How much are you prepared to spend to eat?

The COVID-19 pandemic has exposed some serious flaws in our food supply chains. People are horrified to learn of just how miserable working conditions are in meat packing plants. Citizens are shocked to find out that while unemployment numbers are high, farmers are still bringing temporary foreign workers into the country to work the fields. Folks are shocked to see what kind of razor thin margins food service businesses had been running on as it looks like upwards of 50 percent of our restaurants and pubs may not be able to re-open once they are allowed to.

None of this information is new. The pandemic response has simply brought these issues into focus for a public that never really wanted to think about it.

How did we get into this precarious position?

People may not want to admit it but we asked for it.

Despite what many people like to claim, most do not want to spend any more than they have to on food whether with groceries or when it has been prepared in a restaurant. Local butchers have fallen by the wayside while large meat packing plants filled the void. Restaurants have worked in an incredibly competitive market as they have to shave every nickle imaginable in order to retain a frugal and often fickle client base.

When it comes to restaurants, price elasticity is exceedingly high at an average measure of 2.27. This means that for every 10 percent that a restaurant raises its prices, sales quantities will drop by 22.7 percent. People will go elsewhere when prices rise even modestly which forces restaurants to cut every corner possible in order to compete. The average restaurant or bar is working on a 5 percent margin. There is not a lot of room to move here.

Produce and meat have the same issue. Big box stores have taken over the market as they can take advantage of economies of scale and keep the prices down. Loyalty to the local grocer or butcher fell to the wayside as Costco and Walmart undercut them.

Large retailers demand large suppliers as they work with narrow margins. That pressures food producers and processors to keep costs as low as possible. This means importing labor as our domestic workers simply don’t want to do those types of jobs for the money being offered.

This demand also encourages nations who import food products to us to keep prices as low as possible as well. The working conditions in many of those nations are utterly abhorrent.

So what can be done?

Some people are calling for heavy tariffs in order to force more domestic food production. That will work but it will of course make the cost of many foods rise dramatically.

Some people are calling for higher minimum wages and standards in domestic food production. Again, this will bring about a large increase in the cost of goods.

Folks are calling for a “living wage” for restaurant staff. That is fine but as demonstrated, it would lead to large price increases and then an associated drop in sales. We will have far fewer restaurants and far fewer people working.

All of the above suggestions are not necessarily bad things but they all rely on one key element. Consumers have to be ready to spend a great deal more on food. That elasticity has to change dramatically and it will take a sea change in consumer attitude in order for that to happen.

We have been spoiled. We demand fresh avocados for toast in January while cursing if a burger with a side in a pub costs $16. I know this. I just sold a pub which I owned for five years. It is a fickle crowd and they will respond harshly to even the slightest of price increases.

Has this attitude among consumers changed?

I wish it had but I don’t think so.

We are heading into a period of general austerity due to an economic depression caused by the world pandemic response. People are going to be watching their budgets more closely than ever while dollars become scarce and unemployment explodes. Are families going to be receptive to suddenly paying 10, 20 or 50 percent more in order to feed themselves in this environment? Many will be struggling simply to make ends meet. Whether we like it or not, they will be comparison shopping at Walmart rather than hitting the local farmer’s markets.

I could be wrong here. Perhaps most consumers are ready to spend more on the necessities in order to address the food supply chain issues we have.

If people really want to change the status quo here, they will have to begin by honestly answering a simple question.

How much more are you willing to spend?

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