Buyers Guide: In a new normal
Published in FSD Update
This month we look at food pricing trends, and the reasons behind them, for 21 food items, as well as the overall agriculture industry, to help you make better purchasing decisions for the year to come.
The price to buy food is going up. Or is it?
Food prices (for the purpose of this article, food prices come from the Consumer Price Index (CPI) unless otherwise stated) generally increase between 2.7% and 2.8% each year. In 2011, consumers were hit hard; the supermarket CPI—the price you pay for goods at a grocery store—increased by 4%, largely due to higher commodity and fuel prices. In 2012, inflation was slightly lower than the norm at 2.6%.
But 2013 brought relatively flat food price increases, at 1.4%.
“Consumers, especially the supermarket shoppers, really got a break [last year],” says Ricky Volpe, economist with the USDA’s Economic Research Service, which disseminates the CPI. “Now in 2014, inflation has kicked up. As of right now, we’re forecasting that inflation is going to be within the range of normal, but consumers are going to notice because food prices have been relatively flat for a while now.”
“There was nothing on the supply side to suggest that [the increase in poultry prices] would happen,” Volpe says. “We were just looking at an increase in chicken demand.”
For the first time in more than 100 years, Americans consumed more poultry than beef in 2012. Per capita consumption of chicken rose from under 20 pounds in 1909 to 60 pounds in 2012. Beef consumption during the same time period dropped from more than 80 pounds to less than 60 pounds.
Beef prices are at record highs, Volpe says. Increased exports to Asian countries have resulted in higher prices for American cattle. “Cattle inventories right now are comparable to where they were in the 1950s,” he adds. “The population is more and we’re exporting a lot more. We have a real disconnect in supply and demand in the beef market. This has resulted in very high inflation of beef prices.”
Bill Lapp, president of Advanced Economic Solutions, cautions that beef prices won’t come down for a while. Both Lapp and Volpe say it will take longer for U.S. production of beef to expand to catch up with demand than other food items because of the time it takes to raise cattle for processing.
Weather, obviously, is a huge factor in just about all agricultural products. The drought in California has many worried about the potential effect on prices.
Ninety-five percent of all processing tomatoes (think ketchup, pasta sauce and salsa) are grown in California. “If something substantial happens to the tomato crops in California, in a matter of months you’ll see that reflected in the price,” Volpe says.
Nearly 17% of consumers’ food spending is affected by the commodities produced in California, Volpe adds. Translation: If the drought continues, expect to see increases in those crops that have a majority produced in the Golden State.
Those items include artichokes (99% of U.S.-grown artichokes come from California), shelled almonds (99%), kiwifruit (97%), walnuts (99%) and avocados (88%), to name a few.
So what can consumers expect for 2015? Both Volpe and Lapp are optimistic that next year’s food price inflation will remain close to historical averages. Lapp describes it as “benign. It doesn’t seem to be accelerating. I’m not overly concerned about it right now.”
Volpe says, barring any “wild cards”—significant weather events—2015’s CPI will see normal increases.
“Consumers are probably going to see relief in poultry, pork and egg prices in 2015, but that’s probably not going to be the case with beef,” he says. “We expect at the tail end of 2014 that fluid milk and grain prices will go up a bit. All else being equal, I would expect we’re on track for another 3% increase in food prices in 2015.”