The Cost Of Corn Is Down, So Why Did The Cost Of Fritos At The White House Go Up?

Oct 12, 2018
Originally published on October 12, 2018 6:56 pm
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AILSA CHANG, HOST:

We're going to take the next few minutes to get to the bottom of an economic mystery with tendrils reaching all the way to the White House - or at least to the White House press corps vending machine. It was brought to our attention by NPR White House correspondent Scott Horsley. He asked Stacey Vanek Smith and Cardiff Garcia to look into it. They are the co-hosts of NPR's daily economics podcast The Indicator from Planet Money. And the trail started as Scott Horsley was at the White House working on a story about the falling price of corn.

SCOTT HORSLEY, BYLINE: And in the middle of writing that, I came up to the employee break room to buy myself a bag of Fritos. And I noticed that the bag of Fritos had gone from a dollar and a quarter, the old price, to the new price of a buck and a half. And I had just written that corn futures had fallen 12 percent since May. So this was kind of puzzling to me.

STACEY VANEK SMITH, BYLINE: So our mystery - why are corn chips getting more expensive at a time when corn is getting cheaper? Clue number one, Fritos is owned by Pepsi. Pepsi owns Frito-Lay, which makes Fritos. In fact, the vending machine Scott uses in the White House is all Pepsi products. And all of the products in the machine got more expensive. So we called Pepsi. They would not comment. They declined to comment - OK, fine, dead end.

CARDIFF GARCIA, BYLINE: No thanks.

VANEK SMITH: I know.

GARCIA: Well, luckily there was a second clue - a note left at the scene of the crime.

HORSLEY: (Reading) To our valued patrons, effective in the next couple of weeks, the prices in the vending machine may be adjusted to offset increases we have received in product costs from manufacturers. So presumably, the wholesale cost of the Fritos have gone up, and they're passing those along to us. But it is kind of curious at a time when corn prices are down. And, you know, there's only three things in a Frito. There's corn. There's corn oil and salt.

CAROLYN DIMITRI: Woah, how naive to think that's all that's in a bag of Fritos.

VANEK SMITH: Carolyn Dimitri is an applied economist at NYU who specializes in food studies.

GARCIA: She says the price of a processed food like Fritos has almost nothing to do with, well, food prices.

VANEK SMITH: Carolyn says a much bigger part of the cost of a food like Fritos is in things like labor and rent and transportation.

GARCIA: Because trucking companies are complaining that they cannot find enough drivers to keep up with all the shipping needs that they have.

VANEK SMITH: Which means that trucking is getting more expensive for companies.

GARCIA: So that could explain why Fritos, and all the other snacks in the White House vending machine, might suddenly cost a lot more.

VANEK SMITH: We suspected that the shipping costs were not acting alone. So on a hunch, we called Amit Sharma at BMO Capital Markets. Amit analyzes food companies, including Pepsi. And he gave us another clue about why the price of Fritos might have gone up.

GARCIA: Aluminum tariffs.

AMIT SHARMA: If you think about the soft drink companies, aluminum because the tariff has gone up as well...

VANEK SMITH: Because of, like, the aluminum in the cans?

SHARMA: Yeah.

GARCIA: If the U.S. is not importing cheap aluminum from overseas, it will have to get aluminum from U.S. suppliers. And those U.S. suppliers no longer have to compete as much with overseas aluminum suppliers. So the domestic suppliers in the U.S. can raise prices.

VANEK SMITH: Of all the companies Amit looked at, Coke and Pepsi were a couple of the hardest hit by aluminum tariffs. So you would think that maybe Pepsi and Coke could just raise the price of their drinks to offset this more expensive can. But they can't really do that right now. Sales of soda have been falling.

GARCIA: But you know what we are consuming more of?

VANEK SMITH: What?

GARCIA: Snacks.

SHARMA: So snacking is a growing category, unlike many of the other food categories. And that allows companies that make snacks potentially more pricing power.

GARCIA: In other words, the power to raise prices - and so they charge more because they can. So there it is - trucking prices, aluminum tariffs and our love for snacks. That's our best guess for why your Fritos went up a quarter. Scott Horsley, is that satisfying?

HORSLEY: It's not as satisfying as the bag of Fritos I'm going to go get right now.

VANEK SMITH: (Laughter).

(SOUNDBITE OF BAG RUSTLING, CRUNCHING)

HORSLEY: That's good corn.

(SOUNDBITE OF GENE AMMONS' "JUST CHIPS")

CHANG: That was NPR White House correspondent Scott Horsley speaking with Stacey Vanek Smith and Cardiff Garcia, our co-hosts of the podcast The Indicator from Planet Money.

(SOUNDBITE OF GENE AMMONS' "JUST CHIPS") Transcript provided by NPR, Copyright NPR.