Why Are Groceries So Expensive?

0:01A few months ago, I invited Atlantic staff writer Charlie Worzel onto The David Frum Show. As podcast hosts, we talked about the pressures and temptations of the medium. Outrage often gets rewarded. Nuance does not. Charlie doesn't take that bait. On his show Galaxy Brain, he covers the ways technology is changing how we think and how we live. Not just the obvious stuff, but the subtle ways it shapes what we believe, how we talk to each other, how we see ourselves and our neighbors. If you've ever wondered how smart people end up believing implausible things online, Galaxy Brain is worth your time.

0:38It's thoughtful, surprising, and a little unsettling in the very best way. Find it wherever you listen or watch.

0:53for dumb phones. Why are people trying to get off their screens? And what are they really after? I'm Natalie Brennan, a producer at The Atlantic. And I'm Julie Beck, a staff writer at The Atlantic. This season, we're exploring the often fraught, always changing relationship people have with technology. And examining the ways our devices affect our connection with one another. New episodes of How to Touch Grass come out every Monday. Subscribe wherever you get your podcasts.

1:31Hello, and welcome to The David Fromm Show. I'm David Fromm, a staff writer at The Atlantic. My guest this week will be Vincent Smith, a professor of economics at Montana State University. We'll be discussing the high price of groceries and whether there is any hope that those prices will cease to rise so rapidly anytime soon. This week's book is Edith Hamilton's Mythology, a book selected in homage to the recent release of Christopher Nolan's movie, The Odyssey. But before either the dialogue with Vince Smith or the discussion of Edith Hamilton's mythology, some opening thoughts building on last week's discussion with Maya McGuinness about the burden of debt and deficit created and bequeathed by the Trump administration.

2:15One of the questions you might have left over from last week's discussion about the crushing burden of debt and the danger of the interest cost to the American taxpayer, is whether the Trump administration has any plan at all to meet the challenge of debt and deficit. It says it does. Secretary of the Treasury's Scott Bessent has been promoting a plan he calls three plus three plus three. The idea is if the United States can somehow raise its growth level to three percent, if it can produce three million more barrels of oil per day, then by the time the Trump administration ends, the deficit will have been driven down to about 3 % of GDP, which is a sustainable level.

2:54Right now, if you want to collect the numbers, the deficit is running at about 5.7 % of GDP, a figure that is not considered sustainable. So that's his promise. You can get, if you can get the growth up to 3%, if you can produce 3 million barrels a day more oil than the United States is now doing, then there is hope that the deficit numbers can be brought down to 3 % of GDP, a level that is sustainable that doesn't continue to accelerate and get worse. In other words, the plan is to grow our way out of it. Now, more growth would be a good thing. But let's talk about whether this plan is feasible or not.

3:253 % is not an impossible growth number for the United States. When the United States came out of the pandemic under President Biden, there were quarters when the growth rate neared 3 % annually. And it was not beyond imagination that the United States might actually achieve 3 % annually. It hasn't achieved that kind of figure in the second Trump administration. and the Trump administration badly wants it to, but the policies don't line up with anything they say they want to do. Economies grow for two reasons. They grow because they add more factors of production, typically more population or maybe more resources of some kind, or they grow by becoming more efficient, by using the resources they have more efficiently.

4:06So one is called extensive and the other is called intensive growth. Add more factors of production, you get more growth, use them more efficiently, you get more intensive growth. The Trump administration's policies crush both extensive growth and intensive growth. They have an anti-immigration policy that is making the labor force grow very, very slowly and in fact probably shrink in an aging population. And their protectionism means that the economy operates less efficiently. So they have fewer resources to use and they're using them less efficiently. That is why the growth rate has been so disappointing in the first year plus of the Trump administration.

4:39The Trump administration is gambling everything on an AI productivity miracle. By applying the new technologies of artificial intelligence, the American economy will get so much more efficient that even though the population isn't growing, and even though the efficiency of every other part of the economy is being damaged by Trump's protectionism, his high tariffs, the AI miracle will add so much to growth so fast that it will overcome the slow growth in population because of the immigration crackdown and the inefficiencies of protectionism. It might, but it isn't, and it isn't happening soon. But there's a little caveat that the Trump people don't tend to notice, which is supposing this AI miracle does show up and the economy suddenly becomes much more productive.

5:23One of the immediate consequences of the AI miracle will be an elimination of many, many categories of jobs. Now, that doesn't mean that employment will vanish forever and people will never have anything to do the way some AI doomsters predict. I don't agree with that at all. There will always be things for people to do. But there will be a period of shock where machines do things that people used to do, and people will have to find new things to do using the powerful new machines. And in that period, employment will shrink, and there goes your extensive growth. And even if you believe, and maybe it's true, that the AI revolution will create more intensive growth, and so although there are fewer people working, they're generating more wealth, the other thing the Trump people keep forgetting is when the economy grows faster.

6:05That creates more demand for capital. And that means the Federal Reserve raises interest rates. And when interest rates arise, of course, the federal government, which owes so much money, pays more in debt service. So they've got a box that even if you believe their own theory, can't possibly work. Their numbers really don't add up, as the Congressional Budget Office keeps pointing out. And keeps pointing out that the United States, even under the most optimal scenario, what what the CBO calls the best realistic case, is that deficit simply doesn't get any worse than it is now, and the debt continues to grow.

6:39There's almost no scenario where 3 plus 3 plus 3 works. Administrations often sell things, and that's maybe not a surprise, but it is kind of alarming to realize that the administration has a plan for what it regards as one of its most important domestic problems, that doesn't make sense according to any of the experts, and that it's hard to believe that the people pushing the plan even can really believe. And yet they keep saying it because they keep offering some kind of promise of a better tomorrow to make up for the bad realities of today. As you make up your mind whether the present crew can be trusted with more power in government or less power in government after the 2026 elections, keep in mind they really don't know what they're doing.

7:18And to the extent they do know what they're doing, they know that it won't work. And now my dialogue with Vince Smith. But first, a quick break.

7:55affect our connection with one another. New episodes of How to Touch Grass come out every Monday. Subscribe wherever you get your podcasts. A few months ago, I invited Atlantic staff writer Charlie Warzel onto The David Frum Show. As podcast hosts, we talked about the pressures and temptations of the medium. Outrage often gets rewarded. Nuance does not. Charlie doesn't take that bait. On his show Galaxy Brain, he covers the ways technology is changing how we think and how we live. Not just the obvious stuff, but the subtle ways it shapes what we believe, how we talk to each other, how we see ourselves and our neighbors.

8:35If you've ever wondered how smart people end up believing implausible things online, Galaxy Brain is worth your time. It's thoughtful, surprising, and a little unsettling in the very best way. Find it wherever you listen or watch.

9:05Vince Smith is Professor Emeritus of Economics at Montana State University and Director of Agricultural Policy Studies at the American Enterprise Institute. He spent more than three decades on the Montana State faculty in the Department of Agricultural Economics, and including stints directing the Agricultural Marketing Policy Center and the Initiative for Deregulation and Applied Economic Analysis. He's the author or editor of nine books, including multiple volumes of Agricultural Policy in Disarray, and has published well over 100 articles making the case that the federal government's approach to supporting farmers is expensive, poorly targeted, and resistant to reform.

9:41He's a familiar voice in the Wall Street Journal and a helpful source to me in my articles for The Atlantic about food prices and food markets. Vince, welcome to The David Frum Show. A pleasure to be here, David. Thank you for inviting me. Now, we are at a moment when food prices are high. Americans are suffering the cost. There's understandably a lot of unease and a lot of complaint. Everyone is looking for someone to blame. The president of the United States has been calling on grocery stores to cut their prices. He wants to blame them. The new mayor of New York City, Zoran Mamdani, is calling for state-owned grocery stores to squeeze out price gouging and profiteering by the grocery store industry, which he alleges is a terrible problem.

10:23Those who study agricultural economics look for broader explanations. No one has studied these markets deeper than you. Why are food prices high? Why are they rising? Who's to blame? Well, it's a fascinating question. So let me reframe the debate a little bit. We have the perception that food prices are high. And the question is, are they high relative to other prices, given that we're experiencing some inflation? Particularly, we saw very high rates of inflation in 2022 and 2021 during COVID. And correspondingly, we did have very high, by historical levels, rates of inflation in the basket of goods that we use to measure average food prices.

11:19And we saw for food away from home in, for example, 2022, an 8 % rise or approximately 8 % rise in the price of a typical food basket. In-home food prices in COVID really surged even more. There was an 11 % increase overall. Subsequently, in recent years, for example, in 2022, while food away from home has continued to increase at a little bit faster rate than the overall rate of inflation, for example, in 2024, prices for food away from home, that rate of increase was about 4%. Whereas for food at home in 2024, prices only went up by 1 % or thereabouts. So if we set aside, on average, what prices were doing for food in 22 and 23, the last two or three years, food prices have increased at about the rate that they have increased historically.

12:28That is very close to the overall rate of inflation. But I think what matters here is that food is different than some of the other commodities that we purchase in that we go to the store every day. So if the price of coffee goes up a little bit, we notice that because we are so regularly at the grocery store. If the price of bread is 20 cents higher this week, I notice that and I feel the pain in some important way. The other thing that makes food different and makes us more aware of what's going on with the price of food is that it is an essential. It is something we cannot do without, especially for lower income consumers.

13:18When the price of food goes up and their incomes do not change, which is very typically the case, whether they're on a fixed income or whether they're in a moderate income job. you have to buy bread, you have to buy protein and so on. And so you're aware that the share of your fixed income that goes to food is going up, especially when you're low income. And then there are individual commodities where when the price jumps, everybody screams. And the classic example of that are eggs. And over the last four years, we've had two very significant periods where avian flu disease has affected the domestic supply of eggs very significantly.

14:08And we've seen those prices in 2022, for example, more than double. And fairly recently in 2025, we saw very sharp increases in the price of eggs, which almost everybody buys almost all the time. So we feel the pain. The callous economist would say, well, food prices are really not going up that much faster than anything else. But the compassionate economist would say, it's a pain that is felt, and it's particularly felt by people on modest and low incomes. So the contention, if I can reduce what you just said, is that we have an inflation problem and food prices are part of the inflation problem, but we don't have a food price inflation problem separate from the general inflation problem.

15:00Fundamentally, that's a very fair interpretation. There are fractions of a point at which food prices over the last few years have gone up a little bit faster annually than the overall inflation rate. Food is one of the places where every household notices when the price in dollar terms, in nominal terms, as economists say, goes up. Because we just go to the grocery store a lot as compared to, say, the home improvement stores like Lowe's or whatever. So we notice things more with food than with many other commodities. There is one price, one food price that has been outrunning the rest and maybe rising faster than inflation.

15:51And you and I have talked about this before. And that's the price of beef. And beef plays a very special part in American diet, in American culture. Eating beef is part of almost what it means to be an American, the steak, the hamburger. The fact that beans or pork may not be rising as much is cold comfort to Americans who say, that's why we work as hard as Americans do, harder than anybody in the world works. We work so hard in order to enjoy the American way of life, which begins with that cut of beef. And beef prices have been going quite bonkers over the past half decade. During the Biden administration, there were accusations of all kinds of collusion and price fixing.

16:28You and I spoke about that at the time. Tell us the story of what is happening with beef prices. Well, very quickly, last year, beef prices, on average, beef and veal prices, rose by almost 12 % compared to an overall inflation rate of somewhat a little bit less than 3%. And a food inflation rate overall of about 3%, just under 3%. And if you look at food, beef prices on average, they've been going up almost twice as fast as the average rate of inflation for several years. The story here is, at least in my view, and I think the view of many economists who very carefully look at issues of market power among beef processing plants, is that they are not the cause of the problem.

17:20The beef processing plant story is pretty straightforward. Yes, there are only four major processes of meat, in particular beef, in the country. And yes, that might imply they have some market power, both on the buying side and on the selling side. That means buying animals from feedlots and farms and selling meat to Costco or Safeway or any other outlet. But because they are operating very large facilities, their actual average cost of producing cuts of beef from the animals is way lower than for small-scale, essentially boutique processes. The sort of process, actually, that currently the Trump administration and the Secretary of Agriculture want to subsidize.

18:18Those are high cost operations that they are boutique operations because they deal with specialty meats, because processing costs for those meats are going to be high no matter where you send them, because the runs are so small in creating product for the consumer. They are in the view of almost all economists who look carefully. These subsidies for small scale operations are effectively a complete waste of federal dollars if the goal is to reduce the price of hamburger at your local grocery store. So if I look at the big producers and to some extent farmers lose on one on the swings where the swings are market power, but they gain in terms of lower prices for consumers and higher prices for cattle.

19:10And one of the ironies, by the way, here is that there are some cattle farm groups that want to blow up all the large scale operations in the belief that then they will get a higher price for their beef, either at the feedlots or if they sell direct to processors at the processing plant. The evidence is they're entirely wrong. And frankly, on a bad day, I would describe the position of those producers from an economic perspective, taking a double barrel shotgun, putting it at their feet and unloading both barrels. It's a financially really bad idea for them. And that's not my view. That's the view of numerous studies.

19:58But we want to fill into the story. The mayor of New York proposes grocery stores. The Biden administration proposed the beef processing plant. The Trump administration flails around and points all kinds of fingers of blame. We want a villain here. We want an explanation. If there are no villains, what's the explanation? Well, if you want to call it a villain, what you have to say is pretty straightforward. Ranchers have been downsizing their herd sizes over the last seven or eight years for a whole variety of reasons. One is growth in global demand for beef has led to an increase in beef prices.

20:41So now you have a cattle herd and you've got old cows that are not as productive in providing calves that will end up very quickly, relatively quickly going into the supply chain about 18 months after they're born. do you sell that older calf that is less productive in terms of generating offspring for a relatively high price of beef? Or do you keep it so that you can sustain and expand your cattle herd? Well, the price incentives for the last few years have been take the money now from that older cow, cull it, because that's the optimal from your business plan perspective way of going. So one story is the growth in global demand, which itself was pushing up beef prices, period, globally, and we operate in a global market.

21:45That's, if you like, the villain. How dare other people in countries like China want to consume more beef, including American beef? Is that a bad thing or a good thing? A very interesting question for cattle producers in the US, but they're going to say it's a good thing. And consumers are going to say, oh, gee, that means we're paying relatively more for our beef and we're going to adjust our consumption patterns. Why doesn't the growth in beef prices cause ranchers to raise more cows and build their herds? Why are they shrinking their herds if the demand is going up? It's a very intriguing question.

22:22Let me just say, you add to that in 2022, 2023, severe drought in many of the major cattle producing regions in the US, and forage prices go up. So sustaining your herd becomes very expensive. And that in particular has contributed to the surge in prices that we have seen over the last two years because high feed costs led to a reduction in herd size. Because why keep a cow that's not that productive in the first place when you don't really have the feed for the cow and the calf available to you except at very high prices? The reason why we've seen a shrinkage of the herd size has been because it's economically profitable for ranchers to do that.

23:14They're optimizing in terms of profit maximization and risk minimization by having reduced herd size. And the beef guys that I talked with, the beef economists that I talked with, are now wondering if we're at a tipping point where we will begin to see some growth. But it's not going to happen this week. It's not going to happen before the November elections, which is a great concern to the Trump administration. It's going to happen maybe over the next three years. And for a political process that focuses on four months from now, that's not going to help them. So these other measures that are being put about by the Secretary of Agriculture and other members of the administration to lower beef prices are really irrelevant to what the market price for beef will be over the next four months.

24:13They're just an irrelevance. And many economists are going to say they're also going to lead to spending on infrastructure investments. that is small processing plants, that long term are not going to be economically viable. Let me pause you there to ask you a question about the Trump, since we're talking about the administration, about its trade policies. The Trump administration has put in all kinds of tariffs with a view to making things more expensive for Americans to encourage more production at home. These tariffs, do they affect the cost of food? And if so, how do they affect the cost of food?

24:49If and when the tariffs are implemented, they will raise the price of food because they'll reduce import supply. I mean, the story that you have heard from many Trump administration officials, that the tariffs will lower the prices, people who import goods from other countries will pay for those goods. And it's the producers in the other countries who will see lower prices, not the consumer. That is simply empirically nonsense. There is zero evidence to support that sort of assertion. We surveyed and published a piece that looked at the pass-through effects of tariffs, particularly on food. The studies that are being carried out almost all indicate that close to 100 % of the tariff is passed through to consumers on the imported goods, whether it's beef or coffee or whatever.

25:51And correspondingly, domestic producers tend to raise their prices for their competing goods. So the consumer takes it in the neck in two ways, in that the import prices go up, as do, parenthetically, the prices they pay for domestic product. Because essentially, the supply chain has been made more expensive. And essentially, at any given price, less supply will become available from both domestic and international sources. This is Economics 101, by the way. And I'm afraid that some of the Trump officials, if they actually believe what they're saying, have flunked Economics 101 yet again. It's not just the direct input into the steer that becomes more expensive.

26:43The ranchers, truck is more expensive. The wire is more expensive. Well, the truck is more expensive. The wire is more expensive. And if I raise cattle, I have no incentive to want lower prices. Out of the kindness of my heart, I'm not going to keep the price of my steak at$10 if because of a reduction in total supply to the market, I can sell it in that marketplace price effectively for$20. To ask a rancher, or for that matter, a beef processor to do that strains their human compassion for people paying higher prices for food. I mean, it's not going to happen. Markets just don't work that way.

27:28And it's not just beef we're talking about. We're talking about vegetables, which often come from Mexico. No, no. It doesn't matter what we're talking about. One of the areas of concern for farmers in terms of costs of production, and it's a legitimate concern, has been the impact of tariffs on the price of fertilizers. One of the best actions the Trump administration has taken in the last two weeks in relation to trade as it affects farmers is to remove tariffs on the importation of phosphate fertilizers from Morocco. That is actually a benefit because it will make phosphate imports cheaper, and it will, to some very moderate degree, lead to lower prices for phosphate-based fertilizers in the United States.

28:22And that's a plus. But every time tariffs have been added to fertilizer imports. That has been to the detriment of the price of fertilizers in the marketplace where farmers operate. Well, a reason that the Trump administration has been eager to countermand its own mistaken past policies of tariffs on fertilizers and the inputs to fertilizers is that they started a war that is driving up the price of fertilizer and inputs to fertilizer from the Persian Gulf. So how has the Iran war been felt on the farm and at the grocery store? The direct effect of the Iran war in a short run sense on farmers has been twofold.

29:02One, they're paying way more for the diesel they use to run their tractors and farm equipment now than they were before the beginning of the war. So there's been this spike in prices. But one has to be a little careful about claims from the farm sector that that is having a devastating effect. Because many farmers buy diesel in bulk, store hundreds of gallons on their farm. And before the war started, many of them have pre-bought the fuel they needed to manage planting and the initial cultivation issues well before the war started at much lower prices. And the same story holds for fertilizers.