Home Restaurant Are Corporate Profits Lead to Food Inflation?

Are Corporate Profits Lead to Food Inflation?

After more than two years of cost increases, Americans are finally feeling relief at the grocery store as food inflation cooled off for the first time in March and then again in April.

But those price drops will likely only go so far. That’s largely because, over the last few years, the small handful of food corporations controlling the sector have been charging premiums for their products, blaming supply chain disruptions. They’ve raked in record profits as a result, and nothing is stopping them from continuing to do so.

Food corporations are thriving: Between 2021 and 2022, the food and beverage industry recorded more than $155 billion in profits.

It’s well known that the triple threats of the pandemic, Russia’s war on Ukraine, and the effects of climate change have done a number on the supply chain. Then came avian flu, adding to the pile in 2022 and early 2023.

This series of supply chain disruptions has led to the highest food prices ever, leaving many families unable to afford their groceries. But that’s not the whole story.

Food corporations are thriving. Between 2021 and 2022, the food and beverage industry recorded more than $155 billion in profits, according to Forbes. Nestlé, the world’s largest food company, increased its gross profits last year by almost 3 percent to $46 billion. Cargill recorded a 23 percent jump in revenue last year to $165 billion—$6.68 billion of which was profit. Tyson Foods, the largest meat producer in the U.S., nearly doubled its profits in the first quarter of 2022 due to soaring meat prices.

That profit windfall is making its way to corporate food executives and their shareholders. Last year, Tyson Foods’ CEO’s salary increased by 33 percent to $12 million. Cargill doled out $1.21 billion in its fiscal year 2022 to shareholders—an all-time record.

How is the corporate food world flourishing amid a global food crisis? Can these two realities be reconciled? And what does it all mean for food prices going forward? We spoke with experts to help explain what’s going on.

Pricing Food

The laundry list of supply chain disruptions outlined above caused shortages for some food groups which, unsurprisingly, lead to higher prices for those items. Plus, companies’ costs—for transportation, fuel, labor, raw materials, and more—have gone up. Worker wages have also gone up, though not enough to keep up with inflation. Those costs are largely being passed on to consumers, further inflating food prices.

“When food supplies are disrupted in times of crisis, people are willing to pay a premium,” said David Ortega, food economist and associate professor at Michigan State University.

And not only has supply been low, but, over the last few years, demand has been very high. According to data from the U.S. Department of Agriculture (USDA), consumer spending on food outpaced pre-pandemic levels, even after accounting for inflation.

“The real costs of these products are paid by our future generations, but also by the environment, by communities of color—particularly farmworkers and low-income rural folks who live in heavily polluted agricultural areas.”

“Some of this can likely be attributed to some of the excess savings that households accumulated during the pandemic,” said Ortega. A surplus of savings has increased demand from some consumers, typically younger ones, who are willing to pay premium prices for foods that are grown or raised ethically and in an environmentally sustainable manner.

“I think that’s what the grocery industry is really grappling with now, because they do not live in a world of true cost accounting” said Errol Schweizer, who led the national grocery program at Whole Foods for almost a decade. “They live in [a world with] a lot of externalities where the real costs of these products are paid by our future generations, but also by the environment, by communities of color—particularly farmworkers and low-income rural folks who live in heavily polluted agricultural areas.”

Right now, the price of food doesn’t reflect any of those factors. In fact, according to an analysis by the nonpartisan Economic Policy Institute, corporate profits accounted for 54 percent of food price increases between 2020 and 2021. For the four decades prior, only 11 percent was attributed to corporate profits, the rest to the cost of labor.

When avian influenza recently wiped out more than 58 million birds in about a year and egg prices dramatically shot up, Cal-Maine, the largest distributor of eggs in the U.S., increased its gross profit margins five-fold. That raised questions for farmer-led advocacy group Farm Action, which penned a letter to the Federal Trade Commission (FTC) in January asking the agency to investigate Cal-Maine for price gouging and collusion.

“Contrary to industry narratives, the increase in the price of eggs has not been an ‘Act of God’—it has been simple profiteering,” the letter states.

(Photo credit: Brandon Bell, Getty Images)

Farm Action pointed to the USDA’s analyses of egg prices throughout 2022, in which researchers consistently noted prices were “significantly higher than expected.” The fact that no other egg producer stepped in to sell their eggs for less “can be evidence that there is tacit collusion in the marketplace,” said Farm Action’s co-founder and president, Joe Maxwell.

And it’s not just the egg industry that has been accused of price gouging over the last year.

“Basically, what corporations have been able to do—and they brag about this constantly in earnings calls—is that they’ve taken these cost increases and they passed all of that onto consumers,” said Chris Becker, senior economist at Groundwork Collaborative, a progressive economic think tank. “But they’ve been able to go well beyond that and jacked up prices by so much that they’re actually having skyrocketing profit margins. On every unit they’re selling, they’re making a higher share of profits relative to what they’re paying in labor input costs.”

Researchers at Groundwork have been listening in on corporate earnings calls to hear what food company executives are telling their shareholders regarding profits. “They don’t use the word ‘profiteering,’ but they’re talking about the ways that they can get away with much higher prices than they normally would be able to,” said Becker.

Source link

Previous articleCambria Hotel Orlando Universal Blvd Opens — LODGING
Next articleSherry Marek and Mark Heymann; Honored at HITEC Toronto Next Month