Carving Up Biden’s Inflation Beef

The White House needs a refresher in the law of supply and demand 

WSJ editorial. Excerpts:

"Meat prices fell in the five years before the pandemic, and markets didn’t suddenly become less competitive. Like so much else in the Biden era, meat prices have soared amid surging demand, rising production costs and constrained supply."

"Tyson sold modestly less beef in the past fiscal year than in 2019. But Tyson executives noted during its earnings call that “customer demand” had “outpaced our ability to supply products” amid a severe labor shortage. One reason for this worker shortage is government pandemic transfer payments that subsidize leisure."

"At the same time demand for meat, and beef especially, has increased. During economic downturns, people typically buy less expensive protein. The opposite happened during the pandemic as incomes increased—also partly a result of expanded transfer payments—so people have had more money to spend on pricier cuts of meat.

Global demand for American meat has also soared. The U.S. exported record amounts of pork, chicken and beef to China in 2020 and 2021 as Beijing sought to fulfill its agriculture commitment under the Trump trade deal. American producers also benefited after China restricted Australian beef as punishment for Canberra’s request for an independent probe into the origin of Covid-19.

Tyson executives said they’re “working aggressively” to close the supply-demand gap, in part by raising wages and investing $450 million in automation. The company is also building “nine chicken plants, two case ready beef and pork plants, and one new bacon plant.” Investment requires money and time, which the White House doesn’t seem to understand.

The other reason prices are rising is because costs for meat producers are also rising fast. As usual during bursts of inflation, commodity prices increase. Tyson said cattle prices were up more than 20% in its last quarter."

"Meat producers’ margins are fatter because markets ration scarce goods via prices. When supply declines and demand increases, prices go up. This means larger margins for producers. Margins will retreat as the mismatch eases over time. The alternative would be for government to impose price controls, which would result in shortages and reduce investment in growing supply."