Here’s why your food prices keep going up

Before the pandemic, most people didn’t think much about where food came from, how much it traveled or how it was assembled. Certain industry phrases have underscored rising grocery bills over the past 18 months. “Turbulence and volatility.” “Unprecedented times.” But one of the biggies is “supply-chain disruption.”

Food producers have struggled with shortages, bottlenecks, transportation, weather and labor woes, all of which have caused food prices to rise. The end is not in sight: Inflation at the wholesale level climbed 8.3% last month from August 2020, the Labor Department reported Friday, the biggest annual gain since it started calculating the number in 2010. Those prices are passed on to consumers: meat, poultry, fish and eggs are up 5.9% over the last year, and 14.7% from prices in July 2019, before the pandemic.

The Bureau of Labor Statistics on Tuesday reported an additional overall food price increase of 0.4% in August compared to July, after larger increases in recent months.

Sysco, one of the nation’s biggest food distributors, showed food inflation of 10.2% on their most recent quarterly report, increases that are passed along to restaurants and their customers in turn.

“History shows us that price adjustments are more likely to be accepted in the market when industry-wide and broad-based input cost inflation occurs,” David Marberger, chief financial officer of ConAgra Foods, one of the world’s largest food companies, said in the company’s third-quarter 2021 earnings call. “And that’s the environment we see today.”

Translation: They are paying higher prices, they are charging higher prices, higher prices are everywhere.

Eighteen months into the pandemic, why are there still supply chain problems?

From Gatorade to Lunchables, bananas to anchovies, things still can’t easily get to where they need to be. Across the board, ingredient suppliers see longer lead times due to lack of staffing, ingredient shortages and the unpredictability of trucking and container ship transport. In many cases, those lead times have dragged out to eight to 12 weeks, with food manufacturers stalled out waiting for ingredients for their products, according to Rifle Hughes, innovation and strategy business partner at JPG Resources, which develops foods for major companies. He says foods in the center aisles of the grocery store - canned goods, snacks, cereals - tend to rely on lots of different ingredients, often sourced from around the world, and that this year’s extreme weather, labor problems and shortages are leading to “deeper and longer-running disruptions” than even last year.

The baking industry, which tracks prices of core ingredients from sweeteners to cocoa, reports price hikes in 49 out of the top 50, says Robb M, chief executive of the American Bakers Association. The group expects prices of baked goods, from birthday cakes to crackers, to rise another 5 to 10% increase between now and the end of the year. For example, sweetener costs have increased across the board, with the recent hurricane shutting down sugar cane refineries in Louisiana, drought shriveling the sugar beet yields in the Upper Midwest and, MacKie says, even corn and other sweetener prices rising by double digits. “The global supply chain has been twisted in so many knots, so things you might have put on a truck or train, you might now have to pay airfare, which is much more expensive.”

The closures and re-openings of different industries, coupled with the surges and lags in consumer purchasing during the pandemic have caused an “accordion effect,” says Shelby Swain Myers, economist for American Farm Bureau Federation, with lots of industries playing catch-up even as they see higher consumer demand (as many Americans have a lot more money to spend right now, Myers said). And decreased supplies of things like grains to feed livestock in other countries has led to increased U.S. exports, which has further driven up domestic prices, according to Myers.

Plus, global shipping continues to get snarled up at ports. “The wait to get into the port at Long Beach (in California) is almost 7 days, and we have 42 ships backed up at any given time. There are reports of container ships turning around and not even waiting to get refilled,” Harig said.

About 80% of traded goods travel by shipping container. The containers themselves cost more. What used to cost $1,920 for a 40-foot steel container last year can now cost more than $14,000 per container, according to Brittain Ladd, chief marketing officer of with Kuecker Pulse Integration, a robotics and logistics automation company in Kansas.

At the peak of the pandemic, companies canceled sailings and rerouted ships to the most profitable routes in order to minimize losses, with empty containers stranded at sea or stacked up where they shouldn’t be, rather than being returned full. Even though China, which manufactures most of the containers, has bumped up production, demand is outstripping the supply. “After the shutdown of the economy in 2020, in early 2021 demand for everything exploded,” Ladd said. “A lot of companies just weren’t ready, so there was a big imbalance of cargo containers. Immediately the rates started to spike.”

How do packaging problems ratchet up grocery prices?

For many food products, it’s not just shipping and ingredients that have risen in price, but also the packaging that products come in.

Texas, one of the country’s largest producers of plastics, had factories shut down last winter due to power outages during an anomalous cold snap, and the country is still short on packaging products because of this, says Michael Swanson, Wells Fargo’s chief agricultural economist. This has caused a spike in the price of polyethylene that goes into milk jugs and vinegar bottles, PVC that goes to make things like tamper-resistant lids and breath mint packs, and low-density polyethylene for six-pack soda can rings and grocery stores’ produce bags.

Separately, a wooden pallet shortage, traced to last spring’s covid shutdown at mills, is also still affecting food prices, Swanson says. Last month, aluminum prices hit their highest level in 10 years, even higher than during the trade wars during the Trump administration, which affects a range of goods from beer to anything wrapped in foil. And with corrugated cardboard hitting all-time high prices in February, in part due to the pandemic spike in e-commerce, food companies are incurring higher costs in boxing, canning and packaging their products.

Is anyone taking advantage of the pandemic?

With so much upheaval caused by covid-19 and extreme weather events, it’s easy to see why some food prices are spiking. But some at the White House are raising questions about whether American meat companies are taking advantage of the pandemic as an opportunity to raise prices.

A big chunk of the overall increase in grocery prices is coming from big price increases in beef, pork and poultry. And National Economic Council Director Brian Deese points to beef and pork, in particular, as seeing double-digit increases in prices over the last couple of months, in a press briefing last week.

Some of this is to be expected: Severe heat and drought in the West have killed hay that cattle eat and made water prohibitively expensive, so many ranchers have sold off their animals or slaughtered early, which augurs for smaller herds next year.

And pork producers have had to take new measures to find enough staff for their processing facilities, amid a labor shortage and a workforce battered by covid-19. For example, Triumph Foods, a hog processor in Missouri, announced wage hikes of $2.75 per hour for all employees earlier this month, an increase that will trickle down to pork product pricing at the grocery store.

The Biden administration is suggesting that some of the high meat prices during the pandemic are due to consolidation in the industry, with 80% of cattle slaughter done by just four companies, and 70% of the U.S. hog market controlled by the same number.

In July, the federal government committed more than $655 million to help smaller meat processors compete with larger competitors, part of an executive order aimed at promoting market competition. Agriculture secretary Tom Vilsack said in a recent press briefing, “There’s reason for concern here. The Department of Justice recently had a price-fixing case involving Tyson, where clearly there was some wrongdoing that took place. And so it’s not something that we we’re dreaming up here. The profits are real.”

One trade group for the meat industry, the North American Meat Institute, pushed back against the White House’s suggestion of wrongdoing, asserting that price increases in meat were caused by the same pandemic market shocks and severe weather impacting other industries.

Are there bright spots? What foods won’t see steep increases?

Produce prices seem to have been less affected by inflationary trends, particularly on the vegetable side, says FMI’s Harig. But it’s spotty. He ticks off categories that have been hurt by drought and high temperatures in the West: Heat waves cooked Washington’s sweet onions to mush; tomato and melon growers in California have struggled. But broadly, he says, there will be affordable alternatives to choose from in the grocery store, often imports from Mexico and further south.

Even in California’s Central Valley, the drought has not impacted areas and crops equally, says Daniel Sumner, an agricultural economist at University of California Davis. Growers diverted precious water to irrigate tree nuts and away from cotton, wheat and alfalfa. Those crops might permanently disappear from the state. And many California rice growers sold their water and left fields unplanted. Sumner says Japanese and Korean food fans will likely see a 20% hike next year in the price of japonica (sushi) rice, and Napa and Sonoma valleys’ diminished grape crops this year will drive up wine prices next year. Overall, California produce prices shouldn’t go up too much, he says.

That doesn’t mean there won’t be any pricing problems for consumers. As the threat of covid-19 infection has grown and receded and grown again, Americans have toggled between eating most of their meals at home and eating out more, behavior changes that have meant food producers and distributors have had to reshuffle their deliveries and make costly package-size changes, says Veronica Nigh, senior economist at the American Farm Bureau Federation. And the move among households to buy more fresh fruits and vegetables has left less for the manufacturers of frozen products, purées and juices, says JPG Resources’ Hughes. Consequently, those prices are likely to continue to rise.

How long will higher prices continue?

Next year, food-at-home price increases are expected to ease little, between 1.5 and 2.5%, down from 2.5 to 3.5 overall in 2021, according to the USDA. “The writing is already on the wall for a slow down and slight reversal of food prices in 2022,” said Wells Fargo’s Swanson. Future sales of major grains and oilseeds are lower across the board for next year, he said, adding, “of course, weather always has the final say as to when that actually occurs.”

Historically, meat and animal products have been more volatile than other categories, but Swanson says that meats have led price increases and they are likely to lead the softening and slight reversals.

Where prices may remain high is restaurants and other food-away-from-home venues: “Restaurant prices have been rising at higher-than-normal rates. There are a variety of drivers, but rising wage rates and lack of workers are key factors,” said Jayson Lusk, head of the Department of Agricultural Economics at Purdue University.