The Devastating Impact of Rising Food Prices on Americans

COMMENTARY Agriculture

The Devastating Impact of Rising Food Prices on Americans

Jun 29, 2022 5 min read
COMMENTARY BY
Daren Bakst

Senior Research Fellow, Environmental Policy and Regulation

Bakst analyzes and writes about regulatory policy, trade, environmental policy, and related issues.
Skyrocketing food prices are devastating for Americans and their families. Moyo Studio / Getty Images

Key Takeaways

For lower-income Americans, this situation is particularly troubling. Skyrocketing food prices are regressive and particularly damaging to them.

The administration’s war on energy is one of the main culprits in driving up food prices. Energy is an input that affects sectors across the economy.

Policymakers at all levels of government should be laser-focused on removing the many government interventions that are driving up prices, including food prices.

The following is adapted from the author’s June 14, 2022, testimony before the Pennsylvania House Majority Policy Committee.

The story on food prices keeps getting worse.

Food prices in May 2022 were a whopping 10.1% higher than prices in May 2021. The size of these food price increases have not been seen in over 40 years and are occurring across food categories, from fresh fruits (8.5%) to fish and seafood (12.2%).

Over the past nine months, each month’s year-over-year food price increase has been above 4%, with each successive month higher than the previous—starting at 4.6% in September and reaching 10.1% in May.

This data can make the situation sound so academic and impersonal. But make no mistake, these skyrocketing food prices are devastating for Americans and their families.

For many of us, going to the grocery store is where we really feel this crushing inflation. We see the big price tag for our groceries at the checkout line then do calculations in our heads to determine what other things we might have to sacrifice financially because we just got hit with a high food bill.

For lower-income Americans, this situation is particularly troubling. Skyrocketing food prices are regressive and particularly damaging to them, as they spend a greater share of their after-tax income on food compared with higher-income Americans.

Their trade-offs might not just be giving up a night at the movies or not going out to dinner. It might be far worse, such as not going to the doctor or not running the air conditioning.

During the peak of the COVID-19 pandemic, the Trump administration and government at all levels recognized that removing harmful government regulations and other negative interventions was critical to allowing the resilient food supply chain to adjust and get Americans the food that they needed.

But things have changed for the worse. Instead of removing barriers, the Biden administration is creating an endless stream of regulatory obstacles across the economy, including in energy and labor.

The administration’s war on energy is one of the main culprits in driving up food prices. Energy is an input that affects sectors across the economy, including the food sector. From turning on lights and operating machinery to transporting goods, energy is critical across the food supply chain.

It is also critical to the food supply chain in ways that may not seem as obvious. For example, high energy prices drive up the costs to farmers for a key agricultural input—namely, fertilizer.

More than 57% of the fertilizer used in the United States is nitrogenous, and a critical input for nitrogenous fertilizers is natural gas, which can account for 70% to 90% of its manufacturing cost. When the price of fertilizer goes up, those increased costs can show up in the price of food.

Energy prices in general just went up 34.6% in May, which is the eighth month in a row above 25%. For gasoline specifically, based on the latest Energy Information Administration data, regular retail gas prices more than doubled (up 109%) since President Joe Biden took office, with the average price per gallon at $5.01 for the week ending June 13, 2022. This is taking its toll on the food sector, just as it has taken its toll on our wallets at the gas pump.

Yet instead of promoting policies to actually address energy costs (and despite some of its rhetoric), the Biden administration is imposing new permitting requirements hindering energy production and sending a very clear signal to oil and gas companies that it doesn’t want their industry to even exist.

Food prices are also being exacerbated by labor shortages and government interventions that disincentivize work and drive up labor costs.

There are 11.4 million job openings, which is about 50% above the pre-pandemic record, and that translates into 1.9 jobs available for every unemployed worker. According to the National Federation of Independent Business’s May 2022 survey, a record-high 51% of employers reported job openings they could not fill.

These labor challenges are hurting the food sector and many other industries. For example, the fast-food industry has been experiencing a labor shortage and offering significant bonuses to attract potential workers. Just drive around virtually any town and one will quickly see the prominent advertisements for workers on restaurant windows, making the shortages readily apparent.

There are also plenty of other obstacles specific to the food and agricultural sector that are keeping costs artificially high. Controversial countervailing duties on Moroccan fertilizers are driving up fertilizer costs. And the infamous federal sugar program intentionally drives up sugar prices by restricting the supply of sugar that can be sold domestically, costing consumers as much as $3.7 billion a year.

There are also many food labeling regulations that are unnecessary, including menu labeling rules for restaurants, grocery stores, movie theaters, and other businesses; and there are environmental regulations that are hurting farmers and ranchers.

For example, the Biden administration is moving forward with another rule to define what waters are regulated under the Clean Water Act, referred to as “waters of the United States,” even as the U.S. Supreme Court is going to hear a case in the fall that could make any new rule moot.

This is a troubling time for all Americans. The current inflation acts like a tax on all of us, and it is hurting our quality of life.

Policymakers at all levels of government should be laser-focused on removing the many government interventions that are driving up prices, including food prices. Instead of driving inflation, policymakers need to remove the policies that are contributing to it.

This piece originally appeared in The Daily Signal