Grocers are stockpiling food, including frozen meat and sugar, and other items such as cleaning supplies in an attempt to protect profits, keep prices low and compete in the market ahead of anticipated price hikes later this year.
Paul McLean, the chief merchandising officer for Stew Leonard’s, a large American grocery chain, told Business Insider that the supermarket chain is purchasing 50 percent more inventory than usual and “bought ahead whenever possible” in an attempt to protect sales margins.
There is evidence that other major grocers are engaging in a similar strategy. “Stockpiling by food retailers is driving shortages of some staples, grocery industry executives said, and is challenging a U.S. food supply chain already squeezed by transportation costs, labor pressure and ingredient constraints,” reported the Wall Street Journal.
The U.S. Department of Agriculture (USDA) reported that the Consumer Price Index (CPI) for food-at-home increased by 0.4 percent from April 2021 to May 2021, and that food-at-home prices have increased 2.2 percent year-over-year.
“In 2021, food-at-home prices are now expected to increase between 2.0 and 3.0 percent, and food-away-from-home prices are expected to increase between 3.0 and 4.0 percent,” the USDA website states.
A perfect storm
The labor shortage, poor harvests due to extreme weather, increase in transportation costs due to rising oil prices, and Coronavirus Disease 2019 (COVID-19) pandemic woes are all contributing to the increased cost of everyday items and foods.
According to a report by the Pennsylvania Department of Agriculture (PDA), farming in Pennsylvania is an 81 billion dollar industry, but farmers are struggling to find enough workers to tend to their fields and farms.
Amidst the broader labor shortage, farmers are unable to compete with hiring incentives in the restaurant and warehousing industries, which offer higher salaries, larger hiring bonuses, and less labor-intensive duties.
Drought conditions in the Canadian province of Manitoba, a major food producer, have forced the region to declare a local state of emergency. Authorities have asked for help from the provincial and federal governments.
Water scarcity is threatening harvests and forcing farmers to sell livestock that cannot be sustained on the available water supply.
Food and beverage processing accounts for 26 percent of Manitoba’s total production and is the largest manufacturing center in the region. The drought conditions are expected to impact food prices down the line.
In addition, drought conditions across the U.S. midwest are threatening harvests from California to North Dakota, and are also forcing farmers to sell off livestock.
Cliff Matson, a rancher in North Dakota, told the Pierce County Tribune that “moving forward, it’s going to be tough to find a lot of feed around here without having it shipped in and paying a lot [of] money for it. So, a lot of people are thinking ahead and selling off part of their herds so they can maintain and get enough hay to hopefully hang onto the stock they’ve got.”
The issues have been exacerbated by the steady increase in oil prices, which has driven up shipping costs around the globe.
Recent discussions within the Organization of the Petroleum Exporting Countries (OPEC) on supply policy have stalled due to infighting between two of its main players, Saudi Arabia and the United Arab Emirates.
OPEC made the historic move of cutting oil production by almost 10 million barrels per day due to a drastic drop in demand as a result of the COVID-19 pandemic. As economies recover, demand for energy products is increasing again. However, due to OPEC infighting, major oil-producing regions have not increased production to match demand, driving up prices.
Until the labor market stabilizes, drought-stricken regions receive relief, and oil production is raised to meet demand, consumers can expect to pay more at the grocery store and gas station for the foreseeable future.