Shelby Publishing’s Maggie Kaeppel recently visited with Andy Harig, FMI – The Food Industry Association’s VP of tax, trade, sustainability and policy development, to add additional economic context on the state of the industry following the Annual Meat Conference, which was held March 2-4 in Baltimore, Maryland.
What forces are having the greatest impact on food prices?
One of the things we’re watching closely is energy. And that was a concern before the situation in the Middle East.
What we have seen over the past couple years is that while gas prices have gone down, your home energy costs are going up across the board. Part of that is demand from data centers going into place right now.
We don’t want to set it up as a food-versus-technology kind of approach, but it is certainly putting high demand levels on the grid. The infrastructure needs to be upgraded. That was a concern beforehand as food production from farm to the consumer shelf is really energy intensive.
Consumers might not think about the amount of energy used in food production – from transportation, to packing centers, distribution centers and then to supermarkets themselves. Agriculture is energy intensive.
The USDA does what it calls the food dollar amount – what percentage of expenses go toward that dollar that the consumer spends. Energy is a significant portion of that, and it has increased over the past few years.
Energy isn’t something you can really control. You can cut back; you can make changes or adjustments. But overall, it’s hard to make a significant change that goes beyond nibbling around the margins.
The situation in the Middle East is another area that we really have to watch. If tensions settle down within a couple of weeks, we probably won’t see long-term price impacts. However, if disruptions extend beyond four or five weeks, we’ll likely see ripple effects throughout the supply chain as energy costs rise.
Beyond oil itself, there are several indirect costs building up. Shipping costs in the region are increasing, insurance premiums are rising and trade route disruptions are causing displacement costs as ships re-route away from affected areas. These relocation costs accumulate as shipping patterns shift.
Even when U.S. supply chains don’t appear directly tied to the region, rising energy costs and input costs from the region can still impact prices.
This volatility is exactly why food is excluded from core CPI – it doesn’t follow consistent patterns and can be hard to predict. Energy is also excluded from core CPI for the same reason, as it can vary significantly month over month and sometimes even week over week.
The key is monitoring how long these disruptions last and how significant they become.
How should the food industry be thinking about inflation in 2026 compared to the fluctuations of recent years?
We’ve seen a calming down from the peaks of 2022-23, when inflation was at its highest point since the early 1980s. For most consumers, they had never lived through a period like this before. It’s really been a sticker shock for a lot of folks.
The last 20 years, we had consistently low inflation, in that 2 percent range. That’s actually a bit of an anomaly if you look at the history going back to when we started keeping these records post-World War II.
Now, I want to be clear about what we mean when we talk about inflation calming down. Inflation is the rate at which prices increase. For prices to actually come down and become negative inflation, that’s called deflation.
[Deflation] doesn’t happen a lot in the food industry, and usually when you see it happen, it’s a bad sign. It’s the canary in the coal mine that there’s some kind of demand destruction being driven by larger economic forces, recessions, layoffs. It was part of the Great Depression, and the last time we saw it – in a relatively mild period – was coming out of the recession in 2008-09. It wasn’t too much, and it tended to be confined to certain categories as people changed their eating patterns during high unemployment.The further a product moves from leaving the field, the more processing that goes on, the less likely it will see any deflation. Think about something like cucumbers. One year, you can have a really bad crop, supplies restrict down, prices go up. And then next year, you have a great crop with more than they can sell, and you’ll see prices go down. So you do see some deflation in fresh produce on a year-to-year basis.
But with something like a loaf of bread, labor is a significant portion of the cost, and those costs don’t go down. We don’t lower wages the way commodity prices might fluctuate. You have a lot of these fixed costs – energy prices as well.
While there may be certain categories, particularly fresh produce, that fluctuate year to year with some negative prices, overall in the food category, you don’t see deflation, and we’re not likely to see that in the future.
What’s good for consumers is we are seeing increases in wages. As those wages go up, particularly as they outpace inflation, people feel like they have a little bit more money and feel more comfortable with where their dollar is. That’s going to take a while to shake out, and people still have a lot of memories about the pre-COVID period.
One thing to understand is that shopping at grocery stores is one of the really few shared economic experiences that we pretty much all have in America. Everyone goes to the grocery store – even if you’re the richest person in the world, you’ve probably had to drop by and get milk or a soda or beer.
There’s enough consistency in the baskets that people really understand what they’re buying. Our data shows the average number of trips is about 1.6 trips per week, and there’s a lot of consistency – a core basket and then things they buy occasionally. So shoppers are very aware of price fluctuations as they happen.
Compare that to something like a TV – you buy one every three to five years, and if the price goes up, you think, “Well, technology’s better, it’s just more expensive.”
But you’re seeing food price changes in much more real time. That’s part of the reason you see so much sensitivity around it. And for most shoppers under the age of 50, they’ve never experienced this before. This is a new experience where you’re going and paying a little bit more every week.
I think our members have been really trying to engage with people and say, “Here’s how you can take control of that.” And one thing we have seen in our most recent consumer sentiment data is that people feel in control of their grocery dollars.
What supply chain dynamics are still influencing food costs?
Labor remains a concern. It’s better than it was, but it’s still a challenge. Transportation is also still an issue – we still have some restrictions on that.
If you look at trucking rates, they came down off their highs and are much more reasonable now. But freight rates are accelerating a little bit faster than inflation. And we just don’t have the infrastructure that we need for the food system we have, so those pressures are still there.
Even though the pressure has eased and people have made adjustments – they’re handling it much better and we’re not seeing major disruptions – those are still costs and difficulties that drive prices.
We talked a little bit about shipping in the Middle East, and it shows how the system works like a proverbial rubber band that keeps stretching and stretching when these things come up. I think it’s an incredibly nimble system, but it’s also one that’s very prone to disruptions that ripple outward, and the industry has to constantly adapt to that.
What economic indicators should food industry leaders monitor most closely over the next six to 12 months?
I would keep an eye on energy prices – I think those are going to be important. I would also look at labor force participation rates. That’s going to be a big one: Are there enough people to work?
One of the things we’ve seen is we’re adding automation to plants, so you may not need the same kind of worker – and you may not need as many workers, in some cases – but there are challenges in finding the workers you do need. So that’s something worth keeping an eye on.
In terms of food prices, obviously weather is the wild card. It’s not an economic indicator, but it’s the broader unknown.
What we’re looking at so far, things look OK. It was a good-but-not-great winter out West, so we’ve got to keep an eye on that. It looks like the East Coast and the South are doing OK in terms of rainfall and temperature so far, and predictions for it.
That’s always the great unknown. There’s always that joke about farmers being the best weathermen – that’s because they have to be. It’s a challenging environment.
Weather is going to impact things like produce prices, which have been a bright spot. If you look at USDA predictions for this year, those prices overall are looking like they’re going to be below the overall rate of inflation and below the overall rate of food inflation. But those can shift on a dime – hurricanes, droughts, heat waves can all impact that.
As of March 3, things look like they’re going to be elevated from what they may have been pre-COVID in terms of inflation, but certainly calmer – barring changes to global geopolitical events and big weather events. Generally speaking, I think we’re on a really good track and feel positive.
The one area where I always point out a warning sign is protein, particularly beef. Right now, there are historic lows in cattle herds – I don’t think they’ve been this low since 1958. It takes longer to raise a cow to come to market than it does a chicken, so it’s a longer timeline. And because input costs are high and there’s uncertainty about labor costs, if you’re a rancher trying to rebuild that herd, there are a lot of unknowns you’re wrestling with.
Best case, people will tell you two years is when we start to see those numbers go up and maybe have a little bit more breathing room. People who do it for a living tell me to look at three years – it takes a while.
The president has made some adjustments, allowing more Argentinian beef, and I think that’ll help around the edges, but I don’t know that’s going to drive prices in a downward direction.
That combination of relatively tight supplies and really high demand – GLP-1s and healthy eating trends – is driving it in a way I think we haven’t seen before. I was at an agricultural conference a couple years ago, and someone asked if we’re at “peak meat” – this idea that people just can’t eat any more meat than they are right now. I don’t think so.
There’s a real healthcare theme around it now. If you look at something like Make America Healthy Again and changes to dietary recommendations, GLP-1 users worried about loss of muscle mass as they lose weight – there are a lot of different factors pushing meat consumption up.
Chicken and pork are high, but certainly not the sticker shock you get from beef. That’s just going to take a while to work through the system.
Where do you see opportunity despite ongoing cost pressures?
First of all, the big opportunity – and the industry is doing a good job, though I think we need to do an even better job – is that eating at home is still the best deal you can get. Absolutely, it’s more affordable. Particularly if you’re eating for health reasons, which we’re seeing big upticks in. There’s obviously a lot more control over portions and ingredients and what goes in.
So that’s really the opportunity right there – to take advantage of both the value shoppers, who need to stretch their dollar as far as they can, and the health shoppers. That Venn diagram overlap is much bigger than what’s on the sides. Those consumers cross over a lot.
I still think one of the challenges – and where I think we’re doing a good job and can improve – is helping people adapt their lifestyle and meeting them where they live with their food choice offerings.
What you’re seeing is a lot of prepared foods with more transparency around … healthier ingredients, things like that. Because as much as people think they want to cook every night, a meeting runs long or your kid’s got baseball or soccer practice and a recital, and you’re not home till 9:30 p.m. Helping people meet their goals and do it in a way where they can feel good about it and be affordable is important.