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CCFB News» July 2021

Why is everything more expensive?An economist "weighs in" on prices and protein

07/05/2021 @ 11:20 am

If you want to get a good feel for recent inflation, perhaps load a cart at the grocery store, fill your vehicle with fuel and complete the trip by buying a pallet of wood at the local lumber company or box store.


Dollars just don’t go nearly as far as they used to as consumers find themselves in the midst of an historic uptick in costs. Overall, the consumer price index climbed 5% in May, the highest in 13 years.


“It’s getting more expensive for consumers out there,” Jayson Lusk, distinguished professor and head of the department of ag economics at Purdue University, said recently at the World Pork Expo in Des Moines. “The rate of inflation is high relative to the last 10 years but, historically, nothing like we saw in the 1970s.”


For those not around -- or who try to forget that issue in the 1970s -- the average inflation rate for the decade hovered near 6.8%. But, coming off a much more subdued decade with historically low interest rates, why have costs of so many goods and services exploded in recent months?


“Costs throughout the system are going up,” Lusk said.


This occurred as labor costs increased at a time when there’s a shortage of workers, Lusk noted. Meanwhile, all the stimulus money pumped into the economy helped drive inflation as the value of the dollar decreased with every printing.


On the bright side, U.S. savings rates increased the past year while borrowing costs remain historically low, said Lusk, who advises consumers to build a rainy day fund, if possible.


In the grocery aisle, research doesn’t find consumers substituting meat alternatives as much as they hunt for specials in response to higher prices.


A recent survey of grocery store buying patterns shows less than 4% of shoppers choose a plant-based patty compared to 24% who buy chicken, 22% ground beef, 13% pork chops and 8% ribeyes in the meat aisle.


“Despite the fact we hear a lot about (plant-based meat substitutes), attitudes toward conventional meat remain positive,” said Lusk, who noted meat has the competitive advantages of taste, protein quality, essential nutrients and being natural.


What about higher meat prices? Lusk isn’t convinced building additional packing capacity will be as easy as some make it out to be or that it would solve all the issues.


“One of the solutions is to add more (packing capacity) so we don’t have some of the supply chain issues (experienced during COVID or more recently during the JBS cyberattack). But, I’m not so sure,” he said.


“The problem (with supply chain issues) wasn’t size, it was we didn’t have enough packing capacity when we needed it,” Lusk said. “The problem with excess capacity, is it’s expensive (and more of a challenge for smaller processors).


“I think we can have more smaller size plants, but they have to compete at something other than costs,” such as quality, specialty brands/cuts or service.


Looking ahead, Lusk believes the livestock industry will continue to become more efficient. The U.S. produced 28.3 billion pounds of pork in 2020 with 131.6 million head which, compared to 1990s technology and genetics, would have required 157.5 head of hogs (25.9 million additional hogs) to produce the same amount 30 years ago.


“Productivity is the forgotten cornerstone of sustainability,” Lusk added. “I think we can produce more pork with less inputs and fewer resources. To me, that’s the definition of sustainability.”

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