Saturday, April 16, 2022

"This Cheeseburger Explains Your Bigger Grocery Bill"

"This Cheeseburger Explains Your Bigger Grocery Bill"
By Ximena Bustillo and Steven Overly

"American consumers are seeing food prices rise at the fastest rate in decades. Supply chain snarls, labor shortages and climate challenges (plus the conflict in Ukraine) share the blame. To understand what’s driving the nation’s largest increase in food prices in 40 years, just take a close look at your all-American cheeseburger.

Whether it’s a humble bun and patty, or piled high with fixings, the rising cost of each ingredient is the product of a range of economic forces and geopolitical conditions that are disrupting how our food gets from the farm to our tables. They include interrupted supply chains, dire labor shortages, climate disasters and, most recently, the war in Ukraine.

The March Consumer Price Index report showed that the prices for food both consumed at home and away from the home (i.e. at restaurants) saw the largest 12-month increases since 1981. Those rising prices are inflicting pain across the board: from farmers paying higher production costs; to families buying groceries; to the Biden administration, which has seen its popularity sink as inflation hits historic highs.

The cost of food has always been politically fraught. It is influenced by a range of factors that have long sparked debate, from land use and environmental regulations, to labor rights and immigration policy. But the current price hike has thrust the issue into the political spotlight, prompting policymakers to pursue policies intended to un-jam shipping routes, increase market competition and mitigate climate change.

The BUN +7.1%: The increased cost of a burger starts with the all-essential bun. The price of bread went up 7.1 percent in March compared to a year prior, while the price of all bakery products climbed 9.1 percent. What's behind the price increase? U.S. port congestion has hampered a broad swath of American businesses over the past two years and the nation’s bread bakers are no exception.

The U.S. imports most of its gluten from overseas nowadays, along with product packaging and specialty ingredients, said Robb MacKie, the president and CEO of the American Bakers Association. The port backlog meant bakers were waiting longer for those products, assuming they could get them at all. MacKie said about 50 input costs that bakers track had jumped by double digits as of January, including hikes in the prices for wheat and the natural gas needed to power ovens. And that was before Russia invaded Ukraine, a major wheat exporter.

What to watch for next: Russia’s assault on neighboring Ukraine has effectively taken one of the world’s top wheat producers off the market. That alone has global ramifications, but it’s compounded by a recent ban on Russian oil and gas that is exacerbating already-high energy prices. “On the global market, we're just seeing phenomenal [price] increases already,” MacKie said. And he warned that “if Ukraine is not able to get … their spring crops into the ground, we could see some very significant food security issues around the world.”

The BACON +18.2%: Meat eaters may be inclined to top their burger with strips of bacon, at a cost. The price of bacon has jumped 18.2 percent from March 2021 to March 2022. What's behind the price increase?

About 16 percent of the domestic pork supply goes into producing bacon, with Iowa, Minnesota and North Carolina leading the nation in pig production. Four companies - Smithfield, JBS, Tyson and Hormel - control 67 percent of the market, raising concerns from the Biden administration, which has made the industry a focus of its anti-consolidation push.

Meatpackers, however, argue that the Biden administration is using them as a scapegoat and ignoring other causes of inflation. The National Pork Producers Council, for example, blames increased transportation costs, supply bottlenecks and delays and increased labor costs throughout the pork chain as bigger culprits of rising prices.

What to watch for next: Pork producers have been warning of the impacts of decreasing farm labor accessibility and are calling for unlimited access to H-2A visas for temporary agricultural workers. But divides between Senate and House Republicans have stalled negotiations on changes to the visa program.

Other potential challenges could include California’s Prop 12 law, which places animal housing requirements on all pork producers who sell their products in the state, regardless of where they are based. Pork industry advocates say it could increase the price of pork if fully enacted. The Supreme Court has accepted a lawsuit next term challenging Prop 12, setting up a court battle for later this year.

The EGG +11.2%: Debate the chicken-or-egg origin story all you want; both cost more money nowadays. The price of eggs was up 11.2 percent in March compared to a year prior.

What's behind the price increase? The humble egg experienced a pandemic-induced boon in 2020, as more Americans cooked their meals at home. Marc Dresner, a spokesperson for the American Egg Board, explains that egg sales shot up dramatically when lockdowns started, and remained up 8.5 percent for the rest of that year. The latest data show that sales have since slowed, but were still up 3.9 percent in January compared to the year before. That means demand has remained above the industry’s pre-pandemic growth rate of 2 percent per year.

The persistently high demand is one factor behind the rise in egg prices. Farmers have also had to pay more money for chicken feed and for transportation. Many have also struggled, like other agriculture employers, with employee retention. That all adds to their operation costs.

What to watch for next: Consumer demand for eggs is expected to return to pre-pandemic levels as old shopping and dining habits gradually return. That could ease some of the upward price pressure. But the other factors driving up farmers’ costs remain hard to predict. Labor shortages and logistical challenges, such as the dearth of truck drivers and the soaring price of gasoline, will likely keep egg prices elevated along with other consumer goods.

The Avocado +39%: Avocados don’t just go on toast. The average avocado price is $1.39, which is 39 percent higher than it was the same time last year, according to data from the Hass Avocado Board.

What's behind the price increase? Over 80 percent of avocados sold and distributed for consumption in the U.S. are imported from Mexico, with some states such as California, Florida and Hawaii growing them as well. That means disruptions to the supply chain that transports the fruits from Mexico to states across the country can put upward pressure on prices.

Just one example: Regular avocado eaters may recall that at the start of the year, USDA paused inspections of Mexican avocados after a U.S. inspector in Mexico received a threatening phone call from a cartel member after denying a shipment of avocados. Organized crime groups in Mexico, and specifically Michoacan, where most of the U.S. avocados are produced, have gotten involved in the production and marketing of ag products. The halt meant any uninspected fruit could not be imported, creating concerns about a sudden shortage. This was not the first time the U.S.’s avocado supply was affected by security concerns. USDA employees previously received threatening messages in 2019.

What to watch for next: American demand for avocados has soared in recent decades, which has also contributed to higher prices. And over that time, the U.S. has become increasingly reliant on Mexico to satiate its appetite for guacamole and avocado toast. Some American growers warn that dependence means domestic producers, who already struggle to compete on price, would not be able to keep up with demand in the event of disruptions abroad. Those disruptions would thus force U.S. distributors to find avocados from new sources, a process that consumes both time and money.

Meanwhile, Mexico is looking to expand its avocado dominance in the U.S. market. It has been asking the U.S. government for greater access to the American market, but agriculture negotiators have conditioned that on Mexico granting full market access to U.S. fresh potatoes. U.S. exports of fresh potatoes to Mexico have been limited to only the first 16 miles past the border for the last two decades. But last year, the Mexican Supreme Court ruled that blocking increased market access was illegal, a victory for U.S. producers who had challenged the limits. Agriculture Secretary Tom Vilsack announced earlier this month that opportunities to expand U.S. potato exports could begin as soon as May.

The Tomatoes +1.7%: The tomato has seen a relatively modest increase compared to our other burger ingredients. The price ticked up 1.7 percent between March 2021 to March 2022.

What's behind the price increase? Labor and inflation are the main drivers of the price increase. The costs of production, including diesel fuel for machinery and wages for farmworkers, have gone up, and the industry has become increasingly reliant on H-2A visas to bring in foreign farmworkers, which is a more expensive labor force.

Most of the tomatoes produced in the United States for domestic consumption come from California and Florida, which produce 25 percent and 40 percent, respectively. And a majority of those tomatoes go to the food service sector, where they are eventually used on items such as hamburgers. “We can either import our food or we can import workers because it's getting very difficult to farm in the United States with the scarcity of labor,” said Michael Schadler, executive vice president of the Florida Tomato Exchange. “So if we want to keep producing food in this country, there's got to be a way to access that workforce.”

What to watch for next: Production costs along the tomato supply chain are up about 30 percent in Florida and eyes are on the continued rise in fuel prices caused by the conflict in Ukraine. But you can’t blame tomatoes for the increased cost of your burger: Many producers have been unable to increase the prices of their products due to the need to compete with imports from places such as Mexico.

Food industries that have competition from imports have difficulty passing increased production costs to consumers because their products are then less competitive against cheaper imports, according to Schadler, especially given that the price of labor in the U.S. is increasing faster than it is in Mexico. “As far as inflation of the tomato on a burger, you really aren’t seeing much because the market is very tough and market prices are significantly below our cost of production. It's been a tough season,” he said.

Members of Congress from states including Georgia and Florida have long been calling for the U.S. to investigate how Mexican imports of items like tomatoes have resulted in an unfair advantage against domestic producers.

The LETTUCE +12%: Leafy greens come at a price, too. The cost of lettuce increased 12 percent in March compared to the prior year.

What's behind the price increase? Most lettuce consumed in the U.S. is grown in either California or Arizona. Those greens have to then be shipped throughout the country, which is a more expensive undertaking when trucking capacity is constrained and gasoline prices are soaring. But lettuce growers are uniquely stressed due to climate and weather-related challenges, from unseasonal temperatures to drought, which have disrupted traditional growing patterns.

“Right now, lettuce growers in the U.S. have been hit by the perfect storm of weather challenges that have caused the spike in prices that consumers are seeing in stores,” said Joe Watson, the vice president of retail, foodservice and wholesale, at the International Fresh Produce Association. “Ice, cold temperatures and wind in California and Arizona desert growing areas have reduced the quality and overall amount of lettuce coming out of these regions,” Watson continued.

What to watch for next: Lettuce production shifted northward in April with the season change, and the new location is expected to yield more bountiful harvests, Watson said. But supply chain and labor issues will persist, and climate challenges will continue to confront farmers.

The MAYO +14.9%: As far as condiments are concerned, mayonnaise is both high in calories and, now, higher in cost. In March, the price of fats and oils was up 14.9 percent compared to last year.

What's behind the price increase? Soybean oil is a key ingredient in many processed foods, including mayonnaise and salad dressing, notes Jeannie Milewski, executive director of the Association of Dressings and Sauces. Competition for soybean oil has been stiff, as it’s also vital to advanced biodiesel, a vegetable-oil based fuel that powers diesel engines. That means food purveyors and renewable energy producers are vying for the same commodity, driving up its market price.

What to watch for next: Advocacy groups like ADS have warned that demand for soybean oil will grow - and consumer prices will keep rising - due to new energy regulations proposed in December by the Environmental Protection Agency, which wants to increase the volume of advanced biodiesel for use as a low-carbon fuel. That could help the administration achieve its climate goals, as biodiesel has a lower environmental footprint than fossil fuels, but increased demand without a comparable expansion in production would push prices higher, industry groups warn.

The CHEESE +3.1%: There is no cheeseburger without the cheese - American, cheddar, perhaps a spicy pepper jack. The price of cheese climbed 3.1 percent from March 2021 to March 2022.

What's behind the price increase? American cheese is almost exclusively produced in… America. Wisconsin, California and Idaho lead the nation in cheese production - logistically, it is easier to produce and distribute cheese products regionally to reduce the amount of time milk, the perishable key ingredient, is in transit. Increased freight distances would mean more emissions and more travel costs.

As with many animal products, labor availability is one of the major barriers to smooth production processes. From the farm to processing facilities to truck drivers who distribute the product, labor shortages in agriculture have been a problem across the board for decades but were supercharged during the pandemic and recovery, as workers got sick, causing shutdowns.

Water supply is also an issue as drought continues to plague the West, and affects the type of crops and how much farmers can grow. Some of those crops are eventually made into cow feed. “As you look at drought and the lack of precipitation for us, it's definitely going to have an impact on feed costs,” said Rick Naerebout, CEO of the Idaho Dairymen’s Association. “At the end of the day, you still have to be able to feed these cows.”

What to watch for next: The limited availability of work visas continues to be an issue for many employers - over 50 percent of agriculture and 90 percent of dairy workers are estimated to be foreign born or undocumented. At the same time, a decreasing rural population and increased reliance on foreign labor has put the agriculture industry at the center of immigration debates. “It just seems baffling that our politicians can't figure out that we don't have the domestic workforce to fill the jobs we need filled and businesses are being stifled and inflation is being increased because we can't find enough workers,” Naerebout said.

Local governments nationwide are also on standby waiting for the federal government to unroll more infrastructure funding dedicated to building and improving western water infrastructure. In 2021, many ranchers found themselves needing to transport their cattle and feed from other states because of dry conditions. Others had to cull parts of their herds.

The BEEF +16%: Beef may be last on our list, but it’s arguably the most crucial element of any authentic burger. It now costs 16 percent more compared to March 2021.

What's behind the price increase? The Biden administration has taken a targeted swing against the top four big meatpackers - Tyson, JBS, National and Cargill - accusing them of increasing prices on meat products while keeping rancher profits low. The four companies control over 80 percent of the beef supply chain. That consolidation raised concerns during the pandemic, when hundreds of thousands of workers around the nation got sick with Covid-19, forcing processing plants to close. The shutdowns resulted in empty butcher counters at supermarkets and left ranchers with nowhere to take their animals that were ready to process.

As with bacon, beef processors and industry advocates argue that consolidation isn’t to blame, turning the focus to supply chain disruptions, operating capacity levels and drought.

What to watch for next: Now, the Biden administration is trying to prop up local and regional meat supply chains in hopes of creating more competition for the Big Four meatpackers and giving ranchers a local alternative. Republican lawmakers on the Hill are in a standoff over how to best manage and promote competition in the industry, however.

Labor and climate change also continue to pose risks. Many large meat processing plants rely on H-2B visas for foreign farm workers - 70 percent of animal slaughtering and processing labor is estimated to be foreign born or undocumented. Since the pandemic, many processing plants have struggled to reach full capacity processing levels. On the climate side, continued drought in 2021 resulted in lower yields of crops used for cow feed, and limited water availability across the West. The lower feed availability created a domino effect of higher prices."

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