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Plan on digging deeper for groceries for years to come. Price increases for meat, dairy products and more will moderate only slightly, largely because of rising worldwide demand for food and soaring prices of corn, wheat and other key other agricultural commodities.
Overall food retail prices -- groceries as well as restaurant fare -- will climb 7% this year, nearly triple the typical annual increase, then 6% next. The impact is being felt not only by grocery shoppers but also by many businesses and institutions, including restaurants, hospitals, schools and firms that subsidize employee cafeterias.
Some examples: Grade A Eggs are up 40% from a year ago; cheddar cheese, 14%; dried beans, 25%; and white potatoes, 11% in the latest Consumer Price Index report. Chocolate chip cookies? Up 8%. On the bright side, abundant supplies are keeping some prices in check. Sugar, for instance, retails for about 50¢ a pound, the same as it did a year ago.
Meanwhile, the cheap dollar makes food imports more expensive, adding to the upward pressure on prices.
Annette Clauson, food market analyst for the U.S. Department of Agriculture, says that price increases are felt especially by low- and middle-income shoppers because more of their budget goes for food. Families especially feel the pinch in summertime, when food spending goes up because the kids are home from school.
With food tabs pinching pocketbooks, how will sales of organic foods hold up? Actually, quite well, even though they typically run 10%-40% more than conventional foods in the U.S. For example, while a carton of conventional grade A eggs averages around $1.90 a dozen, an organic version at Trader Joe’s, a competitive grocery outlet, was recently priced at $4.00.
Consumers won’t back off organics, though. “There is a sensitivity to cost. Consumers want to stretch food dollars but are also very aware of diet and health,” says Bill Greer, editorial director of the Food Marketing Institute.
Moreover, as organics claim a larger market share, price differences versus conventional foods will narrow. Suppliers of organics are distributing more and more products in discount supermarkets, creating volume savings.
Of course, organic foods aren’t immune to food inflation. Sales of organic products will slip this year and next from their raging growth -- 15%-20% annually the past decade. Still, they’ll snatch 4% of food sales by year-end, doubling their share since 2003.
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POSTED BY: Jerry Duff (July 24, 2008 11:21 AM)
Higher food costs are here to stay because of soaring feedstock prices, true; but the real culprit is the soaring cost of petroleum/fertilizer. Farmers will have to have those higher commodity prices to survive! And, of course, the low value of the dollar exacerbates the situation with petroleum.
Another complicating factor and one that may drive a restructuring of fresh produce production is the cost of transportation. As of May 2008, the cost to ship a refrigerated trailer of lettuce from the Salinas Valley of California to New York was $10,000. The grower share of the retail price is actually quite low.
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