US animal protein market expects another rise in prices
The Federal Reserve Board has voted to increase interest rates by 50 basis points in an attempt to curb price inflation. The monetary policy move does not address the main reason for increased food prices: how big food companies, exploiting their market leverage, have passed costs onto consumers and reaped excessive profits.
The food at home index rose 10% over the last 12 months, led by meat, poultry, fish and egg increases of over 13% and beef increases of 16%. Commodity prices are seeing their sharpest rise since the 1970s due to Russian and Ukrainian supply disruptions, sky-high gasoline prices and unregulated grain market speculation. Avian influenza culls are spiking poultry and egg prices. And all grocery categories, except for fresh vegetables, are expected to rise another 3-4% in the coming months.
These price increases have been driven by food companies passing their costs onto consumers, subsequently generating windfall profits. 2021 was the most profitable year for big corporations since 1950, with pre-tax profits rising to $2.5 trillion and after-tax profits surging 35%, enabling the 1% to finally overtake the middle class in share of overall wealth.
Tyson, one of the “Big 4” meat and poultry conglomerates whose price increases have been scrutinized by the Biden Administration, posted over $1 billion in profit in Q1’22, up 48% from the previous year as beef prices surged over 23%. Cargill, at the heart of the speculation-heavy global commodities trade, topped $5 Billion in profits on $134 Billion in revenue in 2021. And omnichannel monopoly Amazon increased net income by $12 billion and allocated $10 billion in buybacks while raising the price of its annual Prime subscription from $119 to $139 and paying its CEO over $212 million annually.
In the supermarket sector, for the 5 weeks ending April 2, US grocery sales grew 6.4% in dollars but declined 4.1% in units, as higher prices pushed downstream by retailers started to impact consumer demand. Albertsons, the nation’s fifth largest grocery chain, reported identical sales growth of 7.5% for the three months ending Feb. 26, up nearly 20% from two years ago. Quarterly profits rose to $455.1 million, compared with a $144.2 million loss a year ago. And Kroger, which accounts for over 10% of all grocery sales nationwide, reported identical sales and profits up as well.
Recent research illustrates these inflationary-profit trends, in particular busting the myth of a wage-price spiral driven by increased worker incomes. Over 53% of price increases in the last two years have been driven by profit margin gains, while wage increases were responsible for less than 8%. This is a big turnaround from the trends of the last 40 years, when profits contributed just 11% to price increases while labor contributed over 61%. And a Morgan Stanley analysis concluded likewise, even as news broke of declining worker productivity during the pandemic, that "real wages systematically undershot productivity growth for most of the last two decades, and the labor share of income fell notably as a consequence. Corporate profit margins were the prime beneficiaries of the falling labor share."
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