What’s really behind the 10.5% increase in meat prices this year

But why are prices increasing sharply now? A number of factors are contributing to the inflated prices, but most revolve around supply-chain issues and labor challenges. Interestingly, these issues were behind the shortages and high prices consumers saw early in the COVID-19 outbreak, but Kansas City Fed’s principal agriculture economist Nathan Kauffman says those factors are still weighing on the situation, albeit with a slight twist these days. 

Early on, the prevalence of COVID-19 cases in meatpacking plants slowed the supply chain, since companies needed to make social distancing adjustments—and some even had to close down temporarily. This created significant bottlenecks, Kauffman says, but those factors are not so much at play in the continued price increases Americans are seeing at grocery store shelves now. 

Instead, Kauffman says it’s more driven by economic factors at this point—high demand and limited supply. “The reopening of businesses and people moving about a little bit more has caused a pretty significant increase in demand for lots of things, at least for the time being,” he tells Fortune. “Some businesses, though, are only positioned to be able to deliver so much of the goods or services that are ultimately being demanded right now.”

In fact, there are a number of constraints that the entire meat supply chain faces right now, he added. Labor is one that permeates every level—at the farms, at the meatpacking plants, and even in getting the products to the store shelves. 

The increased demand is also affecting meat reserves. Although the level of frozen beef and pork supplies was up slightly in August, stock remains much lower than in 2020 and considerably depressed compared to levels seen from 2017 to 2019, according to American Farm Bureau Federation. “Generally speaking, depleted inventories have been something that has been driving bottlenecks,” Kauffman says. The cost of feed is also up, but that’s contributing only to a “relatively small amount” of the overall cost increases in meat, Kauffman says.

Supply-chain issues are also at play. There are infrastructure issues in every aspect of nearly every industry, says Robert Khachatryan, CEO of Freight Right Global Logistics. “From space on ships, in ports, and in warehouses to truck and driver shortages, there are too many vulnerabilities to list,” he tells Fortune. It’s now taking twice as long to transport goods across the Pacific—and then many are dealing with delays once they get to port and even more when faced with transporting those goods to warehouses and retailers. In the meat industry, those delays have affected everything from feed to transporting meat products to and from both warehouses and grocery stores.

The Biden administration also has blamed the high concentration of meat processing companies for higher prices, noting that just four large conglomerates control the majority of the market for beef, pork, and poultry. A recent report also noted that over the past year, many of the big producers—Smithfield Foods, JBS, National Beef Packing Co., Tyson Foods, and Cargill—have settled lawsuits and regulatory investigations alleging producers colluded to fix meat prices.

However, many of those cases involved claims going back a number of years. And experts are skeptical that this is a major factor in rising meat prices. “The basic structure and ownership patterns haven’t changed in any meaningful way in the past five to 10 years, so it is hard to see what changed that would suddenly make collusion more likely now,” says Jayson Lusk, head of the department of agricultural economics at Purdue University.

There are a relatively small number of businesses that do provide a large share of the meat that’s available for sale in the United States, Kauffman says, but that’s not the primary reason we’re seeing relatively low cattle prices and quite high beef prices. 

Because of drought in parts of the U.S., lots of producers are liquidating their herds. “The economics of that suggests that the prices will be lower, but there’s still constraints and bottlenecks in the middle [of the supply chain] with strong demand on the other side, which is why you’re seeing high beef prices while you’re also seeing low cattle prices,” he says. 

How long will this last? 

In a normal environment when there’s a drought or another weather-related event, the ripple effects on price usually last a year or two. But this is not exactly a normal environment. “We do have to keep in mind some of the other constraints,” Kauffman says, noting that the labor shortages are a big one, along with supply-chain disruptions and delays.

And those delays aren’t going away anytime soon. Khachatryan says the current port congestion—some ships are seeing a four-week delay to dock—has been building up for about 18 months. “If imports were to stop completely it would probably take six to 10 weeks to completely clean up the backlog,” he adds. Given the record low inventories and the fact that consumer demand is likely to remain strong through the middle of next year, the delays could last well into 2023.

And since meat prices are, at least in part, tied to what’s occurring more broadly happening in the economy, it might be some time next year maybe we’ll start to see a bit more stabilization, Kauffman says. 

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