Taking a Stab at Food Affordability

A new report from CAP makes a run at one of consumers' biggest concerns: grocery costs.

I’ve written that of the various parts of the affordability agenda, grocery costs are particularly tough. Margins are generally low in the industry (<2%) and, while there are many more problems with this market segment than I realized, it’s still a fairly straightforward market, driven by supply, demand, input costs, etc.

But there’s no denying that many consumers are still highly stressed by the price shock that occurred re groceries in 2021-22. The figure below tells the story well.

For the five years, pre-pandemic, grocery inflation was essentially zero, while (nominal) weekly earnings were up 12% (these are cumulative growth rates, over the full period). Then from ‘21-’25, grocery inflation spiked up 18%, and while earnings accelerated too, they lagged behind groceries.

That’s a shock in the price level that would freak anybody out, a sticker shock that reverberates to this day.

So, you know my methods, Watson. In that situation, you can wait for everything to get back to normal, but it’s been years since that inflation shock abated and folks are still wound up about it (i.e., the food-price levels, not the inflation). If you talk to a policymaker about affordability, they’ll start by asking what ideas you have for grocery prices. Also, Trump’s tariffs are now in the mix, pressuring imported food prices, as are Trump and Rs SNAP cuts, which we would immediately reverse.

So, myself and colleagues from the Center for American Progress rolled up our sleeves and wrote a plan. Here’s a good WaPo write-up, with views from folks on both sides.

The correct affordability-policy framework, imho, is a time-dependent two-step. First, provide immediate relief, which should often—not always¹—be temporary, so as to quickly get back to market pricing. Second, while temporary relief is in place, reduce barriers to supply-side expansions.

The WaPo focused mostly on the first part, but here’s a summary of the quick- and longer-acting ideas.

• Provide immediate relief to households through a negotiated, temporary price cap on core grocery items to help wages catch up to food costs while ensuring farmers receive a fair price on these products. The federal government could establish a “Go-To Grocery List” and provide inflation protection so no costs go up for those items by incentivizing participation from different actors in the food system. This strategy would save the typical family of four an estimated $134 per year on average while also ensuring producers receive their fair share of the food dollar on these essential goods.

• Increase competition and protect consumers and producers from practices that drive up prices and limit choices. This includes addressing industry concentration, surveillance pricing and price fixing, and long-standing barriers to entry for new grocery store development and farmers.

• Modernize U.S. agricultural policy to build resilience to prevent future price shocks. Bird flu, climate change-induced extreme weather, and world events such as pandemics and wars shock the worldwide food system, and all but the biggest actors in the supply chain struggle to adjust. Strengthening local and regional food systems, modernizing crop insurance, and increasing credit access would help support more nimble, diverse supply chains and make farming more financially viable. In addition, renewed investment in research and development would increase crop yields and provide a more resilient food supply.

The negotiated cap is a voluntary program that grocery sellers could opt into, in return for a reduction in the credit-card swipe fees they pay, tariff relief, and expanding access to a SNAP plus-up for healthy foods (which creates more demand/revenue for food sellers). Grocery retailers would agree to a two-year freeze of the costs of the 20+ items in the core basket—the basics which comprise about half of what shoppers purchase—with the revenue losses made up through the incentives noted above.

The idea is based on a Mexican program that’s been in place for a few years which, as you’ll see from some new analysis we did on this for the report, appears to be working well.

Queue the price-control pearl-clutchers, a group I myself often find common cause with, in that any time you mess with price signals, you risk the unintended consequence of pushing producers out of the very market in which you want them to expand supply. But that’s why our plan tries to hold grocers, and therefore, their suppliers, harmless (yes, the credit-card companies get dinged). At any rate, I wouldn’t worry too much about a two-year, voluntary agreement targeting a subset of food items, the cost of which is offset.

So, given it a look and maybe share a copy with your local grocery clerk, not to mention your political reps!

1. A good e.g. of “not always” is childcare. Here, there’s a structural problem: families that need it the most typically don’t yet earn the necessary income to pay for it, or at least for a decent version of it. So, this has “public-good” characteristics and requires ongoing support.