If you live in the US, you already know food prices and fuel costs have been skyrocketing for the past year. The two go hand-in-hand in our nation, but other significant factors are at play in 2022. Today, we’ll dig in and explore why we’re paying so much more to feed our families.
Get yourself a cup of coffee and settle in. This is a complicated and nuanced issue. We’ll divide the topic into four big bites to make it more digestible (haha). By the end of this piece, you’ll understand how energy prices and groceries are connected, and we’ll point out a few other issues hitting the food supply.
4 Levels of US Food Supply Challenged by Energy Costs and Legislation
From the farm to your table, fuel, energy, and labor costs affect food prices at every turn. Here are the four points that are most painful now:
- Domestic farm level: Soaring fuel costs and fertilizer supply problems make crops and livestock more expensive to grow.
- Transportation level: The increasing costs of diesel fuel, the CDL driver shortage, new electronic log books, and training requirements for truckers make it more expensive to move food products around the nation.
- Warehouse level: New refrigerants and more expensive energy make food storage expensive.
- Point of sale or grocery store: Labor shortages and minimum wage increases affect US food prices.
Let’s dig into food prices in more depth.
Petroleum, Fuel, and Fertilizer Problems at the Farm Level
Imagine an American cattle farm. That’s easy. The National Cattlemen’s Beef Association (NCBA) says there are about 700,000 cattle farms, beef ranches, and feed yards in the country. And 614 million acres — 27% of the country — are dedicated to grazing. About 80% of those farms are family-owned. Of those, 90% have been in the family for three generations or more.
How Petroleum and Fuel Prices Affect Livestock
As you walk around that family farm, you see a lot of heavy equipment that relies on diesel fuel. You’ll also notice bales of domestically grown hay and silos of corn used to feed the cattle. Truckers brought most of that in trucks that relied on diesel fuel, and they came from other family farms that used fuel and fertilizers to grow their crops.
Entering a nearby barn, you notice the vet administering some medications. These are pharmaceuticals that you know were formulated with petroleum. It quickly becomes apparent that nearly every task related to livestock farming relies on petroleum. As diesel and petroleum costs increase, so will the costs of meats, poultry, eggs, etc.
But the problem isn’t just happening at livestock farms. Crop farmers are struggling, too, and food prices are rising everywhere.
Fertilizer Supply Struggles and Crop Farmers
Crop farmers also rely on tremendous amounts of diesel fuel to water and harvest human food crops and the grasses and grains used to feed livestock. But they face another problem: there is a global fertilizer supply chain issue related to current sanctions on Russia. Remember, Russia is the world’s premier exporter of fertilizers, exporting $7.6 billion worth of fertilizer in 2020.
We’re not here to wax political, but it’s a fact. The entire world is running short on both fertilizer and pesticides needed to grow most grains and grasses. As the sanctions/shortages continue through the summer growing season, the outlook for fall harvests is becoming even bleaker.
But, like Dante entering his first level of Hell, this is only the beginning of our journey. Because once that increasingly precious food is successfully fertilized, pest-protected, and harvested, it needs to be transported and stored many more times.
Every time someone transports a food product, treats or packages it, stores it, and transports it again, the consumer cost continues to rise.
How Increasing Transportation Costs Affect US Food Prices
The retail price of diesel has almost doubled in the past two years, from $2.39/gallon in May 2020 to $5.57 in May 2022. But that’s not the only factor at play. Remember, we told you this was going to be complicated and nuanced.
The family farmer doesn’t slaughter or pack the cattle they raise. Instead, that indelicate task usually falls to one of four central meat processors in the country:
- Cargill (CARG.UL), based in Minnesota
- Tyson Foods Inc (TSN.N)
- Brazil-based JBS SA (JBSS3.SA), the world’s biggest meatpacker
- National Beef Packing Co (NBEEF.UL), which Brazilian beef producer Marfrig Global Foods SA (MRFG3.SA) controls.
Any food item must be transported from the farm to its next destination, be that a slaughterhouse or a cereal plant. That’s another charge tacked onto the food prices.
Big Rigs Don’t Drive Themselves
This issue didn’t get much press during the COVID-19 pandemic, but you were probably aware of the Commercial Driver’s License (CDL) driver shortage. Truckers were our heroes during those nervous months, and we’ll never forget it.
But right before the pandemic, in December 2019, federal laws mandated that truckers start using Electronic Log Devices (ELDs) to monitor their hours on the road, break times, and rest periods. Stricter rules were also implemented regarding how long a truck driver can be on the road, how often they must rest, etc.
Cattle trucks are currently exempt from these laws because livestock can die and become less than worthless when you need to pay for carcass removal. But truckers hauling foods, grains, milk, and so on must all comply with stricter laws regarding their break periods. The ELD devices make it nearly impossible for drivers to fudge their logbooks or attempt any “creative recordkeeping” to get their load delivered. More manhours [person-hours?] in the cab equal higher transportation costs.
But it doesn’t end there.
Higher Transporation Costs Are Coming
New driver training requirements took effect in February 2022. In a nutshell, new CDL drivers must complete a federally-approved trucking school before getting on the road. Drivers can no longer train by themselves and apply for a license. They must attend a school, and that can cost up to $8,000.
Yes, the result is safer roads for everyone. But independent CDL drivers, already in short supply, can be choosy about the jobs they take. Perishable food items with an expiration date will be more expensive to transport because the pool of would-be drivers will be smaller.
And that’s STILL not all. California’s AB 5 statute has passed, meaning California will phase out owner-operator truck drivers.
California Legislation Will Affect Food Prices Across the Nation and Around the World
Without sounding too political, know that California is attempting to abolish the “gig economy” in the state. CA AB5 limits independent contractors (from blog writers to truck drivers) from operating in the state. In other words, any CDL driver on the road in California must be an employee of a larger company.
It’s unclear exactly how this will play out, but you can be positive that groceries will get more expensive.
How Much Food Comes From (Or Through) California?
California only produces about 13% of the nation’s foodstuffs, including milk, chicken, beef, and eggs. But it is America’s sole producer (making 99% or more) of:
But that’s only our domestic products. Ports at Los Angeles, Long Beach, and Oakland move a lot of food both in and out of our nation. We’re talking about millions of tons, though exact numbers are impossible to pin down. So you can expect significant price hikes coming on most of your favorite imported foods, too, as CA AB5 takes effect.
Leave those thoughts to simmer for a while and tackle two other factors affecting your grocery bill: changes in refrigerants and labor expenses.
Increases in Cold Storage Costs in 2022
The EPA AIM Act (Told You So!)
In November 2021, we discussed the US Environmental Protection Agency AIM Act. To refresh your memory, the AIM Act requires that cold storage facilities change how they operate.
New refrigerants need to be implemented, and plants and warehouses that offer cold storage will need to be retrofitted and updated. These known polluters must create less and less pollution or trade for renewable energy credits every year. Can you guess who will be footing the bill for warehouse upgrades? Consumers. I told you so.
Energy Costs Are Rising for Cold Storage Facilities, Too
But forget about EPA AIM. Cold food storage uses a lot of electricity:
- As of 2019, the US was home to 3.64 billion cubic feet of cold storage in more than 900 warehouse facilities.
- Per a study by Naya Energy, “Cold storage facilities consume an average of 25 kWh of electricity and 9,200 Btu of natural gas per square foot [annually], with refrigeration accounting for more than 70% of overall electric usage.”
Much of this energy is still reliant on traditional coal plants, though wind and solar power use are increasing. Remember that when your power company takes a rate hike, your local cold storage facilities and grocery stores are likely experiencing one, too.
Finally, let’s remember that minimum wage and inflation increase your costs for food.
State and Federal Minimum Wage Increases
Inflation is a bitch. And as the costs of gasoline, diesel, and groceries continue to rise, states and even the federal government are considering increasing the minimum wage. While the intentions are always good, this can lead to a sort of “chicken or egg” dilemma regarding food prices.
Grocery store workers, slaughterhouse employees, and food factory workers all deserve to earn a living wage. But that cost gets passed onto consumers, as well. The higher the minimum wage, the more expensive food becomes, and the less a paycheck is worth at the grocery store. It’s a nasty cycle, and depending on your state, you might soon feel the effects of minimum wage hikes on your grocery bill.
In it for the Long Haul
In conclusion, energy, diesel fuel, and transportation costs are among the most significant factors at play. But they aren’t the only issues. Don’t expect your food prices to get any better any time soon. These costs will continue to increase, and this fall and winter might get downright scary. It’s probably time to invest in a freezer and supplemental canned goods for good measure.