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Comment by prepend | Hacker News Reader

I was really interested in the figure that shows prices going up while input costs decrease. But this doesn’t reflect all inputs just the price of meat procured. There are many other input costs, mostly labor.

So this diagram is really frustrating as it makes me want to reach a conclusion (wtf, what an unnatural difference) without giving me enough information to know anything.

It would be like showing that household grocery costs decreased while disposable income decreased and then writing an article about the relationship between those two while not revealing that rent increased at the same time.

In general, I don’t know if they answer properly if profits increased because of inflation or if inflation increased because of inflation. Since the cartel existed before the shift, I would like to know what they think made companies suddenly get greedier.

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The author arbitrarily picked an outlier looking peak to start the graph vs consumer pricing to severely bias the graphs. May 2020 (graph 100 index) has a price index of 265, but April 2020 is 185 and Jun 2020 is 194.

https://fred.stlouisfed.org/series/WPU0221

*edit April not Feb

*Edit2: Linked wrong graph, but correct graph is like the same trend. Thank you for the correction.

> to severely bias the graphs

How does this bias manifest? It looks like what you linked is comparing something different but I wonder if I am misunderstanding.

The PPI time series they use is indexed to the outlier you see in 2020, although that's the incorrect chart - this should be a better one: https://fred.stlouisfed.org/series/WPU0221

The conclusion is that industry PPI is down 20% since 2020, which is ridiculously misleading.

Speaking of incorrect charts, they used "Meats, poultry, fish, and eggs", which is the time series easily available on FRED, but on this timeframe is mostly about eggs - the one component irrelevant to the article.

The fact that this was written by a "Sr Data Scientist" is laughable, but probably average Silicon Valley economics.

> In general, I don’t know if they answer properly if profits increased because of inflation or if inflation increased because of inflation. Since the cartel existed before the shift, I would like to know what they think made companies suddenly get greedier.

That's my big question too with all this "greed driving inflation" discourse. I don't doubt it at all, in fact, from everything I see it seems like the likeliest story. But ... why now?

From what I understand, price is sticky. It may have been difficult to be greedy as a first mover, and also difficult to cooperate to increase prices. When an external driver (pandemic) occurred, all players found a natural driver of prices and let their instincts take off. My unlearned thoughts.

Wages are sticky. Prices of undifferentiated commodity products are not, which is why Tyson (as an example) has falling ASPs and negative margins on many products.

It's a similar phenomenon to companies waiting until a recession to lay off extra and low performing workers.

> But ... why now?

Because "oh, it's the pandemic" gave them cover for the increases.

>Because "oh, it's the pandemic" gave them cover for the increases.

It might work, but as far as I can tell it doesn't stick. Egg producers had the "it's bird flu excuse" about a decade ago[1]. Profits (as %) went up, but eventually fell back down a few years later[2].

[1] https://en.wikipedia.org/wiki/Avian_influenza#United_States_...

[2] https://www.macrotrends.net/stocks/charts/CALM/cal-maine-foo...

Right, so total profit over the time period is greater than if they didn't raise prices. It doesn't matter if it sticks forever.

See also: gas prices after hurricane Katrina.

Price gouging is immoral, and supposedly, illegal in some cases. And yet...

That's not a better excuse than what they had before. The question is why didn't competition undercut them to keep prices low as it had before. Food company excuses don't matter, people will continue to buy the product they perceive as having the best value.

> The question is why didn't competition undercut them to keep prices low as it had before.

This question is answered by the title of the article.

Didn't that cartel exist in 2020? So, once again, why now?

If you ran a cartel, what would your biggest fear be? If it were me, my biggest fear would be getting regulated out of existence, or maybe even being criminally prosecuted. So you want to keep a low public profile for your cartel activity.

If you start ratcheting up prices without an excuse, eventually people would notice, and at some point "people" would start to include state and federal legislators, who will start asking uncomfortable questions and whom you might not be able to buy off forever.

So instead what you do is set a comfortable minimum price industry wide and use your cartel power instead to aggressively cut costs, so that you have a credible threat of crushing any competition in a price war. This keeps potential competitors in check, thereby tacitly maintaining your preferred price floor.

When an external event does happen that actually raises supply costs, you are best equipped to eat those cost increases while your competitors struggle. Eventually, you sadly announce that you must raise your prices. This price becomes the new price floor for a while, until inflation catches up.

I'm not saying that's what they're doing, but to me that seems like a nice balance between maintaining industry dominance and not being portrayed in the media as Dr. Evil.

The first line of the article is "Since 2020, Americans have experienced rising food prices". The pandemic's effects largely started in March 2020. "Now" is scoped to "that last couple of years", not "last week".

Well, OK, didn't that cartel exist in 2018? 2010? 2000? Why now (for values of "now" that include 2020)?

The cartel explanation, by itself, still doesn't fit the timing.

Again, the cartel(s) existed (and they've long been accused of price fixing of various kinds; BigAg price fixing fines are not new; https://en.wikipedia.org/wiki/Lysine_price-fixing_conspiracy as an example). The handy "it's the pandemic's fault prices are going up everywhere" excuse to get away with big price hikes was new.

They didn't need excuses to raise prices, this explanation still doesn't explain why they waited. Cartel's don't care what their consumers think since they've cornered the market on an inelastic product.

> Cartel's don't care what their consumers think since they've cornered the market on an inelastic product.

They do care about attracting the ire of regulators, which can be triggered by consumers getting fed up with price increases.

So what about regulators is different now than 10 years ago or 20? It seems like the same crappy level of price regulation now as 40 years ago.

Regulators are toothless in this country. I'm not buying the "scared of regulation" angle.

Not really. The article doesn't have any evidence of collusion at all. 4 competitors should be more than enough to prevent abuses of market power.

There's certainly evidence of collusion in the meat industry even pre-COVID.

https://www.atg.wa.gov/news/news-releases/ag-ferguson-s-pric...

> The Attorney General’s Office asserts Tyson Foods and 18 other chicken producers drove up the price of chicken since at least 2008, causing consumers to overpay by millions of dollars. The lawsuit asserts a widespread illegal conspiracy to inflate and manipulate prices, rig contract bids, illegally exchange information and coordinate industry supply reductions to maximize profits.

> The Attorney General’s Office investigation found a coordinated, industry-wide effort to cut production through the exchange of competitively sensitive information, signals during investor calls and direct coordination between players in the industry.

$10.5 million over 14 years? That's what, half a cent per pound? probably less

That's the settlement amount, from one state and for one type of chicken product, and merely one example of how the providers collude.

Until people start going to jail, these sorts of fines/settlements are just part of the cost of doing business. The profits from the scheme tend to outweigh the punishments, especially factoring in the probable times they don't get caught doing it.

Right, but I don't know, that feels kinda thin ... couldn't they have conjured any number of other excuses before?

They've never had so clear an opportunity - what other excuse was available as widespread and impactful as a global pandemic? - and you see it across the board. Daily housekeeping at most hotels is gone forever, "because COVID". They were trying to get away with it pre-pandemic, but people pushed back on the reduced level of service.

Well, another comment in the thread said it's probably because funding sources are drying up and this is an attempt to make up for it, and that sounds likeliest to me now.

Re: housekeeping, in that specific case (and this applies to many other service occupations too), my money is without hesitation on a much sadder cause, i.e. COVID killing people or giving them long-term disabilities, which strongly shrank the workforce.

Exactly. The common refrain from everyday people in idle conversation was 'global supply chain issues'. Easy to believe, organically supported excuses are the easiest ones to lean on because they become socially entrenched in ways that top-down explanations don't.

Why do they need cover for price increases? What was used for cover for price increases before the pandemic? Or why was cover not required for those?

Doesn't add up.

This is correct. Food companies cannot hike prices just because, especially when they are monopolies. If suddenly eggs cost $20/dozen, customers will ask why and if there are no good explanations, there will be a lot of noise. And politicians and regulators who are otherwise not willing to act on monopolies, do not like noise because it threatens their jobs. They will act, and that will not be great for the food companies.

> They will act

Citation needed. Anti-trust enforcement went out with Clinton.

> they will act

They will say “what inflation?” and then tell us that it’s actually a good thing that eggs cost that much.

Or, ya know, they can’t raise prices that high because people will just stop buying eggs and they will stop making money. Eggs are very much an elastic good.

Does no one understand basic economics anymore?

Eggs are a fungible product (well, sort of).

In a working market there are a lot of sellers and buyers and I'd find the lowest ask price and buy it.

In a failed market, the price is locked.

You’re actually advocating for anti-competition and anti-capitalism.

The price of inputs is going up, but so are interest rates (and expected future interest rates). So where money was cheap, it's going to become more expensive. I suspect it's understandable a business would want to increase its margins given the expectation of higher rates -- as opposed to the personified "greed" narrative.

Because businesses are not owned by ppl? And a small amount of those? It's much more reasonable to personify the decisions made by these ppl than to assume that some anonymous law of nature did it

Thank you, that's actually the first interpretation that makes total sense to me. If you know that sources of financing are drying up and will stay that way into the foreseeable future, raising prices to make up for it does seem like the most obvious thing to do.

> Thank you, that's actually the first interpretation that makes total sense to me. If you know that sources of financing are drying up and will stay that way into the foreseeable future, raising prices to make up for it does seem like the most obvious thing to do.

* When you have a monopoly or cartel and you don't face pricing pressure from competitors. In a competitive market they would have to cut margins, not raise prices. Antitrust, now.

> The price of inputs is going up

Except it didn't. That's like, the first thing in the article.

Input costs include labor.

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