author: Emma Loop

Original Location: Grocery prices expected to remain high as pandemic roils supply chains

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