Inflation has been driven by the companies at the commanding heights of the food system pulling in massive profits throughout the pandemic.

Retail price inflation is hitting consumers hard this new year. A recent KPMG study documented consumers facing a 22% increase in grocery bills and inflation hitting a 31-year high in Q4 2021, led by double digit jumps in meat, poultry and fish prices. Inflation has been driven by the companies at the commanding heights of the food system pulling in massive profits throughout the pandemic. And it sure isn’t inevitable.

By passing higher costs downstream, corporations have taken full advantage of rising fuel and input prices, supply chain logjams and increased labor costs to grow their profit margins to the highest rates since 1950. Meat prices have been the largest contributor to these rising consumers costs, and have attracted the attention of the White House and antitrust regulators. Beef, pork and poultry pricing make up a quarter of the food price increases. Four conglomerates control 55-85% of these markets, including Tyson, JBS, Marfrig and Seaboard. Their combined profits increased by more than 120% and net income surged by 500%. They announced over a billion dollars in new dividends and stock buybacks, on top of the $3 billion already distributed to shareholders since the pandemic began. These profits have fallen on the backs of meat processing workers. Over 59,000 meat sector workers were infected by Covid-19 and 300 died since the pandemic began. Meanwhile, Tyson, who oversaw record exports of chicken overseas during the pandemic while raising the alarm about shortages, noted during a recent earnings call that their pricing actions allowed them to make more money on beef while selling less of it. Similarly, in the CPG sector, Pepsi announced a 5% price increase starting in July 2021, leading to $8 Billion in net income and a projected $5.8 Billion in shareholder dividends. Coca-Cola also announced plans to raise prices, leading to net income increasing almost 15% over 2020. Hershey’s HSY+1.1%, ADM and Con-Agra saw double digit net income increases over 2020 and Kraft-Heinz saw a triple digit increase, despite sales flattening out. And the CEO of Kellogg’s noted that consumer demand has stayed high despite price increases.

And large-scale retailers have reflected these trends. When supplier costs rise en masse, grocery stores tend to pass through the increases and then some, so that their gross margins also increase. I know this from experience, but don’t take my word for it. The CEO of Kroger explained that the nation’s largest full-service grocer operates best when inflation is at 3-4%, while the CEO of Albertson’s felt customers could afford higher prices when the economy is growing and they have cash to spend. Kroger KR +2.4%, Albertson’s, Target TGT +1.2% and Dollar General DG -0.5% all saw double digit net income growth over 2020. Walgreens WBA +1.6%’ income growth soared well into the triple digits. Ahold Delhaize net income increased 23% over 2020, despite a 5% sales decline. Dollar Tree DLTR -0.6%, who recently raised prices to $1.25, increased net income 62% over 2020, on top of a 10% increase in gross profits. These all come less than a year after an initial round of windfall pandemic profits for major food retailers, which saw 2 billion dollar rounds of Kroger stock buybacks and the Walton family adding $45 billion to their wealth.

In theory, competitive markets should push profit margins near zero, as long as consumers have ample choices in any given category, among other hypothetical factors. Four or fewer corporations control 93% of soda sales, 83% of mayonnaise, 80% of chocolate candy, 75% of yogurt, 76% of frozen meat analogues, 72% of breakfast cereals, 66% of frozen pizza, 60% of bread, 80% of toothpaste and 80% of toilet paper sales. The number of grocery stores has declined by 30% in the last 25 years and just 4 companies registered two thirds of all grocery sales in 2019. Walmart WMT -1.8% alone siphons $1 out of every $3 consumer grocery dollars nationally and up to 90% in some metro areas, yet Walmart’s share of grocery is twice as high as A&P’s was when it was broken up by federal actions and its power curtailed by the Robinson-Patman Act, nearly a century ago. 

These massive profits also deflate the bait and switch tactic that rising wages and associated labor costs are driving inflation of food. Over 99.99% of workers don’t set prices. And that small subgroup of retail and CPG category managers and pricing analysts that do set prices are accountable to profitability targets set by the executives and boards whom they report to, with the goal of keeping investors happy with an ever flowing stream of buybacks and dividends. Missing these targets means these folks are out of job. Even staid Fed Chair Jerome Powell has recently said that “wages are not a big part of the high inflation”.

So what can be done?

Economists are divided on what to do about inflation. Do we wait it out? Or should the Fed increase interest rates, risking stagflation and an austerity-imposed recession that would claw back any of the gains that working people have recently made. Think Paul Volcker, 1979. There is another option, one that is more consistent with the prevailing economic sentiment of consumer welfare. Public officials could impose price controls on key sectors of the economy. Price controls regulate what big businesses can charge customers. This is not a new idea. FDR employed over 160,000 administrators to control prices during World War 2 “on goods from scrap steel to shoes to milk” and even Republican Richard Nixon dabbled with price controls in the early 1970s. Price controls could be a public policy lever to prevent the further upward redistribution of wealth in the food industry, as well as prevent further food insecurity, like what 1 out of 4 Americans faced just over a year ago and what Black Americans increasingly face. Price controls could conceivably go so far as pushing retailers and manufacturers to reduce prices to pre-existing levels and flatline profits for the time being.

Another tool is enforcing anti-trust laws, such as Robinson-Patman, which is supposed to prevent larger retail firms from engaging in the types of anti-competitive conduct that are now seemingly widespread. Under the context of strengthening supply chains and preventing future logjams and disruptions, the FTC is currently investigating the relationships between big retailers and CPG companies and how trade spend and market dominance allow national chains to elbow out independents and “mom & pop” stores. Researchers such as Philip Howard have documented for decades how retail consolidation drives up food prices. One potential outcome should be obvious: break up and disaggregate Big Food into smaller constituents that would have to compete for harder customers. Scale does not produce efficiency in the food industry, but just enables shareholder primacy. 

And why should food always have to be a commodity? Instead of being rooted in pricing and margin dogma, maybe inflation of food industry workers should be prioritizing rights and responsibilities in the food system? Healthy, fresh food should be a human right, and it is our responsibility to make sure everyone has access to it, a lofty goal all things considered. There is always the potential to develop more food cooperatives or expand a public food sector, in the form of municipal utilities, or nonprofit food hubs like Common Market. Or encourage and underwrite courageous grassroots efforts like Ithaca’s Healthy Food For All, L.A’s SUPRMRKT, Farmshare Austin or Philly’s Soil Generation.

Or an even broader agenda would be to make healthy, fresh food fully subsidized at the point of purchase. SNAP, which already accounts for up to 12% of all food retail sales, could be expanded into a more comprehensive single payer solution. Over 60% of SNAP recipients cite high prices as the barrier to eating healthy, and inflation will make this worse. So why not cover a broader assortment of foods and mandate better quality and sourcing standards, such as those articulated by HEAL inflation of food Alliance and Good Food Communities? Inflation of food is not inevitable, and it is purely the result of prioritizing the goals of capital over the needs of people. We have the opportunity to leverage the current crisis into building a more fair, just, human and sustainable food system, now more than ever.