In recent years, American consumers have experienced a sharp rise in grocery prices.
Although these price increases have plateaued in the last year, the cost of groceries
remains a top concern for American families. In this report, we describe how grocery priceinflation has affected different income groups, identify the key items driving grocery priceinflation, outline some of the underlying causes of price increases, and offer policy
recommendations to help reduce the chances of future grocery price spikes. As thisreport notes, these recommendations build on the steps the Biden administration alreadyhas taken to offset the financial impacts of higher grocery prices on lower-income families
and to address some of the root causes of recent grocery price increases.

Consumers feel the pinch of higher prices at the grocery store
more regularly and universally than other expenses.
The widespread concern about grocery prices reflects two basic facts. First, nearly every
household – from the lowest income to the highest – regularly buys groceries. Second,
grocery prices have risen faster than the rate of inflation since the onset of the COVID-19
pandemic. While prices overall have risen by 19 percent in the last three years, families
are now paying 25 percent more for groceries than they were before the pandemic.

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In 2022 alone, American consumers saw the largest annual increase in grocery prices –nearly 12 percent – since 1978. That spike contributed to a 45 percent jump in foodinsecurity between 2021 and 2022. However, over the last year, grocery prices havelargely plateaued.

A number of grocery staples have come down from peak prices in 2022, providing somerelief for families. For example, eggs, which skyrocketed to a peak of $4.82 per dozen, on
average, in January 2023, were down to $2.51 per dozen by December 2023. Lettuce
prices have come down significantly after high inflation in 2022 caused by poor growing
conditions in California and Arizona. Domestic supply of lettuce has increased
significantly over the past year, bringing prices down by nearly 17 percent.

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The burden of higher grocery prices is not borne equally across the income spectrum. In
2022, consumers in the bottom quintile of the income spectrum spent 25 percent of theirincome on groceries, while those in the highest quintile spent under 3.5 percent. And
roughly the bottom 40 percent of consumers spend more than 10 percent of their incomeon groceries.

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While high grocery prices affect the lowest-income families themost, food assistance expansions by the Biden administration
have helped offset these price increases.
While the rise in grocery prices places particular strain on lower-income families, theBiden administration has taken critical steps to increase food assistance for these families
and offset this financial burden. The Supplemental Nutrition Assistance Program (SNAP,
formerly the Food Stamp Program) provides cash-like benefits to roughly 42 million
low-income Americans to supplement their grocery budget. Benefits are determinedbased on households’ income and size, providing more benefits to poorer and larger
families, where grocery budgets from wages and assets alone are stretched too thin.
The basis for SNAP benefits is the Thrifty Food Plan. The Thrifty Food Plan is determinedby the U.S. Department of Agriculture (USDA), and it represents the lowest cost forpurchasing and preparing an adequately nutritious diet. In 2021, the Biden administration
overhauled the Thrifty Food Plan – the first update in 15 years – to more accurately reflect
the true cost of a cost-effective grocery budget that meets nutritional requirements. As aresult of this update, maximum SNAP benefits increased by 21 percent.
In addition to the Thrifty Food Plan update, Congress and the Biden administration
temporarily increased SNAP benefits significantly as part of pandemic response
legislation. Further, SNAP benefits are adjusted annually to reflect cost-of-living changes.
The cumulative impact of these changes increased the average per-person monthly SNAP
benefit from $129 to $231 between 2019 and 2022. In February 2023, emergency SNAP
benefit supplements ended, and as a result, average benefits decreased slightly to $212.
Still, the overall rise in SNAP benefits between 2019 and 2023 has outpaced the rise ingrocery costs for many beneficiaries. Maximum monthly benefits for a family of four haveincreased by 52 percent, from $642 to $973, and average monthly benefits for a family offour have increased by 54 percent from $465 to $713 since 2019. On average, the typicalfamily that relies on SNAP has seen their benefits increase in the Biden administration
at a significantly faster rate than grocery prices have risen.
While these SNAP increases have helped stave off food insecurity and even morefinancial insecurity for the families eligible for the program, only approximately 15 percentof Americans qualify for SNAP. The income cutoff for SNAP eligibility for a four-personfamily is roughly $40,000. Further, despite large increases, SNAP benefits are still too low
for many families, especially in urban areas. As a result, the recent rise in grocery prices
continues to squeeze many lower- and middle-income Americans.

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Main Drivers of Grocery Inflation
While the rise in grocery prices has been fairly broad-based in recent years, we find thatfive categories drove nearly 30 percent of grocery inflation: beef and veal; poultry;
non-frozen non-carbonated juices and drinks; fresh fruits and vegetables; and snacks.

A deeper look at these five categories reveals a host of causes for rapid price increases,from climate-related supply shocks to supply chain disruptions to expanding corporate
profit margins. Addressing these underlying issues may not drive down prices in the
short term, but can reduce the risks of future price spikes and create a more resilient,consumer-friendly food system.

Supply Shocks
Both domestically and internationally, a number of recent acute shocks have reduced the
supply of key inputs, helping drive up the price of certain grocery items.

What’s Driving the Rise in Grocery Prices – and What the Government Can Do About It | PAGE 5Meat
Since 2020, the number of cows raised for beef consumption has decreased – just lastyear, farmers raised the lowest number of beef cows since 1971. Drought conditions overthe past few years have significantly limited pasture for grazing and sustaining cows.
In addition, one of the main drivers of poultry prices going up has been the recent
outbreak of avian flu, a form of influenza that primarily targets bird species. Avian flu has
long been detected throughout the world, but in 2022, the U.S. experienced the worst
avian flu outbreak in history, affecting over 80 million chickens, turkeys, and other birds,
and severely reducing the supply of poultry.

Juice
Over the past two years, there have been significant supply shocks to ingredients in juice
and other non-carbonated beverages. Domestic orange production was down 12 percent
last year. Florida is one of the main domestic producers of citrus, and the state has been
disrupted by numerous supply shocks. In 2022, Hurricane Ian destroyed over $400 million
worth of citrus plants and infrastructure in the state, causing the lowest citrus production
since the Great Depression. In addition to climate-related shocks, the incurable citrus
greening disease, which kills citrus plants, has also reduced the supply of citrus in places
like Mexico, Brazil, and Florida.
Beyond citrus fruits, sugar supply shocks have driven up beverage prices. Global sugar
prices hit a decade-high in fall of 2023, largely due to drought conditions caused by El
Niño, the extreme climate conditions brought on by higher Pacific Ocean watertemperatures. While global sugar prices increased by nearly 70 percent between January
2021 and their peak in fall 2023, U.S. sugar prices also increased by more than 50 percent
over the same period. Severe drought in Mexico has decreased sugar imports to the U.S.
and increased our sugar exports to Mexico. Further, droughts in Louisiana and Texas have
reduced the domestic sugar supply.

Fresh Produce
Climate-related issues and disease outbreaks have also negatively affected fruit andvegetable production. As mentioned above, citrus greening disease is reducing citrus
supply around the world. In addition, drought conditions have reduced domestic
production. California produces over a third of the domestic supply of vegetables andnearly 75 percent of fruits, including strawberries, grapes, lettuce, tomatoes, carrots,
blueberries, broccoli, and spinach. During the early months of 2023, the state faced an
unprecedented amount of rain and flooding, which reduced the supply of fruits andvegetables.

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Upstream Commodity Prices
Key inputs for many grocery staples have faced outsized price growth over the past few
years, resulting in higher sticker prices.

Wheat
The war in Ukraine has played a significant role in rising wheat prices. Prior to Putin’s
invasion, Ukraine was the fifth largest exporter of wheat, contributing nearly 10 percent of
global exports. Global wheat prices immediately rose with the onset of the escalation,
reaching historic highs in May 2022. Beyond the initial escalation in February 2022, Russia
has continued to restrict and attack Ukrainian export ports, keeping global wheat markets
fragile.
While forecasters anticipated severe and sustained supply shocks, Russia and Ukraine
have been able to export more than expected. Russia is forecasted to export record levelsof wheat this year, while Ukraine is exporting approximately 75 percent of pre-war levels.
Wheat prices are significantly affected by speculation, driving prices up for consumers
and driving down profits for farmers to make a quick buck for Wall Street traders.

Sugar
Beyond recent supply shocks, U.S. raw sugar prices are typically about two times morethan world raw sugar prices. The U.S. sugar program subsidizes domestic sugar
producers – making sugar farms substantially (between 24 and 54 percent) more
profitable than other U.S. farms. The program allows sugar farmers to access low-rateloans from USDA, where sugar serves as collateral for the loans. USDA establishes theprice per pound farmers will be paid for forfeited sugar, which effectively serves as a
price floor for domestic sugar prices. For example, if USDA says they will pay 25 cents perpound of refined sugar, U.S. sugar refiners won’t sell their sugar to food production
companies for less than 25 cents. The Government Accountability Office estimates that
the U.S. sugar program drives up domestic sugar prices and provides U.S. sugar farmers
with approximately $2 billion in benefits each year.
Beyond “price guarantees,” U.S. trade agreements limit sugar imports, allowing domestic
producers and processors to charge higher prices for both raw and refined sugar. As aresult of recent North American sugar supply issues, high-tariff sugar imports haveincreased, driving up sugar prices for domestic manufacturers that use sugar in othergoods, like juice and snacks.

Oil
Vegetable oil prices have soared over the past two years. They are up 50 percent since2019 (though down 33 percent since peaking in 2022). Several factors contribute tothese high price increases. First, Indonesia, the world’s biggest producer of palm oil,What’s Driving the Rise in Grocery Prices – and What the Government Can Do About It | PAGE 7

temporarily banned palm oil exports in April 2022 in an effort to bring down risingdomestic food prices. Since lifting the ban after three weeks, they have continued torestrict exports. Further, soybean oil supply has been affected by droughts in Argentina
and Brazil, two of the top global exporters, causing yields to hit a near-50-year low.
Argentina has increased export taxes and has restricted exports since the escalation of
the war in Ukraine.
Additionally, the global sunflower oil supply has dwindled as a result of the Ukraine war;
Ukraine and Russia accounted for 75 percent of supply, which has been severely reduced
because of the destruction of storage facilities, export blockades, and sanctions. Finally,
Canada, the largest producer of canola oil, saw a 35 percent drop in yields due to drought
conditions. This has created ripple effects, causing Canadian farmers to plant far fewer
canola crops in favor of higher-margin wheat, thereby creating long-term supply
shortages.
While vegetable oils are generally highly interchangeable, nutritional values often vary,requiring manufacturers to update packaging. During the height of supply chain snarls,
this meant weeks, if not months, of lead time, forcing manufacturers to stick to their
original formulas and pay higher prices for input oils.

Cocoa
Global cocoa supply has declined by one-third as the climate crisis ravages Ivory Coastand Ghana, the world’s largest cocoa producers, which produce 60 percent of global
supply. As a result, cocoa futures have doubled since January 2023. Excess rain is rotting
cocoa trees, reducing and delaying harvests, and Wall Street speculators have driven
prices up even further. Due to market regulations, cocoa prices are set at least a year inadvance, meaning farmers are feeling the squeeze without actually feeling the windfalls
trickle down. Large corporations are in a standoff with regulators, trying to negotiate
lower prices, even as they raise prices for consumers and claim higher input costs.

Fertilizer
Global fertilizer prices hit near-record levels in 2022 and remain elevated, in part due to
Russia’s war on Ukraine. Fertilizer accounts for nearly one-fifth of U.S. farm costs. Russia
and Belarus are large global fertilizer suppliers, and export controls and internationalsanctions in the wake of Putin’s war have affected the global market. Further, energy priceincreases have affected fertilizer supply. In Europe, for example, natural gas prices
reduced ammonia production, and in China, coal price increases and electricity rationing
reduced fertilizer production plants’ output. Reliance on Russia and China for fertilizer
nutrients poses long-term risks to the resilience of fertilizer supply chains.

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Corporate Profiteering
Although supply chain issues and increased production costs have played a role in risinggrocery prices, certain manufacturing and retail corporations have also taken advantageof the recent global inflation surge to raise their profit margins. These trends are mostnotable in more concentrated industries.

Meat Processing
The meat processing industry in the United States is highly concentrated, with four
companies controlling between 55 percent and 85 percent of the market for beef, poultry,
and pork processing. In 2021 and 2022, the industry saw wholesale prices grow much
more rapidly than input prices. For example, the meatpacker Tyson Foods achieved record
margins. In a 2021 earnings call, Tyson noted that its pricing actions “more than offset thehigher COGS [cost of goods sold].”

Beverages
Though input costs have gone up for beverage producers, top companies in the beverageindustry hiked prices beyond the increase of their input costs to expand their profit
margins. Both PepsiCo, the parent company of Tropicana and Gatorade, and Coca-Cola,
the parent company of Minute Maid and Simply – which together control nearly 30
percent of the juice industry – were able to expand their profit margins in the third quarterof 2023 by raising their prices by roughly 10 percent each. PepsiCo’s margins grew by 12
percent in the third quarter of 2023, even as the company noted that cost pressures
induced by the Russia-Ukraine war had eased. Keurig Dr Pepper, the parent company ofMott’s and Snapple, nearly doubled its operating margin for its U.S. non-coffee beveragesegment in the third quarter of 2023 (30 percent) compared to the same quarter in 2022
(15 percent).

SnacksThe CFO of Hershey, maker of Dot’s Pretzels, Skinny Pop, and Pirate’s Booty, said in thecompany’s 2023 third quarter earnings call that “pricing and productivity gains more thanoffset inflation and higher manufacturing and overhead costs.” As a result, its profit
margins increased by 19 percent from the same quarter in the previous year. Between thethird quarters of 2022 and 2023, PepsiCo, parent company of Frito-Lay, increased profit
margins by 12 percent, primarily driven by increased prices. In the second quarter of2023, Mondelez International, maker of Oreos, Wheat Thins, and Ritz Crackers, increased
its operating income by $1.15 billion from higher pricing, where higher input costs reduced
operating income by just $750 million. Its profit margins increased by 75 percent between
the third quarters of 2022 and 2023.

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Policy Considerations to Combat the Grocery Affordability
Crisis

While the Biden administration has taken several steps to address the root causes ofsome recent grocery price increases, there are additional measures the administration
and Congress could pursue to reduce the risk of future grocery price spikes and limit thefinancial harm to vulnerable families.

The Biden administration has taken a number of steps to bring
down grocery prices and help American consumers.
In addition to its historic expansion of SNAP to provide more financial security to morethan 40 million Americans, the Biden administration has also sought to address some of
the underlying causes of recent grocery price increases:
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Identifying and addressing anticompetitive and anti-consumer structures andpractices in food, retail, meat/poultry, and other agricultural industries by partneringwith state Attorneys General, especially to crack down on price gouging, and taking
price-fixing agricultural corporations to court.
Investing in increasing competition and resilience in the meat and poultry supply
chains by providing $1.2 billion in grants and loans to combat corporate
consolidation and outsized pricing power that squeezes farmers, ranchers, andconsumers.
Leveling the playing field in the chicken industry by requiring transparency fromthe large corporations that have exploited, deceived, and pushed chicken farmers
into debt.
Investing in domestic food supply chains by diversifying food processing, creating
more resilient agricultural markets, and increasing competition in fertilizer
production, providing nearly $200 million to 185 projects that create economic
opportunity for farmers and rural Americans, and using the power of the federal
purse to ensure domestic producers reap the benefits of USDA nutrition assistanceprograms.
Making historic investments in combating climate change through the Inflation
Reduction Act (IRA). The IRA invests over $200 million in expanding the food andagricultural workforce and supports local farmers and ranchers who face financial
hardship from predatory lending. Beyond these direct effects in the agriculturalindustry, the IRA will significantly reduce emissions and slow the pace of climatechange, which will make food supply chains more resilient and less likely toexperience significant shocks.

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Recommendations for further action
We propose additional actions policymakers should pursue to reduce the risk of future
grocery price spikes.

Investigating and potentially reforming the use of slotting fees
As the Biden administration looks to crack down on anti-consumer practices, one area
worthy of additional scrutiny is slotting fees. Because retail stores have limited shelf andstorage space, they often require manufacturers to “pay to stay” on the shelves. This
storage problem is especially true in grocery stores, where many items are perishable or
require specific storage (e.g., certain temperatures or types of shelving). The freezer aisle
can only hold so many pints of ice cream and the chips aisle can fit only so many bags ofchips.
Complicating this further, large grocery retailers have private-label brands (e.g.,
Wal-Mart’s Great Value, Kroger’s Private Selection, Safeway’s Signature Family), wherevertical integration increases margins for retailers. While these name-brand alternatives
often save consumers money, they give retailers greater power over pricing and productavailability.
Grocers’ control over shelf space allows them to maximize the availability of high-margin
products (like private labels) and auction off the rest to willing bidders. This raises prices
because companies pass on slotting fees to consumers. It also makes it harder for smaller
companies to compete, even if they can potentially offer products that are less expensive
than their larger competitors.
The Federal Trade Commission (FTC) explored issuing guidelines for slotting fees in 2000,
but ultimately never completed them. The FTC can use its section 6(b) authority to get
specific information about how slotting fees are used and their potentially anticompetitiveeffects. If slotting fees are preventing market access for lower-price competitors or
increasing market power for retailers, the FTC should reform slotting allowances.

Carefully scrutinizing anticompetitive mergers throughout the food supply
chain
Throughout the food and agriculture industry, from fertilizer to meatpacking, monopolies
reduce competition and provide an easy route for corporations to hike prices. In October
2022, Kroger and Albertsons announced a $25 billion merger deal, which, if approved byregulators, would give the resulting mega-chain nearly 17 percent of market share. In
some communities, this would result in a near monopoly. More recently, Aldi announced adeal last August to acquire 400 Winn-Dixie and Harveys Supermarket locations.

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The FTC has been reviewing the proposed Kroger-Albertsons $25 billion merger deal forover a year but has yet to issue a decision.
While the companies argue that they would be able to lower prices, pay higher wages,
and compete with retail giant Walmart, antitrust experts have pointed out that the merger
would create a grocery monopoly in many markets. The FTC has found that grocery
mergers have a high potential to increase grocery prices. Other research suggests thatgrocery workers stand to lose hundreds of millions of dollars and store closures could
harm consumers’ food access if these anticompetitive mergers are permitted and thegrocery industry is further consolidated.
While Kroger has agreed to divest certain stores, divestitures have been unsuccessful inprevious grocery mergers. For example, as a condition of approving the deal, the FTC
required that Albertsons sell off 170 stores when it merged with Safeway. Within months,
Albertsons repurchased 33 of the divested stores after the buyer filed for bankruptcy.
The Kroger-Albertsons merger raises the risk of higher grocery prices in several
communities. We urge the FTC to carefully review the merger and other pending deals
that would pose similar risks.

Finalizing regulations to promote competition in meatpacking
In part due to a decline in federal antitrust enforcement, concentration in meatpacking
has skyrocketed over the past 40 years. Between 1980 and 2020, the market share of thelargest four beef packers rose from 36 percent to 81 percent; and between 1977 and2020, the market share of the largest four poultry processors increased from 22 to 53
percent.
In January 2022, the Biden administration released a plan to improve fairness,competition, and resiliency in meat and poultry supply chains. Included in that action plan
was a commitment to strengthen the Packers and Stockyards Act, the meatindustry-specific antitrust law, which was severely weakened by the Trumpadministration.
In October 2022, USDA proposed regulations to prohibit discrimination, retaliation, anddeceptive practices in livestock and meat processing markets that weaken competition
and market integrity. These rules would significantly improve the industry for farmers,
ranchers, and consumers. The Biden administration should finalize them expeditiously,
and complete other rules it has publicly committed to issuing under its Packers andStockyards authority.

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Reinstating and making food assistance expansions permanent
At the onset of the COVID-19 pandemic, Congress enacted temporary SNAP Emergency
Allotments as part of the families First Coronavirus Response Act. The law gave USDA theauthority to increase households’ SNAP benefits to the maximum benefit for theirhousehold’s size. The Biden administration expanded this policy in 2021 to reach the 40
percent of households that already received the maximum benefit, giving all households a
supplement of at least $95 per month. Emergency Allotments reduced poverty by 10
percent – and child poverty by 14 percent.
In March 2023, the Emergency Allotments lapsed as a result of Congress terminating theauthority in the 2022 omnibus funding bill. Many families saw a decline in benefits.
Benefits for households with children decreased, on average, $223 per month, while
benefits for households with seniors decreased by an average of $168. Althoughcost-of-living adjustments and the Biden administration’s overhaul of the Thrifty Food
Plan softened the cliff when Emergency Allotments ended, SNAP benefits still fall short offully addressing food insecurity in the U.S.
Congress should expand SNAP to provide the benefits it was providing temporarily during
the pandemic to ensure more families’ full food needs are met.

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About the Authors

Elizabeth Pancotti
Elizabeth Pancotti is a Strategic Advisor at Groundwork Collaborative. Previously, she wasan advisor to Senator Bernie Sanders, having served as the Labor Policy Director on the
Senate Health, Education, Labor, and Pensions Committee and a Senior Budget Analyst
on the Senate Budget Committee. Prior to that, she was the Policy Director at Employ
America, where she focused on unemployment insurance and other fiscal policy stimulus
measures during the COVID-19 pandemic.

Bharat Ramamurti
Bharat Ramamurti served as Deputy Director of the National Economic Council andAdvisor for Strategic Economic Communications under President Biden from January
2021 to September 2023. He previously served as a member of the COVID-19
Congressional Oversight Commission, a congressional oversight body tasked withoverseeing the Department of the Treasury's and the Federal Reserve Board's
management of stimulus and loan programs under the CARES Act.

Clara Wilson
Clara Wilson is the Policy Analyst at Groundwork Collaborative. Previously, Clara internedat the Center for the Study of Social Policy, focusing on child welfare reform policy, andthe Center for Economic and Policy Research, where she studied the economic impacts ofimproving care infrastructure. Prior to that, she was the Legislative Aide for Michigan
House Democratic Leader Christine Greig.

About Groundwork Collaborative
Groundwork Collaborative is a research and policy organization working to advance aneconomic vision for strong, broadly shared prosperity and true opportunity for all.