Food Prices Appear Likely to Cause More Pain This Year ; Energy Factors, Weak Dollar May Push Them Up

By KEVIN G. DeMARRAIS, STAFF WRITER

Predicting food prices used to be simple.

If the weather was good, you could expect a plentiful harvest and steady prices. Extremes of cold, heat, rain or snow, however, meant a reduced crop and higher prices.

Those basics still hold, and several years of poor growing conditions in the Midwest and other key agricultural areas around the world contributed to last year’s sharp run-up in food prices.

But even the best of weather may not be enough to compensate for other factors that drove prices up last year and threaten to do the same in 2008.

They include volatile crude oil costs, crops diverted to energy production, increased demand for U.S. food products in other countries and a sinking dollar.

Each was a factor in consumers feeling the pain last year. Food costs rose by 4.1 percent nationally and 5 percent in the North Jersey-New York metropolitan area, with milk, eggs, orange juice and other staples hardest hit.

In addition, high grain prices and increased production costs prompted the two biggest cereal manufacturers to raise their prices even as they reduced the content of their boxes.

There were a few bargains, as hamburger, pork, sugar and lettuce prices held steady. But wheat and rice are at all-time highs, corn producers are barely able to keep up with demand, and high feeding costs are pushing dairy and egg prices higher.

“Food inflation goes in cycles, and we will cycle out of it, but I’m not sure when that will be,” said John Hauptman, a partner in Willard Bishop Consulting, an Illinois-based supermarket consulting company.

“For the time being, we are undoubtedly in a period of high food inflation, and I expect it to increase before it settles down,” Hauptman said.

“We’re beginning to see more and more price changes at the supermarket shelf,” he said. Consumer packaged goods makers are being forced to pass their higher costs onto their customers, and those retailers are being forced to pass on “at least some of these increases to shoppers.”

Retailers usually hold off as long as possible on their “high- velocity, high-profile items, but most supermarkets are being forced to pass on cost increases on those items now,” Hauptman said.

Some relief might be coming by summer, but the only certainty now is that consumers face uncertainty in the year ahead, industry officials say.

For one thing, dairy and eggs and other commodities in the Producer Price Index a harbinger of future retail costs continue to rise, said Martin Kohli, an economist at the Bureau of Labor Statistics’ New York office.

“That is consistent with the idea that corn prices are up to make ethanol,” Kohli said. Other foods, such as tomatoes from Mexico and grapes from Chile, are affected by the weakness of the U.S. dollar, which leads to higher import prices.

Look also to the weather and changing priorities, said Jack Scoville, vice president of The Price Group, commodities traders in Chicago.

“The easy thing is to blame it on ethanol, but that is primarily a corn issue,” Scoville said.

“But wheat prices are at an all-time high, and that has nothing to do with ethanol and everything to do with several years of short production due to bad weather in the Great Plains,” he said.

“In the past three years we did not produce a lot of wheat, not enough to cover our demand and export demand,” he said.

“A lot of producing nations, exporting nations have had massive weather problems, and it’s been building for three years,” Scoville said.

European growers have had to deal with very hot summers and too much rain, Australia has had successive droughts and Argentina had a freeze that limited exports.

Rice has also “been on fire,” setting new highs on commodity markets, “and that’s not an ethanol issue, he said. Rather, weather problems in Thailand, China and India have reduced exports “and we’ve picked up a lot of that slack.”

The high price of corn it has nearly doubled in the past year can, however, be laid directly to congressionally mandated demand for ethanol, he said.

And when increasing amounts of corn and soybean acreage is going to what Hauptman calls “agrifuel,” feed for chickens and cows costs more, resulting in higher prices for eggs and beef.

Add in the high cost of fuel to process and package foods and transport them to market and the shrinking U.S. dollar at a time of growing demand for American goods, and it’s obvious “there’s certainly a good reason why you pay more for a box of Wheaties,” Scoville said.

When economists look at the Consumer Price Index, they generally focus on the core prices, excluding that traditionally volatile food and energy sectors.

In recent years, however, food and energy have been driving forces behind consumer prices, and that is unlikely to change anytime soon.

Even so, there is some light at the end of the tunnel, Scoville said.

“By all indications, there will be a hell of a wheat crop this year,” he said.

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The Record’s North Jersey Marketbasket Survey, 1997 to 2007

The Record’s Marketbasket Survey tracks monthly changes in the prices of some household goods and services. It is based on midmonth prices in North Jersey. The average is for the years 1997 to 2007. Change is the total change, by percent, from 1997 to 2007.

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Avg. Change

Milk ( gallon, whole) $1.64 $1.63 $1.68 $1.69 $1.59 $1.52 $1.62 $2.00 $2.05 $2.08 $2.20 $1.79 34.1%

Orange juice (Tropicana, gallon) $2.73 $2.63 $2.83 $2.81 $2.89 $2.88 $2.89 $2.87 $3.02 $3.16 $3.70 $2.95 35.3%

Eggs (dozen, large white) $1.65 $1.43 $1.41 $1.41 $1.53 $1.47 $1.59 $1.88 $1.70 $1.79 $2.08 $1.63 26.4%

Ice cream (Breyers, 56/64 oz.) $3.68 $4.00 $4.38 $4.58 $4.40 $4.78 $4.48 $4.91 $4.72 $4.77 $4.77 $4.50 29.6%

Bread (22 oz. white, store brand) $0.88 $0.88 $0.88 $0.87 $0.92 $0.92 $0.93 $1.02 $1.03 $1.11 $1.14 $0.96 30.2%

Lettuce (head) $1.11 $1.27 $1.06 $1.20 $1.33 $1.41 $1.46 $1.35 $1.53 $1.56 $1.58 $1.35 42.4%

Apples (1 lb., Red Delicious) $0.98 $1.05 $1.02 $1.10 $1.06 $1.14 $1.13 $1.26 $1.24 $1.37 $1.37 $1.16 39.7%

Potatoes (Idahos, 5 lb. bag) $2.15 $2.00 $2.23 $2.46 $2.60 $3.26 $2.80 $2.53 $2.75 $3.27 $3.27 $2.67 52.3%

Sugar (5 lb. bag, store brand) $1.94 $1.97 $1.95 $1.97 $1.93 $1.93 $1.96 $1.99 $2.15 $2.42 $2.50 $2.07 29.0%

Pasta (1 lb. Ronzoni spaghetti) $0.76 $0.77 $0.77 $0.79 $0.83 $0.78 $0.93 $0.93 $0.94 $0.94 $1.06 $0.86 39.2%

Coffee (Folgers regular, 13 oz.) $3.48 $3.24 $2.85 $2.84 $2.55 $2.40 $2.61 $2.75 $3.24 $3.37 $3.67 $3.00 5.7%

Cereal (Kellogg’s Corn Flakes, 18 oz.) $2.62 $2.74 $2.87 $2.93 $3.06 $3.18 $3.20 $3.46 $3.49 $3.72 $3.87 $3.19 47.9%

Ground beef (lb., 85% lean) $2.34 $2.22 $2.02 $2.11 $2.36 $2.51 $2.65 $2.97 $3.13 $3.08 $3.19 $2.60 36.0%

Chicken (Perdue, whole fryer, per lb.) $1.10 $1.09 $1.14 $1.18 $1.17 $1.16 $1.22 $1.41 $1.47 $1.37 $1.44 $1.25 31.0%

Laundry detergent (50 oz. Tide liquid) $3.75 $3.79 $3.87 $4.09 $4.46 $4.35 $4.34 $4.36 $4.49 $4.50 $4.87 $4.26 29.8%

Toilet paper (1 roll Scott) $0.71 $0.69 $0.69 $0.71 $0.77 $0.77 $0.77 $0.77 $0.79 $0.86 $0.90 $0.77 26.8%

Toothpaste (6.4/7 oz. Colgate regular) $1.98 $1.93 $1.93 $2.00 $2.10 $2.12 $2.11 $2.04 $2.06 $2.06 $2.05 $2.03 3.6%

Diapers (Huggies Ultratrim 4, 34) $7.16* $7.07* $7.07* $12.44 $12.42 $11.98 $10.80 $10.68 $10.92 $10.74 $10.67 $11.33 -14.2%

Cat food (18 oz. box Friskies) $1.45 $1.40 $1.37 $1.39 $1.54 $1.56 $1.54 $1.53 $1.54 $1.60 $1.60 $1.50 9.8%

Doughnuts (1 dozen, fresh baked) $5.71 $5.66 $5.77 $6.13 $6.21 $6.22 $6.40 $6.67 $6.88 $7.21 $7.29 $6.38 27.7%

Beer, case Budweiser $13.36 $13.54 $14.34 $14.77 $15.14 $14.72 $15.33 $15.01 $15.57 $16.53 $16.99 $15.03 27.2%

Video rental (1 night) $3.39 $3.45 $3.52 $3.61 $3.65 $3.95 $4.21 $4.32 $4.33 $4.48 $4.51 $3.95 32.9%

Heating oil (gallon) $1.06 $0.93 $0.95 $1.38 $1.33 $1.22 $1.50 $1.72 $2.27 $2.53 $2.56 $1.59 142.1%

Oil and lube $23.82 $24.26 $24.34 $24.10 $24.04 $23.54 $21.27 $23.36 $25.16 $26.15 $26.78 $24.26 12.4%

Regular gas (gallon) $1.18 $1.00 $1.10 $1.47 $1.40 $1.28 $1.50 $1.80 $2.20 $2.48 $2.55 $1.63 116.7%

Note: Costs for all items in this survey, except gasoline, are based on the average monthly price charged by at least three stores or dealers.

Gasoline prices are the average for at least 60 North Jersey stations.

*Package size changed; average and change are since 2000.

Source: Record Marketbasket Survey Compiled by Kevin G. DeMarrais

(c) 2008 Record, The; Bergen County, N.J.. Provided by ProQuest Information and Learning. All rights Reserved.