Here are some levers the administration can pull to rein in food inflation.
US food prices continue to increase despite cooling inflation. Mostafa Bassim/Anadolu via Getty Images
Over the last few years a new topic for small talk has emerged in America, one that bridges race, class, and geography: the infuriatingly high price of groceries.
The rate of inflation has dramatically slowed down in recent months, but the price of groceries remains about 25 percent higher than in 2019. Research suggests that grocery prices have an exaggerated effect on how people perceive inflation. Stubbornly high supermarket prices may play a role in shaping Americans’ negative attitude toward an economy that most economists say is actually pretty good.
Rising prices — as well as the related phenomenon of food companies shrinking the size of items without shrinking the price, known as “shrinkflation” — are a political problem for Joe Biden. The president tried to empathize with the common shopper in a video released on YouTube a few weeks ago.
“As an ice cream lover what makes me the most angry is that ice cream cartons have shrunk in size, but not in price,” Biden said. “It’s a ripoff.”
So what can the Biden administration actually do about high food prices and shrinking packages?
“While the government can’t necessarily control the prices retail puts on stickers, we can give more money to low-income people to deal with those higher prices,” Elizabeth Pancotti, a strategic advisor at the progressive think tank the Groundwork Collaborative, told Today, Explained co-host Noel King.
The Biden administration also is moving to make the meat and grocery industries more competitive, and therefore cheaper for consumers. They’ve even opened up a joint task force between the FTC and Department of Justice to investigate unfair and illegal pricing. What follows is an adapted transcript of Pancotti’s conversation with King, edited for length and clarity. —Miles Bryan, senior producer
Noel King
What did the Biden administration do [for SNAP recipients] exactly?
Elizabeth Pancotti
So over the last three years, the Biden administration has actually increased the average benefit for those families on SNAP by more than double how much grocery prices have increased. It’s sort of incredible. And I think both people receiving those benefits and people in general aren’t super aware of the really targeted and progressive food assistance policies that the administration has done.
Noel King
What about all the Americans who make too much money to qualify for SNAP, but too little to afford groceries these days?
Elizabeth Pancotti
The Biden administration’s efforts so far have fallen into one big bucket that I’ll call tackling concentration in our grocery and food markets. They’ve done great work there, but we think there are a couple other things they could do using existing law to bring down food prices. Not so much to tackle their growth, but to actually bring the levels down.
The first is enforcing price discrimination statutes. And the second is eliminating junk fees in grocery stores.
Noel King
Price discrimination is like personalized pricing — I’m charging some people lower prices than others. So the big effort, you say, is tackling concentration. What’s the Biden administration doing there?
Elizabeth Pancotti
Just last week we actually found out that the Federal Trade Commission is suing to block the $25 billion merger deal between the grocery store giants Kroger and Albertsons. This had been kind of rumored in the news that the FTC was considering it.
This deal was announced, about a year and a half ago, and some state attorneys general have already sued to say that this merger would make grocery markets less competitive in certain regions and certain states. But now the Federal Trade Commission has sued to block the merger entirely across the entire country.
And then there is the meat industry. For beef, pork, and poultry, there are about six players that control between half and 75 percent of the market. But this wasn’t always the case. The industry has become highly consolidated over the last 30 to 40 years, and that has kind of two big effects.
One, ranchers make a lot less money, so they’re getting about 30 cents on the dollar for the meat that they produce, where it used to be nearly double that. And then consumers are paying a lot more at the grocery store because of this consolidation.
So the Biden administration has proposed rulemaking, as part of a big plan to tackle fairness, competition, and resiliency in meat supply chains. These regulations, unsurprisingly, were severely weakened by the Trump administration. And so, in October of 2022, the Department of Agriculture proposed regulations to further prohibit discrimination and deceptive practices in these meat processing markets to increase competition and integrity in those markets.
When you have a consolidated meat market, meaning there’s a couple players, it means that small supply shocks — most folks have heard about avian flu and its effect on chicken prices and egg prices — they have a much bigger price effect because there are so few players, and so there’s no competition in the industry for them to say, “Okay, we’ve been affected by avian flu, but, we won’t pass that full price on to consumers to be competitive.”
The pricing power of these few players in the industry is really outsized when these supply shocks happen. And so the administration has not only proposed regulations that would prohibit price discrimination and deceptive practices, but they’ve also invested over $1 billion in diversifying our meat supply chain so that there is more competition among suppliers.
One other thing we think that the Biden administration can do that they haven’t done yet is tackle price discrimination. An interesting thing about big box retailers like your Walmarts and your Kroger is that they go to Frito-Lay and they say, “Okay, we’d like to buy 100 bags of Doritos for every store this week.” Conversely, when a small grocer goes to Frito-Lay and says, “I want to buy five bags of Doritos,” you can imagine that the price of those Doritos will be really different.
There’s actually a law on the books about how companies can charge different prices depending on the size of their buyer, and so it’s much cheaper to manufacture 100 bags of Doritos for every single Walmart store in America. You’ve got an economy of scale there that brings down Frito-Lay’s price. You probably really want Walmart to buy a lot of Doritos from you if you’re Frito-Lay. And so you might give them a discount above and beyond how much cheaper it is for you to make that outsized number of bags of Doritos. That’s illegal under the Robinson-Patman Act.
And so that law is on the books, but not really enforced. It’s been used like, three times over the past 40 years. We think that the federal government could enforce this law and in doing so, make sure that the smaller grocers get the really good low prices that Walmart and Kroger are able to negotiate.
Noel King
Anything else that the government could do to ensure that those Americans that are struggling at the grocery store struggle less?
Elizabeth Pancotti
There’s this one niche thing that most folks probably don’t know about. The best example of this is on the ice cream aisle. Let’s say you’re Ben and Jerry’s and Breyers. You have to compete for the amount of freezer space that you get at a grocery store.
The way that grocers allocate freezer space for your favorite two types of ice cream flavors is they essentially charge a fee and they give the space to the highest bidder. So if Ben and Jerry’s has a new flavor they want to launch, or if they really want a ton of Cherry Garcia in a Walmart in Washington, DC, they can just buy more of that shelf space.
That means that Breyers has to take some pints out of the freezer space. This means that what Ben and Jerry’s does is instead of just paying Kroger or Walmart a bunch of money and then taking that as the cost of business, they pass that on to consumers.
So your pint of ice cream might be $4, but then once they have to pay this fee called a slotting fee, they might charge you another dollar to cover the cost of that fee. And if we’re trying to bring down grocery prices using the limited authority that the federal government has, we think they should start with banning slotting fees.
Noel King
The thing is, I’m still getting angry texts and phone calls from my friends and family saying such and such is so expensive. I just spent $75 at the grocery store. I myself see it every time I go grocery shopping. It doesn’t seem to be working right now. Am I reading that wrong?
Elizabeth Pancotti
I think that’s right. But I think really the culprit here is corporate greed. We have found that all of these companies, at first they were bragging about how big their margins were getting and how they were raising prices for consumers, and now grocery prices really have slowed in terms of growth. They only rose by about 1.3 percent last year, lower than regular inflation.
So we’ve seen the tides turn, but prices aren’t coming down even as costs for people making our food are coming down significantly.
Noel King
And that is a problem with America.
Elizabeth Pancotti
Yeah, I think that’s just the problem with unfettered capitalism, right? We’ve talked about how in France, the retailers and the government have a lot more power to regulate this kind of thing.
One recent example is that Justin Trudeau, the prime minister of Canada, told all the grocery stores in Canada that they had to come up with a plan to lower prices for Canadians at the grocery store. And if they didn’t, if their plan wasn’t satisfactory, he would raise their corporate tax rate.
I think you have a problem in America where if Joe Biden called up the CEO of Walmart and said, “You have to lower your prices or I’m going to hike your corporate tax rate,” the lobbyists of Walmart would probably laugh in his face and say, “No, you won’t.”
To hear the rest of the conversation, click here, and be sure to follow Today, Explained on Apple Podcasts, Spotify, Pandora, or wherever you listen to podcasts.
Sourse: vox.com
