ICYMI: Chairing Economic Policy Subcommittee, Warren Calls Out Giant Corporations for Hiking Up Food Prices While Raking in Record Profits, Urges Action to Promote Competition and Bring Down Costs
A small group of mega-corporations has taken over each level of the food chain—from the seeds farmers buy to grow our food to the manufacturers that process and package that food to the grocery stores that families visit each week. Because of that concentration, there’s no chance for competition – and every chance for price gouging.
Senator Warren’s Price Gouging Prevention Act would authorize the Federal Trade Commission and state attorneys general to enforce a federal ban against grossly excessive price increases.
Washington, D.C. — Yesterday, chairing a hearing of the U.S. Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, Senator Warren questioned witnesses on the impact of concentration in the food industry and its impact on prices, product, and consumer choice. Presently, just four big companies — Walmart, Costco, Kroger, and Ahold — control over 70% of the grocery market in most major cities, warding off smaller competitors and allowing for corporate price gouging to juice profits at the expense of consumers. A similar level of concentration exists for most categories of food products and in the agricultural sector. As a result, families are paying 25% more for groceries as compared to before the pandemic.
Dr. Lindsay Owens, Executive Director for Groundwork Collaborative, explained that consolidation, and a lack of competition in the market that follows, has empowered corporations to hike up prices. This has especially impacted rural areas that already lack options compared to their urban counterparts, and in lower income neighborhoods where grocery stores are more reluctant to locate. Dr. Owens emphasized that megacorporations have used inflation as a cover to raise prices excessively high. When asked by Senator Warren about potential legislative solutions, , Dr. Owens pointed to Senator Warren’s Price Gouging Prevention Act: “(I)t take(s) on excessive price hikes in the grocery sector, (but) it can also reach further up the food chain” to tackle excessive pricing, and called it a “critical next step.”
Dr. E.J. Antoni, Public Finance Economist and Research Fellow at the Heritage Foundation, insisted high prices for food items were a result of President Biden and Congressional Democrats historic investments in repairing the nation’s road and bridges, expanding broadband, and boosting child care, even after Senator Warren presented evidence of the CEO of Hershey’s bragging about raising prices beyond what was necessary to cover any increased costs. Dr. Antoni expressed his belief that no price fixing is occurring in America’s food industry, to which Mr. Joe Maxwell, Co-Founder and Chief Strategy Officer of Farm Action, presented several examples of past and pending price fixing lawsuits in the meatpacking industry.
Mr. Alap Vora, owner of Concord Market, a small grocery store in Brooklyn, NY, explained how shrinkflation has hurt consumers. He expanded on how manufacturers and distributors discriminate against small, independent businesses in pricing, creating additional burdens on consumers who want to support local and small businesses.
Transcript: Protecting Consumers’ Pocketbooks: Lowering Food Prices: Combatting Consolidation and Price Gouging
U.S. Senate Committee on Banking, Housing, & Urban Affairs Subcommittee on Economic Policy
May 22, 2024
Senator Warren's Opening Remarks
The American people are angry about rising costs and they are right to be angry– especially in the grocery aisle.
It is infuriating to go to the store week after week and see that a pound of chicken breasts that cost $5 last week was marked up to $6 this week, or that that loaf of bread that was $2.99 last week now costs three and a half bucks.
It is even more frustrating to open up a box of cereal and think, “Hm, I could have sworn there were a whole lot more Cheerios! And a lot less air in this box the last time I opened one up.” Or to notice that a package of spaghetti that used to feed four or five people now appears only to be enough to feed three.
High grocery prices and shrinkflation hurts seniors on fixed income, hurt college students struggling to get by, hurt working families all across this country. And that is why we are holding this hearing today. Grocery prices skyrocketed during the pandemic and in many cases they have kept going up even though the pandemic is over. Supply chains have been restored, food manufacturers’ costs are going down, the millions of Americans who produce, package, and sell our food are now back at work.
Food inflation has slowed over the past year, but not nearly fast enough. In too many places, including in Boston, grocery prices continue to strain family budgets. So what exactly is going on? Why did grocery prices go up so much, and why have they stayed so high? The answer is pretty obvious when you dig in on the numbers. Grocery prices are up because of good old fashioned corporate price gouging.
And they can gouge consumers on prices because there is only a small number of companies controlling every level of the food chain. In plain English, giant grocery stores and massive food conglomerates are ripping people off. And they can get away with it because there's not enough competition to keep them in check.
Four big companies — Walmart, Costco, Kroger, and Ahold — the corporate behemoths behind Hanford, Giant, Food Lion, and Stop and Shop – control over 70% of the grocery market in most major cities. Food producers are even more consolidated. A couple of big cereal manufacturers– Kellogg's and General Mills– control nearly 60% of the market. A single company, Cal-Maine, controls about 20% of the egg market. Four corporations control 85% of the beef industry and 75% of the pork industry.
Everything you see as you stroll down the grocery aisle– lettuce in aisle one, beer in aisle five, pretzels and potato chips in aisle nine, ice cream in the frozen food aisle is dominated by a handful of Big Food producers.
Now, the pandemic gave these big food conglomerates an excuse to jack up prices on grocery stables– staples– beyond what was necessary to cover increases in their costs from inflation or from supply chain disruptions. And now we're past the market shock of the pandemic. Corporations’ costs are coming down and their profits are rising. But because of the lack of competition, companies are keeping their prices high. Meanwhile, conglomerates hit small farmers by charging sky high prices for fertilizer and seed, and by locking farmers into unfair contracts that limit their ability to make a living off their own farms.
As a result, Big Food is doing great. Kraft-Heinz, which sells everything from Oreos to pasta sauce to coffee, increased its profits by 44%. Oh– I read it wrong. Increased its profits by 448%. I– it really is a staggering number in 2022. Cal-Maine, the largest egg producer in the United States, increased its profits by 718%. These are profit increases. And it's not simply supply and demand that's pushing up corporations' eye-popping profits, it's greedflation.
Those big corporate profits accounted for more than half of the increase in food prices between 2020 and 2021. And that creates problems for families at the grocery store, and then it reverberates throughout our nation. For most of 2023, corporate profiteering accounted for more than half of all inflation, economy-wide.
Facts are clear: massive corporate profits are a big reason why grocery prices have gone up and stayed up. But policymakers don't have to stand by and watch, we can actually do something about it. We can rein in these massive food companies in grocery stores and protect competition in order to lower prices. And new polling from Data for Progress shows that nearly 70% of Americans– both Republicans and Democrats– support the U.S. government doing more to regulate grocery stores and corporate food producers that raise prices to pad their profits.
The Biden administration recognized early on and has taken major steps to fight Big Food greedflation and to help American families. Congress can help the administration do even more. I appreciate our witnesses joining us here today to talk about how we can do that.
I will now hand it over to ranking member Kennedy to deliver his opening statement.
Round 1, Questioning 1: Inflation or Price Gouging?
Senator Warren: So I'm gonna start the questions.
Look, there are a lot of things that can affect the price of groceries– weather, war, energy costs– but let's start with the argument that's right here in front of us. We have at least two witnesses who are saying it's just plain old inflation and the reason that grocery prices are up is because inflation is up across the board.
Dr. Owens, is that what the data tell you?
Dr. Lindsay Owens, Executive Director, Groundwork Collaborative: Yeah, there are absolutely a lot of different causes of the inflation we see right now, but one of them is absolutely industry consolidation.
Look, when, when grocers gobble up the competition, the remaining larger giants can raise prices more aggressively. They just can. Because they don't have to worry about being undercut by the competition. And the research really shows this over and over again, grocery inflation in rural areas, where shoppers have fewer choices, is running 2% ahead of grocery inflation elsewhere. Lower income neighborhoods where groceries, grocery stores are more reluctant to locate, you see higher prices there too. And you also see that grocery mergers in less competitive areas, result in higher price increases than grocery mergers in more competitive areas.
So over and over again, consolidation really is at the root of the food price inflation we're seeing today.
Senator Warren: Okay, so what you're really saying is you actually can test this. You can–
Dr. Owens: Yeah.
Senator Warren: –you can disaggregate the data, and you can look where there's more competition. And when there's more competition, what you find out– what happened to prices?
Dr. Owens: Lower prices.
Senator Warren: Lower prices. And when there's less competition, that is when there is more concentration, I take it what you're getting is higher prices.
Dr. Owens: Absolutely.
Senator Warren: At that point. So let's, let's keep talking about the pieces here.
Concentration didn't just happen in one day.
Dr. Owens: Yeah.
Senator Warren: And yet what we see, is we really do see, I think, I think it was Dr. Antoni, who said, you know, you see prices kind of going along and you see ‘em flatten out for a little bit and then you see a real spike. How does concentration fit in with that?
Dr. Owens: Yeah, I mean, I think there's this kind of old saw developing that like companies didn't just get greedy overnight. And look, nobody, nobody thinks that corporations weren't out to make a buck in 2020. Of course they were. And they're out to make a buck in 2021 and 2022 and 2023, and in 2024.
Corporations have been getting bigger, too. Consolidation is not new. But you really need means, motive, and opportunity to commit the perfect crime, right? The profit motive is constant. The means are that market power, that pricing power that you get from consolidation. And, but what changed is the opportunity. The opportunity to use inflation as cover to go bigger on price hikes. And that's really what we're seeing in this period.
Senator Warren: So you know, it's interesting you would raise that because one of the things I had pulled out here is how the CEOs of some of these giant grocery companies are making exactly this point. They don't make it in their commercials, of course, but they make it when they do earnings calls.
So that, for example, General Mills owns more than 100 brands of grocery store staples, Cheerios, Betty Crocker cake mixes, Progresso canned soups. When a General Mills executive got on the phone with his investors, he bragged about their price increases, and he makes the point that their profits went up, not because they simply passed along costs because of inflation, or because demand was up– nope– he said it out loud. Profits are up because General Mills was “getting smart about how (they) look at pricing”– how they could figure out to boost their price, in their case, their profit margin, up to 16 and a half percent, something they hadn't seen before.
Executives at Hershey's made the same kind of point on an earnings call. In effect, inflation has been very, very good to these CEOs. Because it's provided them, I take it, a form of protective coloration here. And they can go ahead and raise prices during this time.
Now some commentators have said, no, no, we should welcome concentration, because concentration will permit these grocery chains, for example, to exert downward pressure on prices because they can negotiate for better deals. Is that what the data show us, Dr. Owens?
Dr. Owens: Yeah, I mean, I think that the argument that sort of apologists for monopolies will make is that if you get an economy of scale, you can really drive down the cost per unit. But the problem we're trying to address today isn't that the cost per unit is down, it's that the cost they're charging consumers is up. Right? And that is a function of a market with no competition that can't check the excessive markups that we're seeing in the food sector.
Senator Warren: Okay. And let's just take this over to Big Ag, if we can for a minute.
Mr. Maxwell, what about Big Ag? You talked about the concentration, and the numbers you cited were truly breathtaking, but what's happened to pricing with Big Ag?
Mr. Joe Maxwell, Farm Action, Co-Founder and Chief Strategy Officer: Well, the same thing that has just been testified about is happening in Big Ag. Big Ag is, not long ago, as we know, the “big six” input suppliers became the “big three.” I mean, we don't even talk about concentration ratio of four, there's three. With that kind of market power, and that kind of tacit collusion– if there's only three of you, you can figure out pricing structure.
Senator Warren: Yeah.
Mr. Maxwell: Then what happens is they put in place structures and take opportunity whenever there's supply increases, or there's a supply disruption, they quickly seize that moment with opportunities, the behavior to run up prices.
We see the mainstream press says, “oh, there's a supply hiccup somewhere.” Everybody starts talking about it. The next thing, you know, we farmers, we're going to pay a lot more money, when we go get, get our supplies.
Senator Warren: Yeah.
Mr. Maxwell: So they do the same thing. They're very opportunistic. There's too few of them to have true competition. The market dynamics no longer work. They don't work because one of the dynamics is competition. When there's no competition, you don't have the, as USDA said in the egg case, the market didn't respond as we expected. No, it's not going to respond as you expected unless you consider the corporate concentration level within that market and the power that brings to gouge farmers or consumers.
Senator Warren: So, really powerful point, Mr. Maxwell. You know, what we're really talking about is embracing markets, wanting to see the power of markets. But to get those markets to function, you've got to actually have competition. And when you have enormous concentration, you don't have that competition.
And I think what you're telling us is what we're seeing in food pricing right now is not just at the grocery store level, it's all the way up and down the chain. That it starts with seed and fertilizer, makes it all the way through the process, and that that is what is pushing up prices in this very concentrated industry.
Thank you. Senator Kennedy.
Round 1, Questioning 2: Inflation or Price Gouging?
Senator Warren: So I just got a couple of questions. I want to follow up on, on where we started out. Dr. Antoni, if I understand you, I think you're saying that the reason we're seeing high grocery prices is all Biden's fault, because he led Congress in the direction, or at least led the Democrats, in the direction of doing things like investing in infrastructure and child care and helping us get over the pandemic.
Is that, is that kind of a rough statement? You said the model tells you more money must be the reason that grocery prices are up. Is that right?
Dr. E.J. Antoni, Public Finance Economist and Research Fellow, the Heritage Foundation: Part, partly Senator, absolutely, although I wouldn't–
Senator Warren: I’m not asking partly.
Dr. Antoni: I wouldn't put all the blame. I wouldn’t–
Senator Warren: Everybody concedes that we got a lot of different points going on. But I think I heard you say that that's the reason grocery prices are up so high. Is that– am I wrong?
Dr. Antoni: It's, it's–
Senator Warren: Did I misunderstand you?
Dr. Antoni: It's not just the spending that, that the President insisted upon, it's the spending that this Congress–
Senator Warren: Oh, I'm, I'm willing to put Congress in there.
Dr. Antoni: –passed.
Senator Warren: So, it's what, what we have done, for example, like building roads and bridges and child care and so on.
So, just want to be clear about this. Does that mean that the CEO of Hershey's, when the Hershey's executive goes on the earnings call, that he was lying when he said that actually, they were able, I think, to “more than offset inflation and higher manufacturing and overhead costs”? In other words, it's what I call price gouging. They don't just pass along costs, they larded a whole lot more on top of that, and that's why Hershey's was producing great for its investors. Was he lying? Should he have just said, “Look, I'm just passing along what that Democratic Congress and that Democratic president did.”
Dr. Antoni: Senator, the comments you're referring to are not simply passing along current cost increases, but also passing along previous cost increases as well.
Senator Warren: No, that is not what he says. He says that our pricing “more than offset inflation and higher manufacturing and overhead costs.” And I'm asking you: was he lying?
Dr. Antoni: Again, Senator, this is not just price increases that are happening today, but that happened yesterday as well. This is why, if you look at figure 14 in my written testimony, you can clearly see that the prices paid by businesses, like Hershey's, spike before the prices–
Senator Warren: He–
Dr. Antoni: –paid by consumers–
Senator Warren: He clearly states, he is not passing along costs. He didn't say “costs just from today,” or “costs from last week" or la– “costs from last month.” He said, “I want you investors to understand Hershey's is a place to invest.” And why? “Because we have figured out how to increase our prices and our profits above the rate of inflation.” That is what he is saying.
So I'm just saying you've told me the reason prices are high, when I go to buy those candy bars is because of Joe Biden and a Democratic Congress. So is the guy lying?
Dr. Antoni: Again, Senator, the Biden administration's own data is very clear.
Senator Warren: I'm not asking you about the Biden administration. I'm asking you is that guy lying?
Dr. Antoni: Senator, frankly, you're–
Senator Warren: You know–
Dr. Antoni: –completely mischaracterizing his statements.
Senator Warren: Has legal obligation– I am mischaracterizing the Hershey executive statement?
Dr. Antoni: Yes, Senator.
Senator Warren: Are you telling me I'm reading this wrong when he says, “more than offset inflation and higher manufacturing costs and overhead costs?” I think the words speak for themselves. Same thing for General Mills, same thing for CEO after CEO.
So, let me ask you one other. You said you have no evidence of price fixing. Does that mean you're sure there's none occurring?
Dr. Antoni: No, Senator, that's not what I said.
Senator Warren: No, that's why I'm asking. You said you have no evidence of there being price fixing. Do you believe there is no price fixing going on?
Dr. Antoni: I have no reason to believe there is because I've seen no evidence for it.
Senator Warren: So you see nothing in any of these data that suggests that maybe those companies are colluding, just a tiny little bit?
Dr. Antoni: If there's any evidence for it.--
Senator Warren: You’d be shocked.
Dr. Antoni: I would love to see it presented to the public.
Senator Warren: Good. Let's talk about some evidence presented to the public.
Mr. Maxwell, do you know about a recent price fixing case in Big Ag, which is part of our food chain here?
Mr. Maxwell: Yes, Senator. There have been multiple cases of price fixing in Big Ag.
Senator Warren: And have they been successful?
Mr. Maxwell: They have been successful. There is one pending that we really are thankful that DOJ brought, and that is the one that's already been referenced, and that is Agri Stats. It is an organization that was created in an effort to allow the major dominant firms in pork, poultry, and turkey to actually tacitly collude in order to set maximum price for maximum profit–based upon their words– and DOJ is taking that on.
Senator Warren: Okay. And, and as I understand it, we've had successful prosecutions in Big Ag of price fixing, right?
And Dr. Owens, I think you were trying to talk about price fixing. Do you want to just say a bit more about that?
Dr. Owens: Sure. I think there are a number of things going on here.
First, there's price fixing, which is absolutely illegal, and we do have pending cases at the Department of Justice. There's also price gouging. And the problem here is that, in many cases, that's perfectly legal, right? Which is why we need you know, your legislation, the Price Gouging Prevention Act of 2024. And there's also just plain old skimming, you know, juicing margins a little bit, charging a little more than you need to, passing on your rising costs and then gilding the lily a bit.
There are a lot of different features we see here, but the point is, all of them are easier in concentrated markets. All of them are easier if you don't have to look over your shoulder and worry you're going to get undercut by the competition.
Senator Warren: Okay. And that's the heart of this. It's all about concentration and competition.
Thank you.
Senator Reed.
Round 2: Corporate Tricks Throughout the Food Chain and Executive and Legislative Solutions
Senator Warren: So, I want to take a few minutes to focus on different ways that Big Food corporations use their size to take advantage of consumers. One is price gouging, which we've been talking about. Another is price fixing.
Another is shrinkflation– food companies quietly making the products just a little smaller, but keeping the prices the same. Gatorade bottles went from 32 ounces to 28 ounces, a bag of Doritos went from 9.75 ounces to 9.25 ounces. Consumers’ purchases get smaller while corporate profits get bigger. The problem has gotten so bad that France will soon require stores to put shrinkflation warning labels on products made smaller, if they don't have a corresponding price cut.
Now, Mr. Vora, you own and operate a neighborhood grocery store. How has shrinkflation affected your business?
Mr. Alap Vora, Concord Market, Owner: It has taken a– I think it has hurt the credibility of small businesses. As the frontline of what consumers see and who they interact with, we hear from them directly. And it's a surprise for them every time they come in to shop.
You know, usually you would think that going to a place full of food and beverages is a pleasant and enjoyable experience, but now people are, you know, they have to have their head on a swivel. Not just consumers, but also the small business, because there's oftentimes when we're not aware of it. The package size has changed without our notice– there's no bulletin board, or email, or general place for us to be able to receive this information, and that creates even more of a frustrating experience for consumers.
Senator Warren: Alright, and, and so that's part of the problem, you see this shrinkflation.
How about whether or not manufacturers– the people who are supplying the Dorito chips and everything else-- do they treat smaller stores like yours differently from how they treat the big stores?
Mr. Vora: Yes, Senator, I believe they do. Strictly based on the pricing structure, if you look at some of the larger big box retailers and what they sell their products for, whether it's a Costco or a Sam's Club or whatever, they're paying, you know, consumers that shop there are paying almost the same, if not sometimes less than the prices that we pay to get that exact same item at the wholesale level.
There's certainly something that could be done to, to have a better streamlined communication with small businesses allowing us to, to have direct access to, to the products at a more affordable rate. It's, it's really eliminating that retail grocer and I don't think that that's a place that we need to be– it's going to impact a lot of communities.
Senator Warren: So concentration in the food industry is creating more concentration in the food industry.
Mr. Vora: Correct.
Senator Warren: That is this handful of manufacturers that deliver, when they price discriminate, they make it harder to create more– or keep more competition in the food chain.
You know, that kind of price discrimination obviously hurts small businesses. It also hurts consumers, who then end up traveling further to get their groceries because the manufacturers and distributors won't give a fair price to the local grocery stores.
And who benefits? Once again, it is the biggest grocery stores and food companies because this lets them smother competition from stores like you. This is the reason– I particularly wanted to focus on this because it's why I'm glad that the FTC is investigating potential violations of the Robinson-Patman Act, which prohibits unjustified price discrimination in these circumstances.
So it looks like we've got a whole bunch of things that are helping drive up the cost of food. We've got shrinkflation, price discrimination, price fixing. And these just scratch the surface of bad corporate behavior here. We haven't even talked about the junk fees that companies like DoorDash and UberEats add on to deliveries, sometimes doubling or even tripling order prices without explanation. We haven't talked about surge pricing tools that fast food chains like Wendy's threatened to use as a new way to squeeze every last dollar out of Americans’ wallets.
Big corporations are looking for every chance to take advantage of consumers. Motive, means, and opportunity that they have at this moment in time. And all of those efforts add up to higher prices for consumers.
Now, the Biden administration has been pushing back. We've heard from Mr. Maxwell talking about how suits brought against Big Ag is at least giving some hope that you may break up some of this behavior and give farmers like you an opportunity– and consumers an opportunity– to do better here.
The FTC is working hard to block mergers so we don't see increased competition. The Biden administration has gone after junk fees. So we're getting a lot of action out of the administration.
I would argue it is also time for Congress to step up. I've introduced the Price Gouging Prevention Act, which would ban grossly excessive price increases. I partnered with Senator Casey on the Shrinkflation Prevention Act, which would give the FTC and the states the tools to, to stop shrinkflation.
So let me ask you, Dr. Owens, would passing Senator Casey's and my bills make a big difference in lowering prices for families?
Dr. Owens: Yeah, I think these are both great options. Senator Casey's bill to make sure that shrinkflation is classified as the deceptive practice it truly is, I think would give consumers a lot of relief. Look, you, you know, you shouldn't have to sort of haul your recycling with you to the grocery store to make sure you're getting the same size product that you got last week.
But I think your, your price gouging legislation is important because it is more broad based. And so not only can it take on excessive price hikes in the grocery sector, it can also reach further up the food chain, things like energy prices that are filtering through to food prices. And so I think, you know, broad-based price gouging legislation, really tackling excessive prices throughout the food chain, in addition to the grocery sector, is a critical next step.
Senator Warren: Alright, thank you very much. I appreciate all of you being here today. I think it is clear that we have some major corporations in America that are pretty openly taking advantage of American consumers. And, in fact, they're pretty much saying so openly on their earnings calls when they talk to their investors. I appreciate that the Biden administration is using all of the tools available to it to be able to push back and bring down grocery prices. And I think it's time for Congress to step up and do our part. With that, I thank you all for being here, and this hearing is adjourned.
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