Let's Tackle the Real Causes of Food Inflation to Feed American Families

By Leslie G. Sarasin, President and CEO, FMI

Food prices have become a frequent talking point in the campaign rhetoric of both political parties during this presidential election cycle. While it has been encouraging to see inflation cool in recent months, it’s been equally frustrating that the current political dialogue has lacked an in-depth, meaningful discussion of the economic subtleties and nuances that influence the real cost of food in America or practical solutions to address longstanding supply chain issues. This perspective does little to improve economic conditions for families across the country.

While it is true that persistent issues and unexpected shocks to the food supply chain have made the price of food at the grocery store more volatile over the last 15 years, what the data actually show is that food inflation continues to decelerate. In a recent FMI briefing on this topic, Dr. Ricky Volpe, Associate Professor of Agribusiness at Cal Poly said, “Almost regardless of where you're shopping in the supermarket, you're seeing significant relief in food price inflation – not just relative to what's been going on very recently, but relative to what we've come to understand is our sort of normal historical average.” 

When discussing solutions to the challenges affecting the price of food on grocery store shelves, our conversations must remain grounded in facts and verifiable data, rather than rhetoric. As poet laureate John Dryden astutely wrote, “The best way to solve a problem is to remove its cause.”

And when it comes to addressing higher prices for American consumers, that is exactly where our attention should be – on the cause.

Rather than pointing fingers and proposing impractical policy solutions that could create more issues than it solves for both consumers and a food industry already operating on razor thin margins, the most effective way to provide affordable food for American families is to tackle the key drivers of food price volatility.

Some of those factors include volatile energy prices, an uptick in climate change-related severe weather events, and other persistent supply chain challenges. Transportation services have also seen higher inflation rates, which is a tremendous pain point in the food supply chain and the broader economy.

Grocers are under growing pressure due to fees they must pay in order to function in today’s economic environment. These include onerous credit and debit card swipe fees. Consider that the average credit card swipe fee of 3% per transaction is notably higher than food retailers' average 1.6% net profit margin.

When we look at the causes, as Dryden encourages, we see that the food industry is far more complicated than commonly communicated by either the media or political leaders.

While inflation has undoubtably caused food prices to rise at a faster rate in the last few years, it is also true that higher input costs are playing a significant role in their escalation.

Despite ongoing pressures in the food supply chain, the data indicate food price inflation is moderate compared to other major spending categories for U.S. households. The underlying data also show that the cost of groceries for shoppers has fallen by more than three percentage points over the last four years, relative to wages. This has allowed families to meet their grocery needs even as prices have increased, although we recognize this hasn’t been easy.

If we want to truly address higher prices – in any category of goods – we must pull back the curtain and understand the underlying contributing factors. Throwing around rhetoric or imposing misguided policies will do little to serve American consumers who deserve equal access to affordable, healthy and delicious food.