Food prices are climbing amid worker shortages, supply-chain problems, extreme weather and more
If you’re feeling a little lighter every time you leave the supermarket, it’s not your low-calorie grocery basket.
It’s your wallet.
Grocery shopping has gotten more expensive. In August, grocery store prices crept up another 0.4%, leaving them 3% above their level a year earlier and 7.6% higher than they were two years ago, before the COVID-19 pandemic upended the U.S. economy. Staples such as beef, pork, fish and eggs have notched double-digit increases just in the last 12 months.
Overall, we're getting less for the dollars we spend. The broader consumer price index was up 5.2% annually but just 6.5% over the past two years, Labor Department figures show, as the nation continues to endure its most severe bout of inflation in more than a decade.
The price of groceries isn’t necessarily the most obvious culprit. Hotel rates, airline fares and used car prices have climbed more sharply as the nation emerges from the health crisis and the economy reopens. But food costs have hit many Americans harder.
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“We can choose to fly or not, stay in different hotels, buy a different car, but we can’t choose not to eat,” says Phil Lempert, a food analyst and founder of SupermarketGuru.com. “We have a different relationship with food than we do with anything else we spend our money on.”
There are myriad reasons for the higher grocery bills, including the same labor shortages, supply-chain bottlenecks and strong consumer demand that have driven up the cost of other goods and services. Toss in the wild cards plaguing the food industry. Extreme weather, particularly heat and drought that have curtailed crop yields. A surge in exports. COVID outbreaks at meatpacking plants. Volatile consumer eating patterns amid the ups and downs of the health crisis.
“It’s about climate change, transportation and labor,” Lempert says.
There are still fewer factory, warehouse and port workers as parents care for distance-learning children or stay home because of COVID fears. Fuel costs have soared. More than 60 container ships are stuck in the waters near the Ports of Los Angeles and Long Beach waiting to unload cargo. The cost to lease a shipping container for a delivery from China has increased nearly tenfold to $20,000, Lempert says.
Such transportation delays exact a bigger toll on the production of canned or processed foods with many different ingredients. The timetable to deliver an ingredient to a factory on average has increased from about four weeks to as many as eight to 12 weeks, says Rifle Hughes, practice lead for strategy and innovation for JPG Resources, a food consulting company.
“All it takes is any one item to topple the house of cards,” Hughes says.
To cut down on potential delays, Costco has chartered three ocean vessels for the next year to transport containers between Asia and the U.S. and Canada and leased thousands of containers on the ships, Richard Galanti, the retailer’s chief financial officer, said Sept. 23 during a call with analysts.
Galanti said Costco has “elected to hold, delay and/or mitigate some of the price increases in this increasingly inflationary environment over the last few months.”
The February winter storm in Texas compounded the troubles by knocking out plants that make polyethylene, which goes into food packaging material.
All of that is colliding with strong demand from consumers, many of whom are eager to spend their cash from government stimulus checks and hunkering down last year.
But consumer prices have become less predictable. Typically, Americans spend 52% of their food dollar at restaurants and 48% at grocery stores, says Rick Shea, president of Shea Food Consultants. During the height of the pandemic last year, 80% of their budget went to groceries. As vaccinations picked up this year, the mix evened out, Shea says, but COVID spikes due to the delta variant have meant another swing to food at home.
Such ups and downs make it difficult for manufacturers to plan for production and deliveries.
“Any kind of volatility related to consumers buying products can disrupt the supply chain,” Shea says.
Early in the pandemic, Americans were more concerned about being able to find food than rising prices, according to surveys by the Food Marketing Institute. In March 2020, 62% of shoppers polled said they were concerned about finding food versus 35% being concerned over prices. In August, 50% said they were concerned over prices versus 46% worried about being able to find food.
According to FMI surveys, despite the increases in the price of groceries, the average household spending has held steady at $143 per week, which is down from the $161 at the height of the pandemic in March and April of 2020.
"It's an unusual environment and I understand why consumers feel these price increases," Andy Harig, FMI vice president, tax, trade and sustainability, told USA TODAY. "We tend to have a very low food price inflation in the United States. If you look over the last 20 or 30 years, it is pretty consistent.”
Here's a look at grocery items that have gone up by the largest percentages:
Ground beef
Price up 6.9% from a year ago; 17.6% the past two years.
Beef prices shot up in 2020, when meatpacking plants shut down after widespread COVID outbreaks. While the outbreaks have eased, the facilities are imposing social distancing requirements that have slowed production, says John Nalivka, owner of Sterling Marketing, an agriculture research firm.
Meanwhile, labor shortages more generally have pushed up employee wages from about $16 to about $25 in some cases, Nalivka says. At the same time, beef exports are up about 15% this year, Nalivka says. Besides the reopening economies overseas, China is prodding consumers to shift from a pork-heavy diet to more beef, he says.
All of that, plus robust U.S. demand, is driving up prices despite cattle supplies that are plentiful because they couldn’t be processed during plant shutdowns last year.
“It’s a nasty, complicated situation where everything seems to be causing problems,” says Michael Swanson, an agricultural economist at Wells Fargo.
A drought in the West and upper Midwest this year has destroyed much of the grass and hay cows feed on, forcing farmers to sell them to meatpackers early and reducing calf births and next year’s beef supply. Unfortunately, that likely means further price increases in 2022, Nalivka says.
Bacon and related products
Price up 17% from a year ago; 21.2% the past two years.
Like beef, pork production has been socked with COVID outbreaks and social distancing requirements, as well as labor shortages that have driven up wages and record exports, Nalivka says.
The biggest issue, though, is strong consumer demand, says Steve Meyer, an economist at Partners for Production Agriculture, a consulting firm. Fewer people are eating breakfast at restaurants, increasing the demand for bacon at grocery stores.
Bacon prices could jump 60% next year when California will begin enforcing an animal welfare requirement for more space for breeding pigs.
Chicken
Price up 7.2% from a year ago; 13.9% the past two years.
Like beef and pork, chicken has suffered from COVID-related labor shortages and production problems. Those, combined with a low hatch rate, have left output up by just a half a percentage point this year, nudging prices higher, says Knox Jones, president of KJCR, a commodity research firm.
A 40% to 50% rise in the price of the corn and soybeans – used to feed chickens –largely because of strong exports, has further lifted retail costs, Jones says.
Eggs
Price up 9.9% from a year ago; 17.7% the past two years.
High feed costs have led farmers to thin their hen flocks, Jones says. Also, he says, the industry has been moving to more cage-free hens, which are more expensive.
Fresh fish and seafood
Price up 10.6% from a year ago; 13.8% the past two years.
International demand is one reason for price increases. Some kinds of seafood have seen larger spikes, so expect to pay more for lobster. Also, heat in Northern California has forced salmon farmers to transport eggs to cooler waters in the southern part of the state, Lempert says.
And boats and fish farms have gone through COVID-related labor and production issues, Lempert says.
Breakfast cereal
Price up 3.6% from a year ago; 4.2% the past two years.
Wheat prices have spiked because of drought in the West and upper Midwest while corn prices have surged because of healthy exports and a drought in Brazil, says Nathan Kauffman, Omaha branch executive for the Federal Reserve Bank of Kansas City. Both are key ingredients in many cereals.
Some types of cereal have been harder to find during the pandemic including Grape-Nuts, which had a shortage from late 2020 through spring 2021.
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General Mills warned of price increases last week.
“Our prices are going to go up for the remainder of the year as we see inflation going out,” Jeff Siemon, vice president of investor relations, said during a call with analysts Sept. 22. “We foresee labor challenges persisting for quite a while especially as you look at logistics. There's a shortage of truck drivers here in the U.S.”
Flour and prepared flour mixes
Price up 2.6% from a year ago; 3.9% the past two years.
The home baking craze during lockdown led to shortages of essentials like flour and yeast. Higher wheat prices also have increased flour costs. More increases could be on the way as some of the largest year-over-year percentages increases were last October through December during peak holiday baking season.
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Lettuce
Price up 5.2% from a year ago; 7.4% the past two years.
Weather, including extreme heat with the California drought, have impacted lettuce prices, which in August were up 17% compared to August 2011.
Apples
Price up 5.6% from a year ago.
With wages rising, the cost both to pick apples from trees and stash them in cold storage have risen, Lempert says.
Salad dressing
Price up 8.7% from a year ago; 11.1% the past two years.
Supply chain bottlenecks are to blame for the increases in salad dressing. Also, many dressings are made with soybean oil, Shea says.
Margarine
Price up 5.3% from a year ago; 10% the past two years.
Palm oil is a main ingredient in margarine. Malaysia, which is the world’s second-largest palm oil producer, has said it is facing a labor shortage.
Whole milk
Price up 2.9% from a year ago; 12.1% the past two years.
In the early days of the pandemic, dairy farmers dumped excess raw milk. Also, farmers thinned their dairy herds when feed prices rose. Milk prices started increasing before the pandemic and are up nearly 14% from January 2019.
Lempert expects the supply snarls and higher prices to extend well into next year.
"This is going to last for a while," he says.
This article originally appeared on USA TODAY: Grocery costs increase, compounded by climate change and supply-chains
