Food prices expected to rise

By LAURA CHAPUIS

January 09, 2008

COLUMBIA — Consumers all over the world can expect to pay more for food in coming years.
The Economic Research Service of the U.S. Department of Agriculture expects prices to rise another 4 percent this year. If the projected increase for 2008 proves true, consumers will see the highest increase in food prices since 1990.
With commodity prices hitting record levels and energy costs increasing, retailers must make up for the difference in the form of higher food costs.
MU Agricultural Economics professor Joe Parcell credits several factors for the rise in food prices: exports, feed use, biofuels.
Parcell blames the weak dollar and exports that are driven by a strong global economy.
“The weak dollar is causing $4 a bushel of corn to look as cheap, for foreign buyers, as $2.50 a bushel of corn from a few years ago,” he said. “I don’t think anyone could have guessed that exports would be so strong.”
The U.S. Bureau of Labor Statistics expects the food cost increase to rise nearly 50 percent more than the overall rate of inflation based on the consumer price index.
The index measures the average change in prices paid by urban consumers for a market basket of goods and services, according to the U.S. Bureau of Labor Web site. It may not reflect every consumer’s experience because not everyone spends money the same way.
In the U.S., consumers spend about 10 percent of income on food. In emerging economies, consumers might spend more than 60 percent of income on food, Parcell said.
“The U.S. dollar is very cheap, so many around the globe still see American commodities as cheap,” he said. “Also, because the global — and not just the U.S. economy — is very strong, food still looks cheap.”
In November 2007, prices for all food were already up 4.8 percent from November 2006. Consumers saw beef prices jump 4.9 percent in 2007. While pork prices did decrease a small percentage, they were still 2 percent higher than the 2006 level. Egg prices continue to rise and are now 34.8 percent above the 2006 prices.
Consumers who have noticed that milk prices are increasing are right. Dairy products have reached nearly 14 percent higher costs compared to last year’s prices, while milk is up 20 percent — costing around $3.66 a gallon for whole milk.
Five local grocery stores were contacted but would not comment on how they would make up for the cost increases.
Another factor that could play a role in the food cost increase is the recently signed ethanol bill. On Dec. 19, President Bush signed into law a bill that requires automobile manufacturers to increase fuel efficiency to an average of 35 miles per gallon by 2020 and pushes up production of ethanol from six billion to 36 billion gallons a year by 2022.
Last year, some U.S. farmers began devoting more acreage to corn to meet the demand, making corn prices more inflation-demand driven. The 2007 U.S. corn acreage is 18.6 percent greater than that of 2006, according to National Agricultural Statistics Service.
Brian Martin, a Centralia farmer and MU agricultural systems management student, said that he does not expect them to change much this year.
“We will probably stay with our normal rotation and not change our corn acres,” Martin said.
Kim Viera of the Boone County Farm Service Agency said the county may have seen a slight increase in corn acreage last year. She does not expect farmers to increase the amount of corn they plant based on the new ethanol bill. Instead, higher commodity prices could spur the effort to plant more corn.
The biofuels mandate, which calls for 15 billion gallons a year of corn-based ethanol and 21 billion gallons of “advanced biofuels” that are made from other plants, is expected to continue to drive up the price of corn.
“Personally, I do not see the global demand for commodities or food slowing down in the next five to seven years,” Parcell said. “I do believe, however, that we will see a commodity price plateau in the next two to three years. Instead of a U.S. average corn price of $2.50 per bushel, we need to get used to a average price of $3.75 to $4 a bushel.”
Sonya Addison, a Columbia resident and MU medical student, said she has already noticed price increases.
“I’m always looking for a good sale on meat and buying more and freezing the extra,” Addison said.
She said she tries to watch her spending by buying generic brands, more canned fruit than fresh and half-gallons of milk to make sure less goes to waste.
“Every penny really counts,” she said.