The Cause & Effect of High Beef Prices

The Cause & Effect of: All-time High for Beef Prices

By: Annie Chrysler

Dr. Gregory Arburn

Microeconomics 2001.01

20 April 2015

        The purpose of this paper is to display main causes towards the apparent record-setting prices of beef, and then to further relate how these beef prices are affecting companies who demand them. The fundamental deciding factor, as to what the price of beef will be, is grain prices. As grain prices increase, due to weather conditions affecting the amount of grain produced, the beef prices also increase. (Henderson) This is because it takes a significant amount of grain to essentially raise and produce cattle. Stocker and feeder cattle posted 25 percent to 30 percent increase in the price since May, which in return boosted the feeder cattle index price. (Henderson)

[pic 1]This increase in beef prices has consequently affected several food companies, such as Chipotle. A textbook term that deems its relevancy is trade deficit, or the notion of a country importing more goods/products, than they are exporting. (McConnell) In 1993, the North American Free Trade Agreement was sold to the United States with the promise of creating thousands of jobs on U.S. soil. The agreement’s ideal goals were as follows: American farmers would potentially be exporting their way to wealth, Mexico’s standards of living would increase, and by providing new economic opportunities to Mexico, there would be a reduction in the rate of immigration into the United States. (Public)

After nineteen years of this agreement, the grand promises remained unfulfilled and the outcomes are said to actually be the opposite of what was intended. Numerous American companies use the agreement’s protection to relocate to Mexico, which is done in order to take advantage of the country’s low wages and weak environmental standards. Additionally, multiple American companies have manipulated the agreement, and have taken it one step further to attack “NAFTA-involved” countries’ environmental and health laws. (Public) It is documented that over 340 million dollars in compensation to investors has been taken from NAFTA governments through means of the “investor-state” challenges. (Public)

Within the United States, our food processors have moved to Mexico, in order to take advantage of lower wages for production; because of this, the number of U.S. food imports has soared. For example, the United States beef prices have risen approximately 130 percent since NAFTA took effect. As well, today U.S. beef consumption ranks roughly in $1.3 billion each year. (Public)

In more relation to United States trading, over one million Mexican farmers have been displaced, due to the increase in the export of subsidized United States corn/grain. This migration of Mexican farmers has additionally decreased the wages in Mexico’s factories, and thus further contributed to an increase in immigration into the United States. (Public)

These complications are all affecting how food companies set, and as a result, reset their prices. For example, Chipotle has announced they will be raising their prices by 5 percent, for the first time in three years, due to the increase in beef, avocado and cheese prices. (DeNinno) Chipotle claims that this price increase has been caused by the national increase in beef prices, which is approximately 15 percent this year. The company also noted that this would mark their highest price so far, since their founding in 1993. (DeNinno)  According to the United States Department of Agriculture, beef prices have hit an [pic 2]all-time record of $5.28 per pound, and they are expected to continue to move higher as the supply remains consistently tight. (DeNinno) In sum, the companies involved in meat production, as well as the said companies’ suppliers, distributors, and retailers employ 6.2 million people in the U.S. with jobs that total $200 billion in wages. (North)