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Inflation Doesn’t Explain Historic Corporate Profits — Monopoly Power Does
2021 was a bad year for grocery bills. Shoppers paid 6.4% more for groceries in November 2021 compared to November 2020, according to the consumer price index [[link removed]]. All food prices were up a bit more than usual, but the most dramatic price increases come from meat — pork cost 14% more than a year ago and beef cost 20% more [[link removed]]. These increases are slowing, per consumer price data [[link removed]] released Jan. 12, but show no signs of dropping to pre-pandemic levels anytime soon.
Food [[link removed]] companies say [[link removed]] rising prices are merely free markets at work—extreme weather and pandemic disruptions increased production costs and diminished the supply of food while demand increased in the U.S. and abroad as people started to emerge from the pandemic. But the Biden Administration [[link removed]] and politicians such as Sen. Elizabeth Warren [[link removed]] allege foul play. They argue that industry consolidation, especially in meat processing, helps a handful of corporations profit off inflation expectations by raising prices even further. In some respects, both sides are right.
Food companies do face legitimate increased costs and unique shortages, but these aren’t eating into their profits as economists might expect. In fact, the largest publicly traded companies have never had higher profit margins [[link removed]]. Such record earnings suggest that food companies have sufficient market power to pass all their higher costs, and then some, onto consumers. Basic economic theory tells us that when a business charges too much, competitors will offer lower prices, take sales, and erode excessive profit. Sustained, exceptional corporate profits raise the question: How much are food companies really competing? And if corporate consolidation helps competitors raise prices together, what will it take to tame price gouging?
Read the full story here, [[link removed]] published online in Time magazine.
What We're Reading
Maine’s Democratic governor, Janet Mills, vetoed a bill that would have allowed Maine farmworkers to unionize. Farm and agricultural workers are excluded from protections for organizing under the National Labor Relations Act. ( Portland Press Herald [[link removed]])
After a seven-week trial and four days of deliberation, jurors failed to reach a verdict in the U.S. Justice Department’s criminal price-fixing case against 10 poultry executives. A retrial is set for February. ( Bloomberg [[link removed]])
The Family Farm Action Alliance asked the Department of Justice to investigate whether fertilizer corporations are abusing their monopoly power to raise prices to record levels. A new study from Texas A&M University found recent fertilizer price hikes track closely with higher corn prices, and not changes in nitrogen fertilizer’s main input natural gas, raising concerns about fertilizer companies’ market power. ( Reuters [[link removed]]/ Farm Action [[link removed]]/ Feedstuffs [[link removed]])
About the Open Markets Institute
The Open Markets Institute promotes political, industrial, economic, and environmental resilience. We do so by documenting and clarifying the dangers of extreme consolidation, and by fostering discussions of ways to reestablish America’s political economy on a more stable and fair foundation.
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