A Public Option for … Groceries?

A new think tank called the Kitchen Table Project is proposing a public option for grocery purchasing. This idea involves the U.S. government purchasing food directly from suppliers at low prices on behalf of consumers. If implemented, the authors argue, it could save the average family hundreds of dollars per year while costing taxpayers virtually nothing. The proposal sounds similar to Soviet-style central planning, but the economic merits are strong.

The average U.S. business makes an 8 to 10 percent profit annually, with grocery stores making only 1 to 3 percent. During the pandemic, margins slightly increased as large retailers used inflation as an excuse to raise prices. However, these margins have since returned to pre-pandemic levels. The main reason grocery prices have risen is that retailers are paying higher food and labor costs, which are then passed on to consumers.

Instituting a public grocer would face challenges, as grocery stores can't sell food much cheaper than private ones without large public subsidies. These subsidies would effectively shift costs from shoppers to taxpayers. Price controls on grocery stores also encounter similar issues, as there isn't much room to lower prices without putting stores out of business.

Grocery stores are just one part of a larger food-supply chain, including farmers, food processors, food manufacturers, and distributors. These middlemen collectively make up about three-quarters of the total cost that Americans pay for food. Many of these middlemen make substantial profits, ranging from 4 to 19 percent. During the pandemic, some middlemen took advantage of supply shocks and consumer confusion to boost prices further.

Efforts to lower food prices often run into the fact that grocery stores make little money. Proposals for public grocers would require large public subsidies, shifting costs to taxpayers. Price controls face similar challenges, as there isn't much extra money lying around to lower prices. The majority of profit in the food industry comes from middlemen, and grocery stores have limited choices when faced with high prices from these suppliers.