The price of food in the US

On Wednesday, November 6, the world woke up to hear that Donald Trump had won the first of the key swing states in the US election and was well on course to win his second term as president. He is now confirmed as president. 

Like all major political events, there are a range of factors that contributed to Trump’s election win. Many commentators and politicians have pointed to the US economy as the central factor behind his win, particularly how badly off ordinary Americans feel compared to how they felt when Trump was last in power in 2019. A significant part of US households feeling worse off is higher prices in the shops, particularly for groceries.

Since 2019, the average price of a basket of groceries has increased by 30%. Beef has increased by 45%, eggs by 83%, bread by 30% and butter by 32%. These are staples most American households buy daily, and the price increase will make many people feel poorer. Richer households will notice the rise in the price of groceries but not in the same way as their poorer counterparts. The poorest households are hit harder by rising prices because they spend a higher proportion of their income on groceries than wealthier households. On top of this, the incomes of poor households in the US have been rising more slowly than inflation over the last 5 years, which leads to falling real incomes. It is not difficult to come to the conclusion that low-income households might turn their backs on the current Biden administration and vote for Trump, who has promised to make everything more affordable for them. 

So why have groceries become so much more expensive?

One theory is that the large firms that tend to dominate the US grocery market have used the jump in inflation caused by supply chain problems caused by the pandemic and high energy prices resulting from the Russia-Ukraine crisis as a cover for increasing their profits. The market power of companies such as Coca-Cola, PepsiCo and Keurig Dr Pepper, which control 90% of the US soda market, have increased their revenues by 56% despite increasing their price by 59%. 

The giant US food corporation Kraft Heinz controls 65% of the packaged cheese market. Its unit sales volumes are up 6% despite increasing its prices by 21%.  The Kraft Heinz CEO says the business is ‘looking to drive profitable volume. We are not going to be chasing volume’. In 2022-2023, Kraft Heinz's profits increased from $225 million to $887 million, an increase of 448%. 

It seems that the oligopolistic firms that dominate the US grocery industry are using their monopoly power to increase prices, pushing up profits in a market with price inelastic demand. This has significant consequences for US consumers. 

The question is: Will Donald Trump’s new government be prepared to challenge the monopoly power of these giant companies and make groceries more affordable for US consumers?

Some possible questions to discuss with a class

1. Is there evidence of the demand for groceries being price inelastic?

2. Why do rising food prices in the US have such a significant impact on poorer households in the US?

3. What are the characteristics of oligopolistic markets?

4. How can large food companies in the US increase their prices and their total revenue?

5. Discuss the ways a government might intervene in the grocery market to make food more affordable for US consumers.