If wholesale food costs have gone up and they're simply passing that on then they may not be making any more money.

Here's wholesale food prices in the US: https://fred.stlouisfed.org/series/WPU578101

In fact you'd expect reduced sales from the higher prices to put pressure on profits. In fact that is what seems to be happening in the UK:

https://www.grocerygazette.co.uk/2023/01/31/food-companies-p...

But not in the US, where it does look like there may be some gouging going on, but we'd need to see their profit reporting to be sure:

https://accountable.us/wp-content/uploads/2023/02/2023-02-10...

Fertilizer prices have been historically high, which impacts the underlying costs of most things you buy at the supermarket: https://fredblog.stlouisfed.org/2022/10/fertilizer-prices-so...

The root cause is economic decoupling between Russia, China, and the U.S.

It's both increased wholesale food costs and price gouging. Profits have never been higher all along the board. Everyone in the chain is "passing the cost on" and also taking a little extra cut.

I've seen a convincing argument that this is energy price inflation being passed on down the pipe. Certainly for out-of-season foods grown in greenhouses, leading to the UK tomato shortage of last month. (Anyone else see "max 3 per customer" on various fresh fruit and veg?)

The profits are inarguable. They really have never been higher. https://tradingeconomics.com/united-kingdom/corporate-profit...

(note the table underneath pointing out that industrial production has declined at the same time as record profits)

Energy is a large part of that: https://www.bbc.co.uk/news/uk-64489147

Profit, or profit _margin_?

gouging is an incredibly unhelpful context in a macroeconomic sense. In cases of shorter term scarcity (e.g. toilet paper during early covid), you can have instances of gouging. But over a longer-term period where prices are calibrating to demand/supply dynamics, price increases simply reflect the shifting balance between supply and demand.

Should we be concerned about why there are shifts in demand/supply? Sure.(In the case of food, part of this is driven by the UA war and likely other trends in food productive)?

But it is eminently unhelpful to simply attribute increases to 'gouging' and expect that to be the final say.

> Should we be concerned about why there are shifts in demand/supply? Sure

This just sounds like "we should be concerned about why this company is able to price gouge" but we're also worried about not hurting the company's feelings.

Increased prices and price gouging are not the same thing. If production costs are up, and they are up, then prices can go up without anyone making any more money. You have to actually look at why prices are going up.

The other factor is that rising prices often mean an increased need for investment by producers. That investment capital has to come from somewhere, so what look like increased profits based on current cost structures can actually be entirely justified if the company then needs to invest that money in order to get production volumes up and cope with increased capital costs.

I don't know enough about the food industry to be able to say which of these is happening, in which sector or country, but these are much more complex issues that the knee jerk reactions here imply. What I can say is, it seems to me that if the reduced supply from Ukraine and Russia is going to be made up, somebody somewhere is gong to have to ramp up food production an awful lot, and I can't imagine that's going to be cheap.

> Increased prices and price gouging are not the same thing

Considering that's the explicit context of this comment thread, obviously, the difference is exactly what we're talking about here.

> I don't know enough about the food industry to be able to say which of these is happening, in which sector or country, but these are much more complex issues that the knee jerk reactions here imply.

That's what I mean about sparing a company's feelings. You have no material objections, but it's important we not use the word "gouging" for companies whose profits are rising considerably faster than inflation and it's consumers being hurt. Tone policing is the least important (and least interesting) part of this conversation.

I think the point is a little finer than you think. Yes, profits are up, but can you necessarily conclude from that single fact that the issue is price gouging? In a scenario where every company is trying to maximize profit, "price gouging" cannot explain why prices are increasing now in particular. Other things can, such as the elements pointed above. In an industry with a lot of competition, I find it much more productive to discuss what are the macroeconomic elements that cause inflation than whether the selfishness of corporations has increased recently.

the "trying to maximize profit" is synonymous with said gouging

Increased prices (and sufficient demand to justify the price increase - e.g, overall profit increase) is part of the interaction between demand and supply. Sure, demand for food is inelastic, but there are plenty of different suppliers at each level of the supply chain (different food brands, different grocery stores, etc.) who are individually acting to support the price search function (via individual profit maximization).

Price is a signal of scarcity. Food is more scarce due to supply chain issues, therefore food is more expensive. Is that bad? Sure, let's address the supply chain issues, overall macroeconomic inflation and, uh, other disruptions (incl. the UA war).

Unless you are specifically alleging direct conspiracy between food producers to raise prices (e.g., monopolistic action), (also already an illegal thing), there doesn't seem to be a clear call to action here.

the thesis is pretty simple:

if any given step in the value chain is increasing their prices beyond what is necessary to cover increases in costs (they are), that additional margin purely for the purpose of wanting more money is, imo, pretty shameless when it's hurting so many people down the line

In the US, M2 increased 70% in 2 years. Of course prices are going up. Anything less than a 70% increase means companies have a ways to go to catch up.

I'm not sure about 70%, I can only see 33% in open sources, but either figure is huge and now everyone is with Pikachu face and blames everything but helicopter money.

This chart https://tradingeconomics.com/united-kingdom/money-supply-m2 has UK M2 declining from its peak in September 2022 (the two month Liz Truss government). It doesn't match the inflation chart.

> It doesn’t match the inflation chart.

and i don’t think you’d expect it to. the increased supply needs to hit the market first. depending on how that money is distributed, that could take a long time. also remember that QE has been central fiscal policy in the UK and US since basically 2007. and it’s safe to say that concentration of this wealth is.. very high.

> has UK M2 declining [..]

it becomes a bit more sobering when you look at the full scale on that graph (when the y-axis starts from 0). it’s a metaphorical deck-chair-thrown-off-of-the-titanic amount of decrease.

The contention was that the rich always want high inflation to stiff the poor. I’m just pointing out that’s not berm the case for, I said 20 years, but it’s actually been 30.

Yes we have high inflation now, but that’s just been a plain old cockup. The massive inflation reduction act stimulus for example.

Those are nominal profits, everyone is trying to take "an extra cut" to stay ahead of inflation. Grocery has razor thin margins to begin with and the usual direction of prices is downward. Inflation will absolutely put a grocer out of business if they can't stay ahead of rising prices.

Wholesale margins are razor thin, but retail ones are relatively fat. (I work in Wholesale/Retail software).

Unit margins, or operating margins?

After tax profit margins for grocery retailers in the US range from 1-3%, some places like Whole Foods approach 5%. Gross margins are higher, but net margins are what determine whether or not you go out of business.

I updated my post, it does look like that's happening in the US market.

right out of the oil industry playbook.

>Profits have never been higher all along the board. Everyone in the chain is "passing the cost on" and also taking a little extra cut.

This feels correct, but if that were the case, if companies are generating record profits, why aren't we seeing that reflected in stock prices? At the very least, why isn't price / earning ratios cratering?

Profits have never been higher means nothing if dollars have never been lower.

What are profits like adjusted for inflation?

the dollars are lower as a result of their actions increasing profits

they only need to increase prices to deal with the increase in costs, and profits represent an increase above and beyond that necessary amount, which in economic terms is "not cool, dude"

All well and good except for the fact that these companies have gone on the record in their earning calls to say this is just them squeezing the end consumer as much as they can. But go ahead and makeup some false justification to defend them against the truth of their own words.

If you believe that, are you investing in food company stocks?

Not everyone is trying to be an unethical jerkwad.

Dude, did you even read my post? Yes that is happening in the US, I said as much. In the UK, profits are down. For the most part in both cases, I'm sure there are exceptions.

This is a pretty lazy narrative. Prices are rising even in non-branded goods and markets. Smaller retailers are not-undercutting the bigger retailers.

Couscous and margarine and eggs being more expensive across the board at the supplier level. This does not speak to any sort of cartel behavior.

You’d be surprised at how few importers actually provide most of the imported foodstuffs in the U.K. - Lamex and IPL for instance. Brexit has made importing untenable for a lot of smaller operations due to the red tape, and many have moved their buying to import agencies or domestic wholesalers.

There are quite a few significant supply bottlenecks in the U.K. food supply chain, from supermarkets to wholesalers to importers, and they do allow for price fixing - demonstrably so in the case of supermarkets and domestic produce.

Not to veer off into the psychology of it, but there's just such an overwhelming desire by most people to place blame for any misfortune on some intentional human behavior.

It's the root of conspiracy theories - it's much easier and nicer to think there's some cartoon villain somewhere making your life miserable; it's much harder to admit that the world is just annoying and painful.

Also with a "big evil" you can tell yourself that removing that evil would solve everything.

A lot of times, the villainy is really the collective self-interest of thousand of people in a supply chain or open market. No one is going to willingly pay more or sell for less than they can get at any step of the way.

I use housing as a good example since it's been a major driver of inflation and most houses are sold peer to peer on the open market. If you're selling your house and you see comparable houses selling for $900K, but you only need $750K to earn enough profit to buy your next house, what are you going to do? Sell for the lowest price you can afford? Or sell for the highest price you can get? You'd sell for the highest price. And that same calculation gets played out at every level of every transaction in every corner of the global marketplace. Yet nobody would think of themselves as being a villain for doing it. Or be accused of gouging.

From that comes NIMBY; everyone agrees that something should be done but nobody wants to do it. We really don't like be presented with 'we cause things too.'

The house sale is a perfect example, and is something to meditate on. (One solution is 'competition' such as making sure new houses are being built, other companies can produce food, etc.)

I see a lot of millenial/gen z commenters complaining that the previous generations were able to build wealth by buying affordable homes and watching them appreciate faster than inflation. And they want in on the same deal. It's simply not possible. For one, we haven't built housing to keep pace with population growth which skews supply and demand. NIMBYs are a big reason why. Secondly, in order for a home to be a valuable investment, it must by definition become less affordable for the next generation. Otherwise, it's not increasing the wealth of the owner. The only sustainable option is to match supply to demand such that houses pace or even lag inflation which makes them no longer be a viable store of wealth and instead remain affordable and available to everyone. The Boomers got a sweet deal and realistically, no one should ever get that deal again.

Well, also, we know from behavioral economics that people behave their most irrationally when they try to perceive value.

When a store runs out of flour, people don't get as mad at the store as if they raised the prices but keeps flour on the shelf. Despite the fact that having an expensive option for flour always leaves you better off than having no option.

After Hurricane Katrina there were some prominent examples of people being arrested under anti-scalping laws for trying to haul in food and generators from other areas to sell.

It's always the case. Someone, somewhere, is taking the opportunity to put prices up. It might be in some cases that it's triggered by a shortage, but they're still putting prices up because they can.

I appreciate the feedback, but I think it's unhelpful to dismiss what I said as "lazy". I have an economics background and am certainly not a "blame corporations" reactionary.

Companies are smart. When news gets spread far and wide about a shortage of eggs or other products due to disease or wars or "supply chain issues", they leap to take advantage of this consumer consciousness by increasing their prices, knowing the consumer will blame the larger macro factor and not the company. This has been well-documented, even in cases where the supply chain issues didn't actually impact the company that raised prices.

The best way to understand what's happening is via corporate earnings calls. They're upfront with their strategy when talking to investors.

For more info I'd recommend listening to this episode: https://www.bloomberg.com/news/articles/2023-03-09/corporate...

Sure, but firms reacting normally to consumer price inelasticity during supply shocks is not exactly noteworthy. The noteworthy thing here is that there are supply shocks on so many different fronts at once.

I don't deny that corporations will try to make a buck taking advantage of favorable price-over-volume plays when they can, but I think it's crazy that people think during a global energy and fertilizer shortage Walmart just decided to throw out all of their low-price volume corporate strategy just to screw customers over egg prices.

"firms reacting normally" according to who?

I'd expect decent firms to not try to gouge customers who are already hurting at the time when they most are, but maybe "normal" means "sociopathic" in the context of amoral unrestricted capitalism

I'm not sure how this cartel like behaviour works in the UK where every major supermarket has its own range of competing products - and then there is the likes of Aldi that is 90% stocked with brand lookalike knock offs?

There are currently competing narratives in the UK about food prices - greedy supermarkets v poor farmers and the same people complaining then say they shop at Aldi because it's cheaper.

Food is still cheap - it represents a small percentage of people's income. However, in the UK, we are beginning to see that food produced without the benefit of slave labour is somewhat less cheaper than it used to be.

> Food is still cheap - it represents a small percentage of people's income.

If you look at it as an average for the population, sure. But that masks the real issue, which is that it hits poor people the hardest because spending on food doesn't scale proportionally with income.

True, it could have a more significant impact.

This. The last part, thank you. I think it's a major problem in the economy today. For a market economy to work there needs to be competition, but there's too little of it. If the prices are too high, the market response should be to produce more. But it's not happening - even if you produce something you need to get it in stores and every country is dominated by a few huge chains. They don't want to do business with small time producers. So in multiple parts of the chain you have entities that can basically do whatever they want.

This isn't how the market works in the UK, or anywhere close to it (because distribution is heavily consolidated).

The main change has been energy prices (it is complex because supermarkets stopped selling some products, so the price recorded is not what consumers experienced because the product largely wasn't available).

Also, just generally, that isn't how demand for food works either. It isn't elastic, there are substitutes for every product. The main factor driving differences between countries is usually the structure of the food supply chain and exposure to trade.

Acting like "food" is a company is absurd, there is a ton of competition and substitution in the market, no one actor has the capacity to influence "food" prices in general. If they did, then were they just being altruistic three years ago by not raising prices?

> Demand for food is inelastic

I doubt it. I've read that Americans throw away 40% of their food. Obesity rates suggest people eat far more than they need to. And there are major choices in what to eat - cheap vs expensive calories.

> Obesity rates suggest people eat far more than they need to.

Obesity rates are also higher among poorer segments of society than wealthy, so it isn't necessarily a given that obese people will choose to eat less just because doing so will make them poorer due to higher prices.

They could eat less, though, and would be healthier for it.

It's likely possible that the lack of self-control that is sometimes related to overeating correlates with lack of self-control in other areas such as saving money or avoiding debt.

But that's not popular to talk about; nobody likes hearing about personal responsibility anymore.

It can also be a learned reaction due to past experience. Shortage or hungry times resulting in an instinct to overeat when food is available to act as a buffer should bad times come again.

American kids are obese, too.

Regrettably, calories are not the only concern. Modelling the cost of a good diet is hard.

Potatoes, beans, rice, etc., are cheap and healthy.

Obesity reates in the US, from my observation, are a compound effect of the unavailability of affordable, healthy ingredients (fruits, vegetables) and cultural factors (a custom of never cooking healthy meals, for instance rice and vegetables, instead of consuming carb-heavy burgers and sugary milk shakes and coke at fast food outlets).

Friends in the US drove school buses during the day and worked at Wendy's at night, only to give back a substantial part of what they earned to Wendy's to cover their dinner there. They didn't even realize what slavery they were caught up in.

> unavailability of affordable, healthy ingredients

I hear that a lot, and it simply isn't true. A bag of apples is cheap, so is a bag of beans, a bag of rice, a bag of potatoes, etc.

Some of the cheapest foods in the supermarket are an ordinary can of beans. Milk is cheap, too.

The truth in the lie is that the availability of easy to eat and healthy quantities of food is lower than it could be, and Americans love convenience.

It is possible to lose weight eating only at McDonald's but it takes effort.

The fact that Americans drink about 40 gallons of soda a year on average HAS NOTHING TO DO WITH ANYTHING GO AWAY.

(I'd love to do the math if all caloric sodas in the USA had corn syrup removed and fake sugars added what the result would be)

Hmm. Napkin math assuming its 40 gallons of sugared soda at a reasonable 20g per 8oz serving is 640 servings, 12800g of sugar, 51200 calories, or 14.6 lbs of empty nutrients on average a year if it all got replaced by calorie-free sweetener.

How much is 40 gallons? 426 12 oz cans of soda, 35.5 dozen cans, or 256 20oz bottles of soda.

I wonder if the bad quality of the majority of tap water has an effect on soda consumption. How much less soda would we drink if every residence had on-site water filtration?

> the unavailability of affordable, healthy ingredients (fruits, vegetables)

That's a complete lie. It's way cheaper to purchase healthy ingredients and cook than to get fast food. It's completely cultural.

Yes, and we have a culture of overwork so even if people did want to cook at home they’re too exhausted or short on time to consistently cook healthy meals.

If humans behave rationally and eating healthy is cheaper and healthier why don’t more people do it?

Look at immigrant households. Poor, overworked, yet they cook.

It's a matter of culture.

Let's check this empirically. Which cartel-like brands are publicly traded and publish financial reports? We can look at their profit margins next quarter.

Unilever's net profit over 2022 increased by 24.9%

It's probably better to look at the margin, I could see how the profits increased in absolute numbers as people may have switched from eating out to home-cooked food.

Profit margin increased by 230 base points that represents a 14% higher margin.

130 basepoints if you use GAAP measures so only ~7% higher margin then but clearly unilever doesn't just have higher costs but is also increasing their margin.

Do restaurants get their groceries from completely different supply chains than the rest of us?

Sure, the distributors are different, but I'd assume it's all still Monsanto, Unilever, etc., at the end of the day anyway.

I don't know, but I would not be too surprised if local / smaller producers are a bit better represented for restaurants. In any case, profit margin should not be sensitive to this.

Margin will also help discount issues resulting from Covid; a company that lost money during Covid (think restaurant suppliers) would go to a profit when it was over, but are they making MORE margin (percentage) than they were before Covid?

P&G and Nestle' are the usual examples

Also many people don't pay attention to how much food costs, at the point of purchase. It's all things that have low numbers that add up. e.g. when asked, nobody knows the price of a pint of milk.

I guarantee you that people trying to raise a family on a budget pay very close attention to the cost of individual items.

People might stop caring quite as much about individual pricing once they have enough money not to have to care.

People who have to worry "can I afford all of this once I get to the till" are very aware of how much everything costs, and they are more common than people who don't have to worry.

A pint? I mean no, but that's because milk is sold by the gallon. If you think people aren't acutely aware of the price of a gallon of milk then you live in a bubble of wealthy people. If milk rises above $3 a gallon or falls below $1.50 half of my Facebook feed has something to say about it. Same goes for many other standard products.

This thread title starts with "UK:", where milk is sold in pence per liter (and also "metric pints", which are pint-multiple containers quoted in mililiters)

Outside of chemistry, liquids are typically measured in litres (AmE: liters), a metric unit of capacity equal to the volume of one kilogram of water at 4°C (39°F) and at standard atmospheric pressure of 760 millimeters of mercury.

"Gallons" are not a universal metric:

For the US, 1 Liter of milk = 0.2641720524 (US) Gallons.

For the UK, 1 Liter of milk = 0.2199692483 (UK) Gallons.

Because this has been and still is confusing, the standard unit of liter was introduced as a universal alternative (no flamebait intended).

I work in a supermarket and customers are definitely aware of the price of milk, butter etc down to the cent.

If you have plenty of money to spend, sure.

If you are poor and/or live paycheck to paycheck (for example due to your monthly home heating bills having gone from 400 euros to 3000 euros year over year), I can guarantee you, you pay very close attention to how much food costs.

Jokes on them. I just eat less food now to compensate. That will show them.

And to put cherry on top, you will become leaner and healthier. Now THAT will really make them think twice!

Assuming that izzydata ate a poor diet before. They might just become malnourished instead.

We had shortages of ammonia, a key component of fertilizer, last year. That drove up fertilizer costs. Not a huge surprise when the output goods are then marked up.

Housing works the same way, and we've seen the result of that. If food distributors are able to coordinate price increases without direct collusion, expect it to go the way rent has.

Normally you see substitutions, but prices are up across the board.

In fact, local eggs are now cheaper than factory farm eggs around here, and chicken is getting to be equivalent in price to beef.

> raising prices as high as possible

Why did companies wait until this year to do that?

so gullible people not paying attention to their profits would just blame inflation for the entire price increase rather than recognizing that greed is driving a chunk of it

Demand for a certain number of calories per day is somewhat inelastic. How you get those calories is very elastic. Steak versus rice and beans.

> so it makes sense that companies are raising prices as high as possible since people still have to eat.

Even drug dealers aren't that greedy

If there is anything that drives antitrust action, I imagine it would be food supply.

Historically, food supply doesn't drive anti-trust. It drives revolutions in the street.

In 1906, Alfred Henry Lewis stated, “There are only nine meals between mankind and anarchy.”

Should deliveries stop, the stocks inside modern superstores might hold out a bit longer than 9 meals, but not much longer.

The Arab Spring started over them as well

Right, but a government worried about that might be inclined to be less friendly to monopolies.

The rather deliberative legislative process may not have enough time to react

I suspect the government will use it to drive down standards and unilaterally accept US imports tariff-free, rather than taking on domestic suppliers.

If it owns all brands and they raise the price, then start your own food company offering lower prices, you will turn up the market to you like from day to nite.

Is this supposed to be ironic or do you just not know how high the costs to entry are? How would you beat their economies of scale?

That’s an interesting point. Especially when the mega food corps are particularly concentrated on the cheaper foods.

This is garbage and ignores all economic realities.

Too many dollars chasing to little supply is why prices are high. Destroying the supply chain over a bad flu season only adds to the misery.

Feds are spending / creating money like crazy. This causes inflation.

These are government inflicted wounds.

There is way too much completion in food for price gouging to be a major factor.

Animal feed makes demand for food highly elastic. Simplest example, you can convert #2 corn to cow feed and make 1 calorie out of 7, turn it into chicken feed for closer to 1:2, or turn it into corn-based food directly. People can and do shift consumption to cheaper substitutes, like chicken instead of beef (or oatmeal instead of eggs for breakfast).

Demand for food is highly elastic. Food is not a homogenous substance that costs the same to produce each kind. When people are feeling more flush, they will consume more expensive food products (lobster, beef, fish, berries, mussels) and when they are feeling more price conscious they will economize on cheaper products (wheat, lentils, rice, tofu, chicken, beans, vegetables), and by wasting less food. We're talking about literally thousands of different ingredients and products, produced in different ways in different regions, that can to one extent or an other be substituted for each other.

Many of the workers in these factory jobs decided it was a good point to retire, decided it was more worth it to stay home with their kids, found a calling in a different career, went back to school, etc. This all had had ripple effects throughout the supply chain, making for less goods available. Combine that with low unemployment, hence many folks competing for those goods, and it's easy to see why we are where we are.

Corporations locking up their margins making records profits - mainly retailers but probably the full supply chain.