Why is food so expensive?

Welcome to the Level Ups: Modern business news in plain-Jane English.

Today, we cover:

• Groceries are wildly expensive.

• Is it actually inflation? (Probably not)

• It’s a global issue.

• “Shrinkflation”

• What it means for the rest of us.

Let’s get into it.

Estimated reading time: 3 minutes & 10 seconds.

Grocery prices are not increasing because of inflation.

Companies are known for being greedy, and their shareholders want more money. While a general statement, that’s the sentiment behind many price increases when looking at the numbers below.

I think it’s price-gouging, and food companies have gone too far. This is one of those cases where the government has to step in.

The idea that inflation is increasing costs is true. But it’s a matter of how of how much. If prices were only because of inflation, why are food company profits so much higher than they used to be?

Why are the prices doubling if inflation adds 5% to the cost?

Earlier this year, Time published some key details.

• Cal-Maine Foods: 718% profit increase from Feb 2022 to Feb 2023.

  • They own Egg-Lands Best and other major brands.

• Kraft Heinz: 448% profit increase from Dec 2021 to Dec 2022.

  • They produce condiments and own brands like Jell-O, Weight Watchers, and Philadelphia Cream Cheese.

• Conagra Brands: 56% profit increase from Feb 2022 to Feb 2023.

  • They own Orville Redenbacher, Reddi-Wip, Slim Jim, etc.

Again, how are profits up so much if inflation hovers around ~3-5% right now?

Global issue (and government intervention).

The World Bank (for what it’s worth) is calling this a food price crisis, and for the most part, I agree.

The article cites how the war in Ukraine (presumably more recent conflict in Israel as well) affects food exports.

These typically hurt the Global South (with limited harvests of their own) the most.

Typically, interest rate increases are used to limit spending, which in turn, brings down prices. But so far, this has not been the case.

Then, there’s France, who literally strong-armed their grocers into lowering prices, furious about how they’ve hit record highs.

This chart makes it easy to see why France’s government made this move.

France did this in June.

In July, it was announced that the United States Department of Agriculture (USDA), would join the fight against price gouging.

In Canada, a little over two weeks ago, the government also announced a plan to bring down stabilize food prices. While late to the party (and at a time when it looks like food prices might stabilize there anyway), it’s a step in the right direction.

But as we see in Canada, where the food companies haven’t actually mentioned committing to the government's promises, there are limits on how much we can expect.

“Shrinkflation”

Inflation is the rising cost of living. Our mortgage payments, bills, and groceries are all factored into this. The increase in costs from one year to the next is inflation.

While not every number has the same “weight” on the inflation number reported to us, they all play a factor.

But, when measuring the cost difference, there’s a loophole.

What happens when the price of a bag of chips goes from $5 to $6 (for example), but the size of the bag goes down from 500g to 400g?

The overall measurement of all this does not account for that. Meaning companies can charge more, and give us less, which makes it seem like the price hasn’t gone up as much as it has.

It happens a lot.

It’s something to watch for, but ultimately, the real question is: what can we do about it?

What does this all mean for the rest of us?

It’s tough to admit, but there’s not much we can do in the short term.

With inflation showing signs of lowering in some countries, prices should stabilize (regardless of what Canada’s government says).

France’s approach is the most heavy-handed and, arguably, shows the most promise in actually working. But not every government would do the same.

Ultimately, in the West, these food companies (and the food billionaires who own them) are private and can do what they want unless the government forces their hand.

So what are our options:

• Vote for a government that would act on this issue sooner, especially if you’re in an election year.

• Start pinching the pennies (again, very hard to say it).

• Invest a little money in products, containers, and learning techniques to keep groceries fresh for longer. Fewer trips to the grocery store can add up.

If you’re upset, you’re right to be.

But the good news is that inflation is slowing down (this link is in Canada, but it also applies to other countries), and things should improve.

Thanks for reading!