by Brendon Smith, Communications Director
You’ve probably seen or heard news reports about food prices going up. A National Restaurant Association study found that, between April and May, dairy product, processed poultry, and pork commodity prices increased by 2%; flour prices by 7%; fats and oils by 8%; fresh vegetables by 9%; and beef by a whopping 14%. Price increases for other foods are expected in the coming months. What is driving these increases? There are a variety of factors, some short-term and some long-term, and many of which interact with one another in a way that compounds their effects. Here are a few of the major factors driving increasing food prices.
The Pandemic
Many vendors cut back on production and/or reduced their product offerings during the pandemic, and some have started to ramp up production again, but it will be months before supply returns in some areas. When demand is greater than supply, prices tend to increase, at least if customers don’t have access or don’t want to substitute another, lower-priced product.
Although a national vaccination campaign has greatly reduced the spread of COVID-19 in the United States, many other countries are still significantly affected by it. The pandemic has impacted harvesting, production, shipping, and other steps in the process of getting foods to consumers. Even foods that are made locally can be affected by delays caused by the pandemic due to packaging, spices, machinery, computers, and other things necessary to create their finished products that aren’t made in the US.
Packaging
The pandemic also increased demand for packaging, particularly when it seemed like the virus was transmitted on surfaces rather than being airborne. Wisconsin’s Emergency Order #12 (Safer at Home Order) prohibited “customers from self-dispensing any unpackaged food or beverage” at stores, so our salad bars, hot bars, and much of our Bulk department closed down. We also removed the tongs in our Produce department that customers used to get bulk spinach and mushrooms. We, along with grocers throughout the rest of the country, increased the amount of packaged products offered. We have long offered more bulk produce options compared to other stores—apples, lemons, oranges, etc.—but we saw an increase in customer preference for bagged versions of those products during the pandemic. Restaurants that offered carryout also used a lot more packaging than they had before the pandemic.
New eco-packaging (such as cardboard cartons holding strawberries) was popular, if expensive, even before the pandemic; during the pandemic supply became even more limited and the price increased accordingly.
Labor
Social distancing during the pandemic reduced how much food could be processed in some key industries. In large meat processing factories, workers typically stand in close proximity as they process slaughtered animals moving by on conveyor belts or hanging from hooks. A CDC report issued in July of 2020 found that, April-May 2020 (early in the pandemic), “among 23 states reporting COVID-19 outbreaks in meat and poultry processing facilities, 16,233 cases in 239 facilities occurred, including 86 (0.5%) COVID-19–related deaths.”
Overall, the pandemic caused many workers to reevaluate where they worked and what they did to earn a living. Workers with young children whose kids did not leave home to attend school had to coordinate childcare. Illness or death of family members disrupted lives. The pandemic affected the mental health of all of us to some extent. All of these changes have left many businesses in need of workers; without a full workforce, food businesses have a harder time planting, tending, harvesting, processing, and transporting their products.
Transportation
The transportation industry may be one of the industries most affected by the pandemic while still being considered essential—there’s nothing to stock on groceries shelves if it isn’t brought to stores. Already in 2017, the American Trucking Association reported a shortage of 50,700 drivers for positions. Truck drivers as a group tend to skew older, and a sizeable portion of them decided to retire when the pandemic hit, making that shortage even worse.
Trucking isn’t the only transportation method seeing challenges; ships are having problems unloading cargo at ports. In January, there were a record 38 container ships waiting to unload at Southern California ports. (The usual number of ships having to wait is one or none.) Although the pandemic has reduced labor and caused delays with supply chains, it didn’t affect some areas of consumer spending. Americans stuck at home continued to buy—or even bought more—electronics, furniture, clothes, home improvement supplies, and other goods. The container ship blocking the Suez Canal earlier this year created its own cascading set of complications as well.
Other Factors
There are a wide variety of other factors that compound with these or each other to increase food prices:
- A lumber shortage. This has led to a pallet shortage, making shipping products more difficult.
- The cyber attack on JBS, the world’s largest meat processor. When that company couldn’t process meat, its usual customers had to buy meat from other sources, reducing supply and increasing prices.
- Increasing grain prices. Grains are not only used for things like bread, but also as livestock feed; to make sweeteners; to make some cooking oils; to make some alcoholic beverages; etc. It even affects the price of grass-fed beef; when grass-fed beef becomes less expensive than grain-fed beef, some consumers buy grass-fed beef instead, reducing supply.
- A shortage of food service-sized products, like large cans of tomato puree, five-gallon containers of cooking oil, etc. These products are used by restaurants and institutional kitchens (like in hospitals); we also use some in our Kitchen, where we make some food served in our Delis and some bakery items. When many food producers reduced their product offerings, they tended to drop food service-sized products because many restaurants were closed and grocery stores were seeing more sales. This is why we recently had to temporarily switch to using some conventional fruit in our Juice & Coffee Bar drinks; the supply of food service-sized bags of organic fruit became so expensive that a smoothie made with that would be about $9. We hope supply will stabilize by this fall and then we can return to using organic fruit again.
- The California drought (and climate change in general). When we see spikes in fresh produce prices, it’s usually weather-related. Occasionally it’s demand-related, like when the celery juice craze swept through and celery prices increased due to a temporary shortage. When the California drought is over, prices will decrease again, but there are likely to be more frequent severe weather events that affect produce prices than there were even 10 years ago.
Supply and Demand
Ultimately, supply and demand is probably the factor that most influences food prices. Most of the vendors raising prices aren’t trying to greatly increase their profits; they’re just trying to cover their costs. The majority of the businesses making food for sale in grocery stores operate on a very low margin (as do most grocery stores themselves, including your Co-op). These food producers can’t absorb many ingredient price increases or having to pay more for transportation or packaging, so they have to increase their prices to continue to pay for their cost of goods, pay their employees, and keep the lights on.
Eventually prices will stabilize. The kinks in the supply chain will straighten out, the drought will end, businesses will hire the workers they need or make adjustments to continue. Some smaller vendors will not be able to make the needed adjustments to survive. Conversely, new start-ups will spring up to serve the needs of consumers. During the pandemic, some of those people who reevaluated how they made their living are deciding now is the time to open the food business they’ve been dreaming of for years. It’s an important time to patronize your favorite brands, since it’s a challenging time for many of them; they may not be around if you don’t!