That’s the question Glynn Tonsor and I tried to answer in a recent report we prepared for the National Pork Board. From January 2020 to May 2022, retail pork prices increased over 27%. Why? The figure below summarizes our assessment.
From the executive summary:
“Several factors contributed to the 6.3% increase in consumer willingness-to-pay for pork. Analysis suggests that changes in the prices of beef and chicken relative to pork are probably not major drivers of the increased willingness-to-pay for pork. Rather, a more likely driver behind increasing pork demand is strong consumer food spending, buoyed by federal stimulus and COVID-19 relief payments.
A number of factors contributed to the estimated 45.6% increase in marginal costs of pork production. These include: 1) Significantly higher feed costs. Inflation-adjusted corn prices increased 79% from January 2020 to April 2022, and soybean meal prices increased 42% over the same period. 2) Fuel and transportation costs have escalated. Real gasoline and diesel prices are about 48% higher than in January 2020, and refrigerated trucking rates were up about 50% at the first of 2022. 3) Wages in packing and retailing have outpaced inflation, pushing up pork prices.”
For the economists out there, the approach we used to quantify the price increases is one that could be readily applied in a variety of other contexts. If one knows the change in price and quantity and is willing to make assumptions about the elasticities of supply and demand, then it just takes a bit of algebra to decompose a price change into the portion arising from demand factors and the portion arising from supply factors.
There is a lot more in the full report, which is available here.