Ice Cream – You Scream – NYC’s Rising Food Prices
Having suffered the indignity of the last six months under COVID-19, we’re now faced with a new source of pain – raising food prices. With 20% unemployment in New York City, (approx. 1.4 million people out of work), this adds insult to injury. But, how much has this to do with supply chain challenges because of COVID, and higher input costs of materials and commodities versus good old greed? Let’s take a closer look.
Here’s the price of ice cream on Long Island’s Jones Beach this summer. Yes, you read that right – only $7 for a vanilla ice cream. So let’s break that down and see if COVID now justifies the price of my summer treat.
The Goods
Looking at the main ingredients that go into making an ice cream cone – milk, fat, sugar, gelatin and flavoring, how much have these input costs risen in the last 12 months? (To make it simple, I’ll ignore the cup cost).
Milk – already outrageously high in NYC as it is, but has it risen enough to justify the price of this ice cream? According to the US Dept. of Agriculture (USDA), milk in the NYC region was $3.87 a gallon back in January. It’s now $4.05 a gallon in August. A 4% increase, hardly eye popping.
Sugar – the elixir of my sweet tooth. NYMEX Sugar 11 prices are down from a year high of $0.15 in February to $0.12 last week (August 28). Sweet.
Gelatin – comprised of bovin parts and pig skin (sounds delicious), is somewhat harder to find prices on. There is however, a direct correlation to how many cattle and pigs get slaughtered in a given year to the price of gelatin. According to Cattlefax, which tracks cattle prices, they expect a bullish year, in large part due to a record corn crop (it’s all about correlations), so my guess is gelatin prices are stable…and that there will be a lot of dead cattle.
Flavoring – For us mere mortals, the price of vanilla extract has increased to approx. $33 per 8 ounce bottle from $29 two years for retail shoppers. But for industrial food producers, global vanilla prices have plunged more than 50% from their highs in 2018, according to a June 5 report from Aust & Hachmann, Mount Royal, which sources and distributes vanilla globally. Apparently, the decline would have been greater if not for the impact of the coronavirus on shopping habits and actions taken by the government of Madagascar, which produces 80% of the world’s vanilla supply. So Madagascar, not just a cartoon.
Gouged, struggling – or both?
Net net, we should in fact expect that that price for that Jones Beach vanilla ice cream should have been a whole lot cheaper. At the current $7 a pop, the shop owner’s margins suggest somewhere in the region of 80% (excluding labour costs, which comprised on two bored teens). But, if less people are buying at $7, that won’t amount to much for that shop, because when volume drops, less profit.
Yes, one can argue that shops are making up for lost business after a prolonged shutdown, something that’s understandable. But at what cost? Business 101 dictates there’s a price that consumers won’t cross. Judging by the complete lack of a line of customers on a packed beach, suggests that consumers are price elastic. In my case, while I’m lucky enough to be able to afford to buy a $7 cone, the principle of spending that much on something that costs so little to make, was a price too far for me and likely many others. So instead of buying two, we bought one. Perhaps had they considered charging say $4 a cone, I’d imagine they’d have had a line all day and sold out their stock. And those teens go from bored to panicked.
It’s not just ice cream. If you like your pizza with pepperoni, you’ve probably noticed that costs a whole lot more, but for very different reasons. Pepperoni suffers from the double whammy of being a product that’s both labor intensive, because it requires curing, as well as having low profit margins. Meat factories are prioritizing products that require less processing and less labor as they struggle to keep their workers safe and healthy during the pandemic. And then there’s salads. The healthy option. I still struggle to understand why the cost of this salad in my local is $18!
Which brings me to the broader point, how much more will the consumer have to suffer inflated costs under the guise of COVID? And what impacts will that have on overall spending, particularly amongst discretionary items? We are after all a consumer led economy. While price gouging on a discretionary item may seem opportunistic, what happens when its on the price of goods we need?
Meanwhile….goodbye to an unforgettable summer. For all the wrong reasons. Here’s to better times next year..and cheaper ice cream cones.
