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Supply chain issues, increased wages and inputs pushing pork prices up

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Iowa State, North Carolina State and National Pork Producers Council economists find farm-to-wholesale price spread remained relatively constant past two years.

In a report issued today on retail pork prices, economists with Iowa State University, North Carolina State University and the National Pork Producers Council found that pork prices, not industry profits, are rising. Prices are rising due to increased transportation costs, supply bottlenecks and delays and increased labor costs throughout the pork chain. Those factors, said Iowa State's Dermot Hayes, NC State's Barry Goodwin and NPPC's Holly Cook, were either caused or exacerbated by the COVID-19 pandemic.

Other factors that have affected prices up and down the pork chain over the past 18 months, the report noted, include a 2.5% loss in pork packing capacity that resulted from a federal court order stopping faster harvesting line speeds, higher energy costs, rising feed costs and, most importantly, a shortage of workers, which has hindered productivity and caused wages to increase.

"This report shows there are numerous issues affecting pork prices, but increased profits, whether at the retail, wholesale or farm level, are likely not a significant contributor to the rising prices," says NPPC President Jen Sorenson. "Pork producers, for their part, are continuing to produce hogs to meet the strong demand for pork the industry has seen despite the pandemic."

The report also found the farm-to-wholesale price spread – the difference between what producers receive for hogs from packers and what packers receive for pork from retailers – has remained relatively constant over the past two years aside from a spike in May 2020 when some packing plants shut down because of COVID illnesses among their workforce. (With fewer places to send their hogs, producers were paid less for them.) The wholesale-to-retail spread, however, has significantly widened over the past few months as the farm-to-wholesale price spread has declined. That likely is the result of higher costs for transporting pork to retail outlets, of labor in retail stores and distribution centers and from delays and bottlenecks in the supply chain. Retailers likely are passing along some of those extra costs to consumers. 

"Although there are significant food production, processing and distribution challenges, there are likely no permanent, structural barriers in the way of getting back to cheaper food," says Hayes. "It is unclear whether the same can be said about energy prices, wage inflation and other current challenges."

The long-term outlook for labor, which according to the report is a critical factor in easing supply chain challenges and high prices, is dependent on future immigration policy and agricultural labor reform and, if not addressed, "will continue to be a limiting factor in food and pork production for the foreseeable future," the report concludes.

NPPC has been urging lawmakers to address the agricultural labor shortage by expanding the existing H-2A visa, which allows temporary seasonal foreign farmers workers into the country, to year-round agricultural laborers.

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