2022 Article: Higher and higher

As fuel and other prices rise, higher costs damage every link in the food supply chain.

Twenty-one cars formed a line around the block only 10 minutes after Hope Food Pantry opened for the day on a Wednesday afternoon in Sioux Center, Iowa. Many had their windows rolled down to keep cool. Three volunteers pushed grocery carts filled with bags from inside the food bank. Along with other pantry items, they made sure to put rice, toilet paper, “any sauce,” and a can of ravioli in every car. The manager, Marianne Sjaarda, held a clipboard and explained that their numbers within the past year have gone up “by about 30 families.” Every Wednesday, the pantry fills around 125 cars. The line now often blocks the road.

The Hope Food Pantry is a microcosm of what is happening nationwide. As high production costs and inflation work their way through the food supply chain, businesses and individuals struggle with rising prices and shortages.

Why have costs risen so much? Nathan Russell, professor of economics at Patrick Henry College, says a host of factors have combined to create the perfect storm. It began with pandemic-related government policies: the Federal Reserve’s gratuitous printing of money and Congress’ stimulus payments. The government also imposed stricter policies on domestic oil production, followed by the closure of several U.S. refineries, and an import ban on Russian oil after Russia’s invasion of Ukraine.

These two factors sent the cost of a barrel of crude oil skyrocketing from $55 at the beginning of the year to well beyond the $100 mark in late June. Refinement is almost 20 percent of the cost to produce diesel fuel. Some refineries shut down or cut back due to decreased demand during the pandemic lockdown, while others went offline to convert to recycled diesel. Russell, who suggests the government reverse all its energy policies from the last 18 months, said, “Food prices are of secondary importance in policymakers’ and decision makers’ minds.”

WORLD reporters visited a community in northwest Iowa that is involved in every link in the food supply chain to see how higher prices affect each stage.

John Wesselius works on the irrigation system for Cornucopia Farm.Photo by Jim Mone/Genesis

BRIGHT MORNING SUN ­filtered through the greenhouse’s plastic walls as John Wesselius stooped and turned on the hose. He walked down the rows of tiny squash seedlings in their black plastic trays, spraying them one last time before planting. If all goes well, the squash will be ripe this fall. John, his wife Janna, and their few employees will harvest and deliver it to nearby farmers’ markets and Community Supported Agriculture shareholders.

The Wesselius’ farm, the Cornucopia Farm, grows “vegetables from A-Z” in Sioux County, Iowa. Squash, onions, lettuce, beets, carrots, cucumbers—you name it. But next year, their list of produce may be shorter. Their production costs have risen dramatically within the last year.

“In a year when we’re looking at a lot of other higher expenses … we might have to bypass this crop or that crop,” Janna said.

Farmers like the Wesselius family are facing heavy price pressures. Nearly everything they need to produce crops—diesel fuel, fertilizer, seeds, and tools—has become significantly more expensive within the last 12 months. Fuel and fertilizer have experienced particularly dramatic surges in price.

The national average price of diesel fuel has risen over 40 percent in the last year. John said that in his area the price has almost doubled.

Kelly Nieuwenhuis, who farms corn and soybeans in Iowa’s O’Brien County, buys urea fertilizer each year for his 2,700 acres. Last year, the fertilizer cost $300 a ton. This year, he paid $1,000 per ton.

Increasing production costs have driven up food prices nationwide, largely because farmers can’t afford to charge less.

“We raised our prices 10 percent in January,” John Wesselius said. “We thought that would be enough.” That was before diesel prices surged even higher. Now, he doesn’t know if his farm will make any profit this year.

His wife wonders how long this can go on. “There’s a limit to what people will pay, too,” she said. “There’s a limit to what the market will bear.”

Mitch Nettinga sees that every day in his job at a farmer’s co-op several miles away. The co-op rises out of the flat farmland in Hull, Iowa. Giant metal grain silos block part of the distant horizon. Diesel-fueled semi-trucks roll into the co-op’s weigh station. A little wooden house that serves as the co-op’s office sits behind the scale. Hull Co-op provides local farmers with the fertilizer, grain, seed, and lumber they need. Mitch, the office manager, grew up in Hull and has spent his entire career at the co-op.

Over the past two years, Hull Co-op has experienced extreme changes in price and supply. The farmers Mitch serves have had the same problems as the Wesseliuses: The prices of feed, seed, corn, diesel, and fertilizer have increased so sharply that they struggle to maintain already thin profit margins.

Mitch also runs a small farm with his father. Together, they grow corn and soybeans and raise dairy cows. Last year, it cost him $2.86 to produce a bushel of corn. “What I’m projecting in order to break even this year, to produce the same bushel of corn, is about $4.47,” he said.

Mitch added farmers haven’t seen the worst of it yet.

Farmers typically pay for supplies months in advance. For example, many farmers prepaid for their 2022 seed between November and December of 2021. Locking in last year’s lower prices means current production costs are high but manageable. However, seed for the 2023 planting season will cost even more—driving up next year’s food prices even higher. “The profit margin disappears at that point,” Mitch said.

Mitch explained that consumers see the high prices of the food they buy but not the high production costs the co-ops and farmers face. The more it costs to grow, package, and ship a product, the more it costs to purchase.

These costs are passed on to the next link in the food supply chain: food processing companies. When livestock feed costs more to grow, these companies must raise meat and dairy prices. One such processing company is Smithfield Foods, the world’s largest producer of pigs and pork products in the world.

“One of our biggest expenses is grain to feed our … hogs,” said Smithfield’s vice president of Corporate Affairs, Jim Monroe. “The prices have gone up significantly.” Jim attributes that to idle land in Ukraine, which produced one-tenth of the world’s grain before the war.

Brent Ver SteegPhoto by Jim Mone/Genesis

THE TRUCKING INDUSTRY links every stage of the food supply chain. Brent Ver Steeg begins work at 5 a.m. during the busy season as a dispatcher for Rozeboom Trucking in Sioux Center, Iowa, but he’s available around the clock. He logs 10,000 minutes on the phone every month making sure drivers are on time, calves are ready to ship, and the schedule is finalized. He also records the shipping rates in a book—not a computer—and adjusts them to make sure truckers can earn a living.

“It’s difficult to keep a guy happy enough to keep trucking,” he said.

Diesel prices going from $3.25 to $5.57 in the last year hasn’t helped.

Diesel is the backbone of the shipping industry. Livestock leaving the feedlot, waffle fries heading to a local restaurant, eggs going to the grocery store—they all move on semi-trucks that run on diesel. Higher diesel prices ripple down the supply chain, ultimately raising the cost of consumer goods.

Rozeboom has no choice but to raise its prices when diesel goes up. In the last 18 months, the company’s fee for shipping livestock has gone from $4 a mile to $5.50. Farmers have to pay the increased prices because their animals have to be moved.

Jeff Chiu/AP

Unfortunately for Rozeboom, fuel is a trucking company’s second-highest expense. A Rozeboom semi burns 16,000 gallons of diesel a year. With 23 trucks running every day, that means fuel costs for the company are up $840,000 for the year.

But even after raising prices, trucking companies like Rozeboom still face losses. Because diesel is used to produce and transport products such as tires and steel, other costs have also increased. The cost of a new truck has gone from $170,000 to over $200,000 in the last nine months.

Brent believes the financial stress will squeeze companies out of the business. But Brenda Neville, president and CEO of the Iowa Motor Truck Association, hasn’t seen a single company go out of business due to fuel prices in her 36 years at IMTA.

“You have to move the product,” she said. “Trucks have to move.”

Truckers, restaurants, and grocery stores absorb small amounts of the price increase at each step—but much of it ends up with the consumer. “It’s going to be tough,” Brent said. “Everything follows that trend.”

“In my 67 years, I have never seen such a disaster.”

FOR RESTAURANTS, which were hit hard by the pandemic, the current rising costs have created new problems.

Shelly Wassenaar never expected her friend George Jacobs’ Blue Mountain Culinary Emporium to shut its doors permanently. He used to own the classic barbecue joint in Orange City, Iowa. Every morning, George crossed the street to her breakfast restaurant, the Hatchery, for a cup of fresh coffee. Now, the Blue Mountain sits empty. George had to shut its doors when the pandemic became too much to handle.

The Hatchery survived. It operated as the only breakfast restaurant in town and had a to-go window behind the front counter, allowing Shelly to generate substantial income, at least for a while. Now, with increased prices, she is struggling to afford the ingredients.

The USDA predicts all food prices will increase by around 7 percent in 2022. In April, an avian influenza outbreak drove up farm-level egg prices by 110 percent. Poultry and egg prices are expected to increase about 75 percent.

Shelly’s menu relies heavily on eggs and dairy. She purchases 30 dozen eggs two times a week from a local farmer, who has to follow market costs to stay in business himself. Eggs used to cost around $15 per 30 dozen. Now, they cost her around $80.

Shelly says she “rides the wave,” but she will have to change her menu prices again if her egg costs hit $100.

“I try to adjust my menu prices once every six months,” she said. “Once to twice a year at the most. Within the past four months, though, I’ve had to raise prices twice just to keep balance.”

She could cut her 12 workers’ wages, but they are already worried about the higher cost of living. Besides, she can’t afford to lose them.

Barry Staples, manager of the Sioux County Livestock Co. in Sioux Center, is in a similar situation. The family restaurant’s food prices, specifically for eggs and meat, have tripled. However, he has changed his menu prices only once in the past four years. The small staff works hard to keep customers returning. If pay cuts are necessary, Barry said, managers will take them first.

Some restaurants can turn to secondary suppliers to manage higher costs and availability issues. Shelly brought in a second vendor for the Hatchery to help offset the prices from her first supplier. When she runs low on foam to-go containers, she utilizes the local Fareway grocery store and Sam’s Club. This is risky. Sometimes those businesses don’t have the supplies either, but she says not having them at all can be better than paying higher vendor prices.

Above all, Shelly wants her restaurant to succeed. If food and living costs get too high, she worries about the future.

“Something will have to give,” she said, looking out the window to Blue Mountain’s closed doors. “Something is going to have to crash, or something will have to be done, I don’t know. I just don’t know.”

Ryan Ahrens inspects a display at Fareway.Photo by Jim Mone/Genesis

THE SITUATION ISN’T as dire for grocery stores. Nathan Russell, the Patrick Henry economist, said Americans shifted food consumption away from restaurants and other institutions during the pandemic and relied more on grocery stores. Higher restaurant prices may continue the trend.

But grocery stores and their customers are still affected. At the Hy-Vee grocery store in Sioux Center, Iowa, Tyler Halstead, dressed in slacks and a red polo shirt, pushed a line of carts across the parking lot on a windy day in May. He’s been the store’s assistant manager for 10 months.

Hy-Vee is an employee-owned grocery company with 280 locations across the Midwest and South. It prides itself on offering affordable prices to customers. However, it’s struggled to keep prices low in recent months.

Tyler said customers are opting for individual brands like Hy-Vee’s “Crav’n,” since they’re cheaper, but the store itself has seen a 20-percent uptick in prices across the board. Twelve-packs of soda went from $4.99 to $6.99 in recent months. Tyler has seen supply chain issues since the beginning of the pandemic. Two years later, there are still gaps on his shelves and customers are feeling the strain of rising prices.

Local shoppers Bridgette and Julio Bazaldua lamented the uptick in meat and dairy prices, noting that their weekly grocery expenses are now $100 for just the two of them. Another customer, Erica Groen, said she must plan her meals much more deliberately these days. “Getting rid of leftovers is getting rid of money,” she said.

In the dessert aisle at Hy-Vee, a shelf that’s supposed to be full of Keebler fudge cookies is practically empty. Tyler also struggles to keep foil pans and certain pastas stocked. The recovery process from pandemic shortages has been gradual, but he believes things are slowly getting better.

Ryan Ahrens, the grocery manager at Fareway in Sioux Center, also says prices have risen. Fareway, a Midwest chain headquartered in Boone, Iowa, doesn’t have as many stores as Hy-Vee. Like other grocery stores, rising diesel prices have forced Fareway to raise its prices to remain financially stable. “Everything takes [diesel],” Ryan said with a shrug.

Ryan greeted a customer by name while answering a question. To him, excellent customer service remains the recipe for success. He also seemed fairly confident that “things are slowly getting better,” even though the increased expenses are burdening the store’s customers.

One of those customers is Christine Guetmaat, who scanned the Fareway aisles a few feet away from Ryan’s office. Her purple blouse with white daisies was pilled and faded. She said she hasn’t bought new clothes recently because groceries are more important. She has Hashimoto’s, an autoimmune disease. Because of her condition, she can’t eat products that contain gluten or change her food habits to accommodate high prices. Gluten-free goods have always been expensive, but their prices have skyrocketed.

“I still buy what I have to,” she said. Since Christine does not have any other mouths to feed, she cuts back in other ways. Some Sioux Center locals do not have that luxury. Higher prices have forced many with low incomes to supplement their groceries.

Marianne Sjaarda oversees food distribution at Hope Food Pantry.Photo by Jim Mone/Genesis

BACK AT THE HOPE FOOD PANTRY, just behind the Hy-Vee, Ellen Martin (WORLD agreed to use a pseudonym for privacy reasons) waited in line in her gray Honda minivan. Her husband was at home with a brain injury. Ellen said a two-by-four hit him on the head at work, and he hasn’t been able to go back. He also doesn’t have worker’s compensation, and they make $22 too much to apply for state aid. She works constantly but said she barely makes a living. “Half the time we don’t eat,” she said.

Several grandchildren depend on the groceries. Ellen waited for an hour and a half in the lengthening line while a few of the remaining 20 gallons of gas in her car slowly turned to fumes. She didn’t know if she would be able to fill it up again soon.

“In my 67 years, I have never seen such a disaster,” Janet Pickell said through the window of her dented Suburban a few cars ahead of Ellen. Even during the 2008 recession, she could not remember seeing empty shelves.

Marianne Sjaarda, the pantry manager, said the community donates even more than usual because they “see the need.” But the rising prices constrict the pantry’s budget. Combined with store-bought food, the pantry provides enough to help struggling families for about a week. But if more cars than expected show up on a given day, they must give each family less.

Some people in line seemed relieved to talk about their situation. Others avoided eye contact as they waited. One woman wiped at her running mascara but had no comment.