Across the western world, consumers have been upset at the rising food prices. In Australia, food prices have risen 18 percent over the last three years, compared to 13 percent for the CPI as a whole. And in the US, the food CPI has increased 20 percent over three years, compared to a 17 percent growth in earnings. In the UK, food prices have increased 31 percent in three years. Those increases are slowing down: food prices only increased 2.2 percent in the US and 3.3 percent in Australia over the last year, but that doesn’t help consumers who are concerned at price levels.
So, are food prices increasing just because supermarkets are increasing retail prices faster than the prices they pay to the produces of grocery items?
In Australia, we can look at the published financial statements of Woolworths to see if their profits are rising faster than costs. One measure of profits is called EBIT: Earnings before interest and tax, while another is NPAT (net profits after interest and tax.) It’s possible to calculate these as a percentage of sales. If the supermarkets were engaging in price gouging, these measure would rise as a percentage of sales. They haven’t. They’ve hardly changed. (Bear in mind, companies share prices are driven by profits, so companies don’t normally understate their profits.)
So what is the cause of rising food prices? There are three: supply chain problems left over from Covid, the war in Ukraine, and climate related problems affecting crops.
Covid shut down a lot of shipping world-wide, so anything that got shipped had supply chain problems. It’s now two years after the worst of the pandemics, so these problems are now going away.
Russia Belarus and Ukraine between them produce about a third of the world’s wheat, and a quarter of the world’s fertilizer. So the war in Ukraine, which began in February 2022, and the subsequent sanctions on Russia were going to affect world food prices.
Wet weather in California in 2023 affected vegetable and fruit crops, as did low bee numbers in California in 2023 (yes, seriously – bees go to ground when there is heavy rain or wind.) Other states in the US has had drought and Bird Flu (which caused chicken stocks to be destroyed and affected egg prices.) There has been a drought in China, which will affect rice production, followed by floods in the last month, while there are floods in Britain, affecting vegetable crops. There is a world-wide shortage of cocoa, olive oil, rice, soyabeans and potatoes.
The Australian government has directed the Australian Competition and Consumer Commission to hold an enquiry into food prices. In the US, Kamala Harris has said she wants to “deal with” price gouging.
“A YouGov/Economist survey conducted between August 17 and 20 among 1,565 U.S. adult citizens found inflation and prices were the most important issues for voters at 26 percent followed by jobs and the economy at 12 percent. While inflation has slowed, food prices are still 21 percent higher than they were three years ago… "Prices in particular for groceries are still too high," Harris told Bash. "The American people know it. I know it. Which is why my agenda includes what we need to do to bring down the price of groceries, what we need to do to extend the child tax credit to help young families be able to take care of their children in their most formative years, what we need to do to bring down the cost of housing."
Unfortunately, American voters tend to blame their presidents for gas and food prices. This means Harris, having been vice president under Biden, may cop the blame for something that is not her fault. Politicians can talk all they like about “price gouging” but if supermarkets are simply responding to price increases in the raw products, talking about that isn’t going to solve anything. Parliaments can have committees and enquiries if they want, but if supermarket margins are staying stable, as Woolworths appear to be, and if this is a world-wide phenomenon they won’t be able to do very much.
If the above is true, what can be done.? Progress on climate change is happening, but it’s far too slow. I assume climate related crop damage will continue for some time. Food prices aren’t going to drop back to pre-covid levels.
Food prices in the US, interactive graph https://ycharts.com/indicators/us_consumer_price_index_food
US Bureau of Labour statistics, article on food prices, https://www.bls.gov/news.release/cpi.nr0.htm
American earnings data: https://www.bls.gov/cps/earnings.htm
US earnings https://www.bls.gov/charts/usual-weekly-earnings/usual-weekly-earnings-over-time-total-men-women.htm
Fertilizer production https://ourworldindata.org/grapher/fertilizer-exports-russia-ukraine
Other journalistic articles:
Current drought in China https://phys.org/news/2024-06-central-china-farmers-crop-failures.html#google_vignette
Shortages of five crops: https://www.weforum.org/agenda/2024/02/climate-change-food-prices-drought/
Excess rain in the UK: https://www.theguardian.com/commentisfree/article/2024/may/08/british-farmer-food-climate-crisis-business
https://www.woolworthsgroup.com.au/au/en/investors/our-performance/reports.html
Newsweek article: https://www.newsweek.com/kamala-harris-plan-cost-living-1946643
Australian ACCC enquiry: https://www.theguardian.com/australia-news/2024/jan/25/anthony-albanese-announces-year-long-investigation-into-supermarket-prices-by-accc