The Harris Walz plan for reining in grocery costs seems to comprise two parts, one in every of which has attracted lots of consideration (stopping worth gouging), whereas the second (antitrust in opposition to meals processors) has garnered much less criticism (see agenda right here). Whereas it is likely to be the case that grocery retailer chains are exploiting some monopoly energy, it’s not clear to me it’s crucial facet of grocery worth developments.
Right here’s an image of food-at-home retail costs vs. wholesale manufacturing meals costs (in addition to processed meat costs), all normalized in logs to 2021M01=0.
Determine 1: CPI meals at dwelling element (daring black), PPI meals manufacturing (gentle blue), and PPI processed meats, poultry and fish (purple), all in logs, 2021M01=0. NBER peak-to-trough recession dates shaded grey.
Word that processed meat costs jumped throughout the pandemic, partly due to the leap in wages (due partially to the pandemic induced constraints in labor provide). See how wages in meals processing jumped as overseas born labor provide fell, right here. Did the upper manufactured meals costs “cause” the upper grocery costs? That’s an advanced query to reply. What one can say is that from the interval a yr after the NBER-defined trough, to 2024M07, a Granger causality take a look at rejects the null speculation that adjustments in manufactured meals costs don’t have an effect on adjustments within the food-at-home element of the CPI on the 1% msl. The reverse fails to reject, on the 5% msl. Right here’s a scatterplot of log first variations of CPI-food at dwelling on lagged PPI-food mfg:
Determine 2: First log variations of CPI-food at dwelling vs lagged PPI meals mfg, and regression line.
Now, is the more and more concentrated nature of the meals processing at fault? As MacDonald, Dong and Fuglie, (2023) level out, it’s not clear, a minimum of within the pre-pandemic interval.
From the paper (p.36):
Meat and poultry processing industries had been reworked as packers constructed giant vegetation to attain economies of scale. Processors additionally shaped tighter linkages with a reorganized livestock manufacturing sector to guarantee a reliable provide of livestock to maintain vegetation at near-full capability. These transformations led to placing will increase in focus, significantly in slow-growing pork and beef industries, whereas additionally resulting in decrease prices in livestock manufacturing and slaughter. Nonetheless, whereas there have been some important mergers amongst processors, a lot of the expansion in focus took place from the development of recent, or the growth of, present vegetation by the big processors, reasonably than from mergers amongst rivals. Regardless of excessive ranges of focus, research of cattle market pricing previous to 2010 discovered restricted proof of packer market energy. Decrease processing prices gave the impression to be largely handed to customers, and the ensuing elevated demand for beef in flip led to larger cattle demand and costs. There have been fewer research of poultry or pork markets, however these research discovered solely small or native results from focus on costs in these industries. Nonetheless, developments since 2010, which present rising spreads between processor costs paid for livestock and obtained for meat, in addition to new entrants to the business, counsel that meatpackers now have been capable of train higher market energy over livestock costs than in earlier many years. New entry, and plant growth amongst incumbent producers, will decide whether or not such market energy may be maintained.
The offsetting results from exploiting higher economies of scale vs. higher worth energy might result in small will increase and even internet decreases in output costs. Nonetheless, the imposition of tightly binding constraints from restricted labor provide might change that stability.
Anti-trust actions are a lot much less prone to have distortionary results on meals markets than outright worth controls. In any case, it’s unclear to me that outright worth controls are what the Harris-Walz marketing campaign has in thoughts.
