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.
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.
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.
“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.
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.
The shareholder system further incentivizes these price hikes.
“Corporations are not being run to benefit everyone in society,” Becker said. “We’ve seen a shift in the last several decades towards the very shareholder-dominant organization of corporations. And so we’ve also seen real effects of that that have amplified the incentives for this profiteering.”
Plus, over the last decades, the U.S. Supreme Court has dramatically expanded corporate rights. And, it seems, corporations are taking those rights and running with them.
For example, in a recent earnings call for food giant General Mills, which owns brands including Annie’s, Betty Crocker, and Pillsbury, the company’s CFO confirmed that price increases were outstripping cost inflation. Executives at Tyson Foods recently cited “pricing initiatives” for increased profits. PepsiCo’s CFO claimed the company is “capable of taking whatever pricing we need.”
Food prices are only so elastic, however; if prices go up too high, consumers start buying less—and visiting food pantries instead. That’s already starting to happen, evidenced by long lines at food banks and retailers going over their recessionary playbooks in recent earnings reports.
But, Becker said, even when the cost of producing food goes down, it typically takes longer for prices to drop than it does for them to shoot up in the first place. “As the cost goes down, they keep the prices high to kind of extract a little bit more profit margin while they still can,” he said.
Price gouging is a difficult thing to prove, but the current makeup of our corporate food system is certainly ripe for it.
How the Hyper-Concentrated Food Sector Shapes Prices
In a competitive capitalist economy, the market dictates prices. Companies can only charge whatever consumers are willing to pay for their products. If something costs less somewhere else, they’ll likely go there to buy it. The consumer commands control of the market.
But in our current food system, companies have the power.
Right now, only four companies control more than half of the market for nearly 80 percent of grocery items, according to an investigation from the Guardian and Food and Water Watch. Food retailers are also extremely concentrated, with only four companies—Walmart, Costco, Kroger, and Ahold Delhaize—controlling 65 percent of the market. Supermarket giants Kroger and Albertsons are currently planning a merger which, if it takes effect in 2024 as expected, would make them the second-largest food retailer in the U.S.
“These firms control such a large segment of the market that the basic supply and demand market dynamics cannot function,” said Farm Action’s Joe Maxwell.
This hyper-concentration dates back to the 1970s, when then Secretary of Agriculture Earl Butz told farmers to “get big or get out.” In the years since, corporations have taken that advice and run with it. Mergers and acquisitions have resulted in an agricultural supply chain that is dominated—from seed to grocery store—by a small handful of companies. And now consumers are paying the price.
It also gives corporations the power to keep prices high in tandem with their rivals. Not necessarily through explicit collusion, but rather a wink and nod, tacit agreement. It’s even easier to do that during emergencies, such as a global food crisis.
“In the context where all firms are facing these cost shocks, collusion isn’t really necessary because when you know that all other firms are facing the same conditions as you, you can raise your prices,” said Evan Wasner, a graduate student at the University of Massachusetts-Amherst who has recently co-authored multiple papers on the topic with economist Isabella Weber. In the latest, they wrote, “Sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions.”
Records show that many companies announce exactly how much they’ll raise prices on their public earnings calls, deeming explicit collusion unnecessary.
The Biden administration has been outspoken against a monopolistic marketplace, though little has been done in practice to crack down on corporations. But the issue has garnered some attention in Congress recently. In February, Senator Cory Booker (D-New Jersey) and Representative Ro Khanna (D-California) re-introduced the Farm System Reform Act which, among other things, would target concentration in the meatpacking industry.
Putting Power Back in the Hands of Consumers
There are no laws on the books that govern corporate pricing, but there is a trio of antitrust laws against corporate conspiracy, collusion, and monopolization, including the Sherman Act, the Federal Trade Commission Act (which created the FTC), and the Clayton Act. But so far the FTC has failed to act in the corporate food sector.
Legislation introduced last year by Representative Jamaal Bowman (D-New York) proposes creating a task force to monitor price changes in food and other goods and investigate corporate profiteering. In a GOP-controlled Congress, however, it’s unlikely the legislation will get very far.
Some states are taking matters into their own hands, including New York, where the Attorney General recently proposed rules against price gouging. Changes would include prohibiting corporations with large market shares from increasing their profit margins during market disruptions.
Crackdowns on price gouging are extending beyond food, too: In California, Governor Gavin Newsom introduced a proposal in response to excessive gas prices, which would create a watchdog group and set a price-gouging penalty for the oil and gas industry.
Another approach is to implement price-gouging laws for upstream sectors—that is, goods that are used as inputs, such as fertilizer, oil, steel, and shipping materials. In general, price-gouging laws target consumer goods. Tracing price increases through the supply chain all the way back to the source could help tamp down inflation.
Experts are also predicting supply chain shocks in the future. As the effects of climate change ramp up around the world, we can expect more extreme disasters and geopolitical tension. University of Massachusetts-Amherst’s Evan Wasner argues we should prepare for that future the way we prepare for war: by keeping buffer stock reserves.
“When oil prices really skyrocketed in the beginning of 2022, the Biden administration started releasing oil onto the market and that really brought prices down pretty significantly,” he said. The same could be done for other supplies, such as grain and wheat.
Ultimately, workers and consumers need a bigger seat at the table, said Groundwork Collaborative’s Chris Becker. Several recent bills aim to do just that, including one in California that would establish a council that dictates working conditions and wages for the state’s fast-food industry, with fast-food workers sitting on the council.
“Without empowered workers and consumers, corporations exist primarily to benefit their own executives and shareholders. That’s the root of the problem,” said Becker.
“What purpose are they serving? Are they serving the interests of wealthy investors?” he asked. “Do we regulate corporations so that they care about paying their workers well, and care about not raising prices to these unsustainable levels that consumers can’t afford?