What Kamala Harris doesn’t understand about food costs
Last week, Kamala Harris called for a new federal law in North Carolina to ban “food price gouging.” Such a law might be popular, but at best it would have no effect on food prices and could even make the problem worse. This is particularly unfortunate because it distracts from all the federal policy changes that are actually could reduce food prices.
The evidence that price gouging was responsible for the post-pandemic rise in food prices is somewhere between thin and nonexistent. A recent report from the New York Federal Reserve found that inflation in the retail food sector was driven primarily by “much higher commodity prices for food and large wage increases for grocers,” while profits at grocers and food manufacturers “played no role.” A 2023 report from the Kansas City Fed also found that rising food prices were overwhelmingly concentrated in processed foods, whose prices are more responsive to (and therefore driven by) labor market tightness and wage increases. Grocery profits did briefly increase during the pandemic, but the increase was the predictable result of increased demand (thanks to government stimulus measures and more Americans eating at home) running headlong into constrained supply (thanks to pandemic-related shutdowns and supply chain bottlenecks, as well as the war in Ukraine, a major food producer). In fact, rising corporate profits are often accompanied by periods of increased demand and inflation; the last few years have been no exception.
Even if excessive corporate profits had may have been the cause of higher food prices, banning price gouging would do nothing to alleviate the current burdens facing Americans, for the simple reason that food prices have long since stopped rising. From January 2023 to July 2024, the share of the Consumer Price Index devoted to “food at home” rose by just over 1 percent, much less than the overall inflation rate and in line with the long-term pre-pandemic trend. The U.S. Department of Agriculture adds that the share of consumer income spent on food that actually increased during the pandemic declined last year and is well below levels seen in decades past. Has corporate profiteering suddenly stopped?
In reality, grocery has always been known for its thin profit margins. According to the latest industry-wide data from NYU’s Stern School of Business, the industry’s average net profit margins in January 2024 were just 1.18 percent — that’s 80th out of 96 industries studied and lower than the margins the grocery industry has seen in all but one of the past six years. Even the Biden White House economists’ own analyses of grocery price inflation in 2023 and 2024 downplayed corporate profiteering when discussing recent pricing trends and what drove them.
Inflation is generally a macroeconomic problem, driven by broad monetary and fiscal policies, not by the decisions of individual businesses. Food prices in particular are affected by volatile factors—weather, geopolitics, natural disasters—that are beyond the government’s control or influence, which is why they are ignored in the “core inflation” metric used by economists. As economics textbooks and centuries of experience teach us, limiting the prices that businesses can charge is more likely to reduce supply by discouraging investment and production: a recipe for shortages and higher, not lower, prices in the long run. The most important solution to voters’ food anxiety is simply time, as market conditions return to normal and American incomes slowly outpace American food prices.
This solution is of course a no-go for candidates who are running for election in a few months and who are accused – rightly or wrongly – of causing higher food prices. Politicians who tell voters to “just be patient” could soon lose their jobs – so they must promise to somethingThe good news is that an eager White House and a Congress focused on food prices have plenty of policy reforms that would provide some relief to American consumers. The bad news is that they would all enrage powerful business interest groups, so they will never be implemented.
Let’s start with trade restrictions. To protect domestic agriculture from foreign competition, the United States imposes tariffs and “trade regulation tariffs” on a wide range of foods, including beef, seafood, and healthy produce that isn’t easily grown in most parts of the country: cantaloupes, apricots, spinach, watermelons, carrots, okra, sweet corn, Brussels sprouts, and more. Special “tariff quotas” further restrict imports of sugar, dairy products, peanuts and peanut butter, tuna, chocolate, and other foods. These tariffs do what they’re designed to do: keep prices artificially high. Sugar, for example, costs about twice as much in the U.S. as it does in the rest of the world. The USDA conservatively estimated in 2021 that eliminating U.S. farm tariffs would generate about $3.5 billion for American consumers.
In addition to tariffs, regulatory protectionism—against imported products like tuna, catfish, and biofuels—causes even more suffering for consumers without any health, safety, or environmental benefits. The baby formula crisis of 2022 has demonstrated the extent to which Food and Drug Administration regulations effectively shut off the U.S. market from high-demand, safely regulated alternatives from abroad—alternatives that the Biden administration seized on early in the crisis. These regulatory measures further drive up prices: The U.S. Department of Agriculture (USDA), for example, once calculated that mandatory origin labeling on meat imports costs American meatpackers, retailers, and consumers about $1.3 billion annually. Those regulations were repealed after years of litigation, but ranchers and their champions in Congress continue to work to reinstate them.
Supporting the domestic food sector is a long-standing American tradition. In dairy, the Agricultural Marketing Agreement Act of 1937 artificially inflates the prices of milk, cheese, and other dairy products, while U.S. Department of Agriculture loans to sugar processors create a de facto price floor for sugar. Fruit, nut, and vegetable growers can limit supply through produce marketing regulations and impose strict inspection requirements and other conditions of sale that discourage foreign competition and entrepreneurship and further drive up domestic prices.
Finally, there is US biofuel policy. The federal Renewable Fuel Standard, created by Congress in the 2000s, requires that a certain amount of biofuels be blended into transportation fuel. The purpose of this requirement is ostensibly environmental: burning corn-based ethanol produces fewer greenhouse gas emissions than burning gasoline. But as a 2022 study published in the journal The 4000s shows, Proceedings of the National Academy of Sciences Conclusion: When you consider the environmental impact of growing and processing corn, ethanol contributes significantly to more to climate change. The fuel standard thus has a negative environmental impact, even as it significantly increases U.S. corn prices and reduces the land available for other crops. The Congressional Budget Office and other organizations estimate that artificial demand for ethanol has increased Americans’ total food spending by 0.8 to 2 percent. Further price pressures are likely on the way, if they are not already here: A 2024 Kansas City Fed analysis estimates that subsidies for “clean” and plant-based transportation fuels under the Inflation Reduction Act could increase demand for and prices of oilseeds and vegetable oils.
Laws and regulations like these add up—especially for low-income Americans or those with large families. With food prices at the forefront of millions of voters’ minds, one might expect politicians to target these policies on the campaign trail to achieve a significant, one-time reduction in U.S. food prices and potentially a boost in the polls.
Instead, our elected officials are not only ignoring these measures, but are actively working to add more. Just last year, for example, the Senate voted to repeal a U.S. Department of Agriculture rule that allowed the import of beef from Paraguay, and several members of Congress have advocated for new tariffs on imported shrimp and tomatoes.
This reveals a sad reality for American consumers. The federal policies that are driving up American food prices are all the result of the same political evil: Each of these policies costs the average citizen a few cents here and there, but delivers large and concentrated financial benefits to American ranchers, shrimpers, farmers, sugar barons, and other powerful groups. As a result of this imbalance, we consumers rationally ignore these policies while the beneficiaries lobby vehemently to keep them in place. So when elected officials have to choose between modestly lowering Americans’ grocery bills and giving multi-million dollar regulatory giveaways to establishment political benefactors, the choice is simple: Consumers don’t stand a chance.
“Corporate greed” is indeed a problem in the US food market. But not in the way politicians claim.
