Fed Watchdog Releases Report on Food Inflation Causes, Impact

If grocers, suppliers and consumers are keeping close tabs on inflation, so is the U.S. government’s own watchdog. The Government Accountability Office (GAO) has released a report on food prices, outlining information on trends, factors and federal roles.

Following a year in which food prices hit 40-year highs, the GAO’s team looked at several factors impacting retail food prices and examined actions taken by government arms including the Departments of Agriculture, Commerce, Justice, Labor and Transportation as well as the Environmental Protection Agency (EPA), Federal Trade Commission (FTC) and Food and Drug Administration (FDA).

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One of the key takeaways from the March 28 GAO report is that spikes in food prices in 2021 and especially in 2022 were rooted in complexities. “Many factors that affect the food supply chain can affect retail food prices. It is difficult to determine the individual effect of any one factor on retail food prices, according to USDA officials and experts we interviewed,” the report concluded. Some of the factors included the perennial influencers of weather, global trade issues and animal diseases, along with non-traditional headwinds like the pandemic and the war in Ukraine.

According to the GAO’s findings, higher expenses on the production side contributed to the overall price of food, as many of those costs were passed along the chain. The report cited rising prices for commodities like wheat, peanuts and beef, and pointed out that food processing costs accounted for about 25 cents of every dollar a consumer spent at grocery stores in 2021.  

The GAO also determined that the actions of federal agencies had a ripple effect in the marketplace. “For example, selected federal agencies have taken some actions, such as offering regulatory relief and other flexibilities to address supply chain disruptions caused by the COVID-19 pandemic and the Russia-Ukraine conflict. However, agencies do not have a direct role in controlling price increases, according to agency officials,” the analysts wrote.

Specific actions taken by federal agencies as inflation started to surge were highlighted in GAO’s assessment. For example, the FDA relaxed its regulations to allow foods made for restaurants to be diverted to grocery stores as a way to avert food shortages that could further impact the supply-demand curve. Meanwhile, the USDA and DOJ introduced an online complaint portal for farmers, ranchers and other agricultural producers to report suspected violations of federal anti-competition laws. EPA also took steps, like providing temporary regulatory flexibilities for registrants of certain pesticide products to ease supply chain issues and allowing producers to make minor changes to ingredients without updating labeling when ingredient shortages required the use of substitutes. That move, said EPA, was designed to prevent companies from passing along higher labeling costs to consumers.

The USDA, for its part, helped alleviate fallout from high food prices by increasing Supplemental Nutrition Assistance Program (SNAP) benefits and by purchasing food directly from producers and delivering it to food banks through the Farmers to Families Food Box Program. The GAO report also detailed the FTC’s supply chain inquiry that led that agency to order nine large retailers, wholesalers and consumer goods suppliers to provide information on supply chain disruptions and rising prices.

Ahead of the published report, the GAO shared its findings with several federal agencies. USDA generally agreed with the findings, while the DOJ, DOT, EPA and Commerce departments did not have any comments and USDA, DOL, FTC and FDA provided technical comments that were incorporated “as appropriate” in the document. The full report was shared with members of Congress who requested the deep-dive information, including U.S. Representative Dusty Johnson (R-S.D.), chairman of the House Subcommittee on Commodity Markets, Digital Assets and Rural Development, and Adrian Smith (R-Neb.).

The full report is available online.