[Note: since I wrote the article below, the ACCC has released a report claiming two things. First, that Coles and Woolworths have been engaged in misleading advertising by raising prices on some items, and then dropping and posting a false “special” price. If that’s the case, it should be prosecuted. Second, that they have been engaged in buying building sites simply to sit on them so that competitors can’t build there. This practice should be banned. Third they have given stats about the presence of oligopoly, i.e that Coles and Woolworths account for two big a share of the market, saying: “Between them, Coles and Woolworths account for two thirds of supermarket sales in Australia. Aldi accounts for 9 per cent. In Britain, the top two account for less than half of the market. In the US, the top two account for a third.” We’ve known this for a long time, and parliaments have done nothing to fix this situation. To fix it, they would have to be forcibly made to split themselves into smaller units, as the US congress did to Bell Telephone in the 1983. That might be difficult to achieve, and I doubt the major political parties would be up for the fight. These are separate issues to the issue below, which is why food prices have been rising worldwide. Now read on :-)
The original article:
Across the western world, consumers have been upset at 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 the level of 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, the two biggest supermarket chains are Woolworths and Coles. After them come Aldi and IGA. 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 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. This chart gives those figures in for years ending in June (Australia’s tax years).
Of course, these figures are aggregates of many thousands of grocery and non-grocery items. It’s possible that some individual item of food has increased in retail price above the increase in the wholesale price. That’s hard to detect in such aggregated figures. 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 always going to affect world food prices. Wet weather in California in 2023 affected vegetable and fruit crops, as did low bee numbers in California (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 is a current drought in China, which will affect rice production, while there are floods in Britain, affecting vegetable crops. There is a world-wide shortage of cocoa, olive oil, rice, soybeans and potatoes.
Kamala Harris has said she wants to prosecute “price gouging”. Newsweek quotes her as saying:
“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, in the US , voters tend to blame the president for rises in the price of food, rents, and gasoline, even though the president doesn’t actually control those things. Opinion polls in the US show voters blaming president Biden (and by implication, Harris) for these things. Harris could conceivable lose the forthcoming presidential election over this issue. Given that I think Trump is a lunatic, I think this would be a disaster.
In Australia, the government has directed the Australian Competition and Consumer Commission (the ACCC) to hold a 12-month enquiry into supermarket prices. 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 into “price gouging” if they want, but if supermarket margins are staying stable, as Woolworths appear to be, they won’t be able to do very much on the overall price level of food.
If the above is true, what can be done? Progress on climate change is happening, but it’s slow. I assume climate related crop damage will continue for some time. The war in Ukraine shows no sign of ending. Thus, food prices may go higher that the general CPI for the next few years. It’s impossible to predict, but holding public enquiries into price gouging won’t produce any real effect anytime soon.
Edit: the revelations on 28/9/2024 about misleading advertising and supermarket land squatting are separate issues that parliament could and should act on. I suspect those practices would have been going on for a long time, and if that’s right, they would not be captured in the Woolworths stats above.
References:
Food prices in the US, interactive graph https://ycharts.com/indicators/us_consumer_price_index_food
UD Bureau of Labor 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
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