“I think we’re going to have pork chops tonight. I love pork chops. We’ll probably have some sweet corn and some iced tea too. Mmmmmmm.”
In college, I worked for an old guy who refinished high school gym floors in the hot summers. On our long road trips to and from jobs, we would often have long discussions about one of our favorite subjects — food. Whenever conversation of the day’s work trailed off into long stretches of silence, he would inevitably blurt out the name of one of his favorite foods, usually whatever his wife was making for dinner.
I too love talking about food, and his dinner discussions would always result in resumption of lively conversation for the duration of the trip. People love talking about food and, in recent years, it has become clear that they also love to talk about the rising prices of food.
U.S. food price inflation reached 7.5 percent in September 2008 before falling 10.5 percent by November 2009. The inflation has been moving back up, and generating plenty of discussion, ever since. What factors are to blame for the increasing sticker shock at the grocery store?
“Though several factors contribute to increased food costs, farm commodities continually receive the blame, but farm products represent only 19 percent of retail food prices. Prices of many agricultural commodities are still less than the levels that sparked 2008 food riots and real food prices have decreased 75 percent since 1950,” said Dwayne Siekman, CEO of the Ohio Corn and Wheat Growers Association. “Yes, grain prices are at increased levels. So, too, are the costs of supplementary root causes of increased grocery store prices including labor, energy, product marketing/packaging/shipping and speculation of the commodity markets.”
Siekman also points to the higher prices for imported food due to the weak dollar on the world market. In addition, the recent problems in Egypt and Libya have sent oil prices over $100 a barrel, which consumers pay for at the pump and the grocery store.
“We’re in a world today where food companies operate on the assumption that crude oil prices are going to be $85 to $95 a barrel,” said Corinne Alexander, Purdue University economist. “Current prices are somewhere around $105 to $110 a barrel.”
The extra costs of shipping food are passed on to consumers, she said. Alexander also said that grain shortages and extreme weather in critical crop-producing regions have combined to send retail food prices higher this year. American consumers can expect to spend about 4 percent more for food this year than in 2010, Alexander said. Beef, pork and poultry products likely will see even greater price hikes.
“With higher grain costs, the biggest food inflation price impacts we expect to see are in the livestock area,” Alexander said. “Because those feed costs are up, we’re expecting beef prices to be up on the order of 5.5 to 6.5 percent in the coming year. Pork prices will be up on the order of 7 to 8 percent. Poultry prices will rise more moderately because it doesn’t take near as much grain to get a pound of chicken as it does a pound of pork or beef, so chicken prices will be up about 3 to 4 percent.”
She said this convergence of world factors is not a long-term situation, however.
“We’re returning to a period of food price inflation after coming off a period where we saw food price deflation,” Alexander said. “We don’t expect this to be a long-term, permanent higher food price period. We’ll see these higher food prices until we rebuild global stocks of the primary crops.”
The good news is that, by global standards, our food is still an unbelievable value in this country. In places such as Bangladesh, consumers spend 40 to 50 percent of their income on food, while the total amount the average U.S. family spends on food continues to be about 10 percent of their take-home income. Now that is something to talk about.