The Real Reasons Food Prices are Increasing…

February 10, 2022

Op Ed by: Andy Ellen, President and General Counsel, NC Retail Merchants Association

If you’ve gone to the grocery store lately and shopped for chicken wings or chips and salsa for your upcoming Super Bowl party, you may have noticed that food prices have increased tremendously over the past few months. There are many reasons why prices are going up which may not be readily apparent, but they become more evident when taking a closer look.

Broadly speaking, economics and a changing marketplace are the culprits to the recent strain on your wallet in the checkout line at the grocery store. More specifically, there are several factors at play which have increased costs in nearly every aspect of the grocery industry and those increased costs have resulted in higher prices on the shelves. In a report issued on Thursday, February 10, 2022, by the Bureau of Labor Statistics, “The consumer price index rose 7.5% in the 12-months ending in January, not adjusted for seasonal swings. It was the steepest annual price increase since February 1982 and worse than economists had forecast.”[1] In addition, the price of inputs used to produce food have increased. Many of the items like wheat, soybeans, and wholesale fats and oil were purchased in the 4^th quarter of 2021 by food manufacturers, were then processed, and are now hitting the grocery shelves. This means the wheat that increased in price by over 40% has made crackers, bread etc. much more expensive.[2]

In November, the U.S. Department of Agriculture’s food-at-home-index, which includes grocery store or supermarket food purchases, rose 6.4% over the previous year. According to the index, the price of meat, poultry, fish, and eggs increased by 12.8% “driven up by strong domestic and international demand, labor shortages, supply chain disruptions, and high feed and other input costs.”[3] Container freight rates from the week of January 17, 2022, from the Freightos Baltic Index indicated a rise in freight costs which are also a factor in increased food prices. Global freight rates increased 1% which is 140% higher than this time last year. Asia-US West Coast rates increased 4% which is nearly 250% higher than this time last year and North Europe-US East Coast rates increased 5% which is nearly 274% higher than in January 2021 during the same week.[4]

The “great resignation” has also played a factor in increased food prices. Manufacturers, wholesalers, and retailers cannot find employees and, when they do, they must pay much higher wages than in years’ past. This ripples through the supply-chain. Fewer workers at food manufacturing facilities, meat processing facilities, and distribution centers along with fewer workers at the retail level means less food is being produced, processed, and moved to the store. Energy prices are also on the rise which means there’s an increased cost to produce items like fertilizer used for growing crops. Maintaining part of a distribution center at -30 degrees to properly hold ice cream or frozen chicken uses a great deal of energy, an example of how rising energy prices cause a significant increase in the cost to operate food manufacturing facilities and distribution centers.

Much like they did at the beginning of the pandemic, consumers have shifted again to buying more groceries to cook at home because of COVID-19, but the supply chain is having a hard time keeping up with the increased demand. Food items are packaged differently for at-home consumption versus consumption at a restaurant, hotel, or venue so when there is a sizeable shift in purchasing, maintaining the supply chain becomes difficult.

In addition, retailers have had to keep up with costly COVID-19 compliance mandates to ensure the safety of their employees and customers. Two years of footing the cost of extra cleaning supplies to maintain their stores, providing masks to employees and customers, among many other things, have all added to the general cost of doing business, which are then relayed back to the consumer in the form of increased food costs.

While grocery stores were never forced to close during the pandemic, they have and continue to navigate a tough landscape of increased costs in almost every area of their industry – and while the industry remains hard at work to keep costs down for consumers, you may still notice a bump in price at the checkout line on the way to your Super Bowl party.

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About the North Carolina Retail Merchants Association

The North Carolina Retail Merchants Association (NCRMA) is a nonprofit trade association organized in 1902 to improve the business climate for retailers in North Carolina. Over 100 years later, NCRMA remains the voice of the retail industry for North Carolina. NCRMA represents the interests of individual merchants before the General Assembly and serves as a vital link to state government. Its credibility lies in its longevity and commitment to serving the ever-changing needs of its members. The Association’s membership includes more than 25,000 stores from across the state whose business represents 75 percent of North Carolina’s retail sales volume. NCRMA serves both large and small retailers from multi-state chains to local “mom and pops” and all types of merchants including antique, apparel, art, automotive, book, carpet, department, drug, electronics, floral, furniture, grocery, hardware, jewelry, paint and variety stores. For more information, visit https://ncrma.org/.

CONTACT:
NCRMA President,  Andy Ellen
andye@ncrma.org
VP of Communications, Ann Edmondson
anne@ncrma.org
919-832-0811

[1] https://www.wral.com/annual-american-inflation-hit-7-5-a-near-40-year-high/20129487/
[2] https://ncrma.site-ym.com/resource/resmgr/2022/Copy_of_PPIforecast__002_.pdf
[3] https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings/
[4] https://www.ers.usda.gov/data-products/food-price-outlook/summary-findings/