Tag: inflation

“Food companies say their price increases merely reflect how much their costs have gone up due to “inflationary pressures,” like higher labor costs, transportation delays, and capacity issues, or the higher price of grains and animal feed. Yet inflation in 2022 outpaced the rise in wages in most industries, and the prices of many agricultural commodities have come down.
The eyebrow-raising spikes at the grocery store can only partly be blamed on manufacturers’ higher costs. The inflation narrative offers the perfect jumping-off point for companies to raise prices, and major food manufacturers are taking advantage of the moment to boost their profits.

The proof? Look at just how rich companies have gotten since the start of the pandemic.”

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““Corporate profits have hit their highest level ever, and corporate profit margins — how much they’re making on each unit that they’re selling — have hit the highest level in 70 years,” said Chris Becker, senior economist at the Groundwork Collaborative, a progressive economic advocacy organization.”

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“Why are corporate profits so high at a time when regular people feel increasingly strapped? Because a small number of players have gobbled up most of the food chain. Cargill and just three other agribusiness companies control about 70 percent of the world’s agriculture market, according to Oxfam. Brands like PepsiCo, Nestle, Mondelez, and Conagra produce and market the vast majority of the offerings found in US grocery stores.

“We look at the supermarket shelf, and we might be buying tea, cereal, whatever it might be, and we think, ‘Oh, I’ve got a real offer of choice here on the product I want to buy,’” Ahmed, of Oxfam, told Vox. “Frankly, it’s an illusion of choice, because so many of those products are actually owned by the same company.”

Grocery retailers, too, have become increasingly consolidated.”

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“Evan Wasner, a University of Massachusetts-Amherst economist who authored a recent paper on companies’ price-setting power with economist Isabella Weber, said that companies tend to raise prices when they think they won’t see a huge backlash — like when everyone else is hiking prices, too. “In a sense, economy-wide cost increases act as a kind of coordinating mechanism which allows firms competing with one another for market share to safely raise prices together,” said Wasner.”

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“Market dominance makes the supply chain more brittle, too, because it means there are just a few vulnerable points for failure. Last year’s baby formula shortage is an example of how dangerous the results can be. Just two US companies control about 80 percent of the market, which meant that when one manufacturing plant shut down, the entire nation struggled to buy baby formula.

Becker blames the vulnerable state of supply chains in part on market deregulation over the last several decades, which has enabled companies to cut corners. In the 1980s, the growing popularity of “just-in-time” inventory systems, where companies order just the amount of inventory needed right now without a buffer, allowed companies to become more efficient. That has meant lower prices for consumers, usually, and higher profits for companies — until a crisis hits, and suddenly there are shortages and supply bottlenecks.”

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“Transcripts of corporations’ recent earnings calls illuminate that they’re well aware of their power right now. Groundwork has been collecting highlights from corporate earnings calls on its website. “They’re saying a lot about cost increases and supply shocks, but they’re also saying it doesn’t matter,” said Becker. “We do have these higher costs that we’re paying, but we have so much pricing power, we’re so capable of passing all these prices on to consumers, that it doesn’t matter.””

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“Becker echoed that the current economic orthodoxy on how to fix inflation — to rein in Americans’ ability to spend money by attempting to raise unemployment levels — should be questioned.

“I would say that we have this really toxic narrative out there that the only way we can get inflation under control is to throw a bunch of people out of work,” said Becker. “Larry Summers recently claimed that we would need 10 percent unemployment [for one year], which is about 11 million jobs lost, to get inflation under control.”

“We’re going to try to solve a cost-of-living crisis by making people poor or losing their jobs? I think that’s crazy,” he continued.

What will break the cycle of not just inflation, but of consumers having to pay ever-higher prices for essential goods while the world’s food producers become richer? Experts offered several potential solutions. One is stronger antitrust laws and improved enforcement of preventing and breaking up monopolies. Anti-price gouging laws are another tool in the arsenal. Oxfam, for one, has been a vocal advocate of a windfall profits tax on food corporations. “It’s a tax on those corporations which are raising prices substantially in excess of costs,” Ahmed explained. The fact that it would raise tax revenue is great. But “fundamentally, it reins in companies’ monopoly power and disincentives corporate greed.” Other countries already have similar measures in place. Spain expects to raise about $6.39 billion from its windfall tax on energy companies and banks.

“Corporations are really making profits on the backs of consumers and households,” said Becker. “Let’s tax those windfall profits — and let’s do something with that money.

“There’s nothing that really stops corporations right now from just doing whatever they want.””