Milk prices jumping from $7 to $14, strawberries that feel like a luxury good, and a switch to processed food: This is the 6-month outlook economists studying labor and agriculture see for consumers.
Yet, these consumers “don’t have a clue what’s going on,” Raymond Robertson, a labor economist at Texas A&M’s Bush School of Government, and who has advised U.S. agencies on trade and labor policy, told Fortune.
Instead, Robertson said, voters are distracted by the political noise of President Donald Trump’s policies, while the real drivers of grocery sticker shock—labor shortages, and tariffs—continue to tighten their grip. Deportations have thinned fields and stripped farms of undocumented workers who “overwhelmingly” make up the agricultural workforce. At the same time, new tariffs on staples like tomatoes, coffee, and orange juice are pushing up costs on imports, leaving few affordable alternatives.
“The impacts are unambiguous,” Gordon Hanson, an economist and expert on Mexican trade at Harvard Kennedy School, told Fortune. “It’s upward pressure on those prices.”
The White House didn’t immediately respond to Fortune‘s request for comment.
The only question, Hanson added, is how much of the pain farmers, wholesalers, and retailers can absorb before it lands on the grocery aisles and in consumers carts.
Winter grocery chill
The first wave of grocery-price increases will likely hit this winter. Roberson predicted produce prices could rise 50% to 100% by early next year as inventories clear and new contracts kick in. And unlike past decades, when Washington would quietly ease border enforcement to keep fields staffed, today’s political environment suggests no such check.
“This is like when you see a flood coming, the tsunami is coming in, and the water’s gone up two inches,” Robertson warned.
The reason for the labor shortage is American-born workers simply do not want to do manual labor work at the wages typically offered to foreign-born, undocumented workers, Robertson said. Undocumented workers are used to getting paid around $18 an hour to pick strawberries—the type of wage American citizens can get working at an ice cream shop.
You would have to pay American citizens “$25 to $30 an hour” to get them in the fields, Robertson said, an unfeasible cost to most agricultural producers.
The shortage is already visible on the ground. In Dover, Fla., Matt Parke of Parkesdale Farms told The Daily Adda his family business is leaning heavily on the H-2A visa program—designed particularly to support foreign agricultural labor—to fill the gaps.
Economists, however, say the program is too small and too cumbersome to solve the crisis on its own. Hanson noted while H-2A has expanded in recent years, guest workers still account for “a small fraction of the total” farm labor force.
“It would have to be much, much larger, in the millions rather than the hundreds of thousands, to meet U.S. demand,” Hanson said.
The visas also expire each season, requiring repeated applications, housing, and transportation costs for every worker.
“If you want to hire that same worker five years in a row, you have to get five different visas,” Hanson added.
Robertson agreed, but thought the Trump administration could easily expand the H-2A program dramatically to meet the capacity, especially given the innovations of facial recognition technology and other security measures.
“It blows my mind that they don’t do this,” Robertson said.
Tariffs creating a double-bind
Imports, once a fallback when U.S. crops ran short, can no longer offer relief. Mexico has a structural advantage in crops like avocados and tomatoes—growing the crops year-round—but Trump’s tariffs have made them more expensive by default.
“Mexico produces way more avocados than we do,” Hanson said. “It’s not like you can plant new avocado trees and get an additional crop next year.”
Hanson also said shoppers will feel the tariffs in about six months.
“Consumers are not going to see the full pass-through of the tariffs to product prices, but they’re likely to see at least 50%.”
For consumers, the double bind of deportations and tariffs could soon reshape grocery shopping. Economists warn produce and dairy are most exposed, and many families will be forced to trade down to cheaper, processed foods.
“As vegetables [prices] keep going up and up, people will just substitute towards these very hot, ultra-processed foods, which ultimately will have adverse effects on their health,” Robertson said.
The only thing policymakers could do, in Hanson’s mind, is encourage “lower tariffs.”
“It’s simple,” Hanson said. “If we were able to create larger flows of legal farm workers and lower tariffs, consumers are going to be better off. Any other policy that tries to undo the damages of an existing policy makes no sense.”
These fights aren’t new, he said. Tariffs and immigration are topics the U.S. has had periodic political battles about since the 1950s, and today’s environment is a “very intense manifestation” of those conflicts.But history shows that once prices spike, voters force lawmakers’ hands. Now, Trump is pressuring Congress to maintain a hardline on immigration. But then you get closer to midterm elections, and consumers are lashing out against higher prices, and your hard line begins to weaken, he explained.
“That’s just kind of how politics work,” Hanson said.
Politics8 years ago