Are food prices rising as fast as we think they are?
Between the weather, gas prices and more mouths to feed around the world, it's a wonder food prices haven't risen even more than they have in the past year.
Officially, which is to say, according to the Consumer Price Index that is released by the Bureau of Labor Statistics every month, the price of food at home has gone up 3.6 percent since a year ago in March.
After getting slammed with 4.2 and 6.4 percent increases in 2007 and 2008, respectively, Americans got a break over the past two years, with food costs rising half a percent or less each year.
That was good news for home cooks and restaurant owners, who were all trying to make ends meeting during the recession, but with record-breaking fuel costs and international demand for meat and commodities on the rise, we'll all be feeling the pinch in upcoming months, says Ricky Volpe of the department of agriculture's Economic Research Service.
"Food inflation in the '70s and '80s was crazy, but now we're projecting 4 percent, and that's a lot higher than we've seen in the past few years, and it's about double what we saw in the last decade."
Gas prices already have changed how people such as Mary Beth Simcik shop. "I would shop sales before gas got so outrageous," says Simcik, who lives in South Austin. But with gas approaching $4 a gallon, she's less likely to drive from store to store to take advantage of the sales that are advertised in the stores' circulars. Now, she only shops at a few stores a week.
Simcik is a calculating shopper, buying only the food that she knows she and her husband, Tim, will eat, so she rarely ends up throwing away leftovers or spoiled food.
When it comes to produce, she buys fruits and vegetables that look good, as long as they're reasonably priced. They'll cut back on meat and then splurge on a ribeye steak, which she can turn into three meals. "I cook, so we can eat things that aren't all that expensive but that we really enjoy."
Robert Mayfield, who owns Wally's Burger Express in Austin and a handful of Dairy Queen locations, said he's seen his costs rise primarily through higher fuel surcharges on deliveries. "I'd rather have a fuel surcharge, because sooner or later, it's going to go back down," he said.
Gas prices affect meat more than many other food items because fuel costs hit more than once, Volpe says. Fuel is needed to bring feed to the animals and again to transport the animals to the slaughterhouse and meat to stores. Poultry, on the other hand, is a cheaper commodity to raise, and because people can raise and process chickens relatively easily, the U.S. doesn't export as much poultry as beef and pork, Volpe says.
But gas prices alone aren't to blame for a higher grocery bill, says supermarket analyst David Livingston of the Wisconsin-based DJL Research. "Supply and demand, and competitive pressures, will have more of an effect on prices rather than gas prices," he says. Gas prices can be passed on over time, but Walmart, as the country's largest grocery retailer, is who really holds all the cards. "No one can really raise prices until Walmart does."
Weather and seasonal demand have the most effect on the price of produce, but grocers can't just bump up the price of fresh fruits and vegetables when a freeze hits. "You raise the price of tomatoes, consumers cut back, and then grocers have to lower the price to sell off their inventory," Livingston says, or else they'll have boxes full of rotten tomatoes on their hands.
Grocery stores can cushion the spikes in food costs, but not as much as they used to because their margins are smaller than ever, Volpe says. "Because they can't absorb these prices for much longer, we're already starting to see higher prices." Consumers cushion their own costs by turning to more store-brand products instead of the big-name brands.
At local farmers markets, food prices are slowly increasing rather than alarmingly jumping from one month to the next, says Suzanne Santos, director of the Sustainable Food Center farmers markets.
While the price of vegetables at grocery stores spiked in the first months of this year, the price of their locally grown counterparts at the market were stable, Santos says. As fuel prices increase, farmers eventually will have to raise prices to pay the cost of getting the food to the market, but it won't be as dramatic because they use less fuel than large, commercial growers. Farmers want to keep customers coming back week to week, so they pay particularly close attention to how they price items, Santos says.
Eggs at the farmers' markets have gone up from $4 to $5 a dozen because the cost of non-genetically modified grain has gone up, while grass-fed beef and other sustainably raised meats have gone up between 25 cents and 50 cents a pound in the past year or so, Santos says.
Upper Crust Bakery owner Stephanie Schuster says this summer, she's probably going to have to raise prices modestly across the board for the first time in a long time at her 27-year-old bakery on Burnet Road because prices have risen steadily in many of her basic ingredients, including flour, chocolate and coffee.
Brandon Kercheville, Upper Crust's chef and kitchen manager, balances food costs by moving around suppliers like chess pieces, capitalizing on what he calls their "microclimates" for particular products. But suppliers who've bought commodities contracts to hedge against future price increases can soften the blow only so much, even for a high-volume customer like Kercheville. In 2008 for example, Upper Crust stopped using high-gluten flour when its price spiked 40 percent, he said.
"Within the last week, our low-gluten flour - which is what we use for making cookies and cakes - took a big spike, almost a $3-a-bag jump," Kercheville said.
Austin coffee roaster Jamie Anderson, whose Anderson's Coffee has been selling the magic bean for almost 40 years, saw green coffee prices on the commodity market rise 75 percent last year, and even more since then. The spikes have made for some fresh eraser marks on his shop's chalkboard price list.
A pound of Anderson's house blend coffee was $6.95 as recently as fall 2010. "It was $6.95 for a long time, maybe for 15 years," he said. That same pound is going for $8.95 now, a 28.8 percent increase.
"In the past, you would have just minor bumps, so maybe coffee went up a little bit, maybe it went down a little bit. And so I would just hold my prices steady," Anderson said. "But now, there's increasing pressure on prices."
Anderson's priorities are more subtle than market pressures. "I have no intention of lowering my quality," he said. "I just have to say, 'If you want a good cup of coffee, this is what it's going to cost.' It's still a good deal."
Simcik says she's willing to pay more for coffee, even though her favorite bulk beans cost $3 more per pound than they did a year ago. "I feel like I'm going to treat myself to the things I truly enjoy, and coffee is one of them."
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Is the cost of food rising as fast as we think it is?
The Consumer Price Index is a survey of the national average change in retail - not wholesale - prices that the Bureau of Labor Statistics gathers every month. These numbers are the unadjusted percent change from March 2010 to March 2011. The most recent price surge started just a few months ago, as fuel and weather have affected production and transportation. The numbers for April will be released this week. - Addie Broyles
Fruits, vegetables up 4.2%
We're still feeling the effect of harsh freezes in Southern California and Western Mexico this past winter because the supply chain takes a while to recover. With increased demand and issues with supplies across the world, vegetable prices are expected to go up faster than fruits this year, Volpe says.
Coffee up 9.4%
Nobody seems to want to cut back on their coffee intake, even in the recession, and people around the world are swapping tea for coffee. The increased global demand comes as coffee growers are facing bad weather, pests, diseases and urbanization that are hurting production.
Butter up 31.9%
The price of butter goes up not only when milk goes up but also when soybeans cost more, as they have recently. Why? When the price goes up for soybean oil (which is often sold as 'vegetable oil' and makes up about half of our oil intake), demand for alternatives such as butter go up, too, and the price isn't far behind.
Eggs up 1%
Grocery retailers hold the price of eggs relatively steady, even though wholesale prices fluctuate throughout the year due to demand, hitting their peaks around the holidays and just before Easter. Chicken feed, like all animal feeds, costs more when corn and soybean prices go up, and that can be driven by weather and other supply conditions around the world.
Beef up 12.2%
Demand for U.S. beef outside the country is increasing, just as feed prices are rising and domestic cattle inventories 'are at lows we haven't seen since the 1950s,' says research economist Ricky Volpe. Pork is also up, especially the price of bacon, which is up more than 16 percent in a year. Chicken prices, however, have only gone up 2 percent.
Milk up 6.8%
Just as gas and corn prices affect beef, they hit the dairy industry as well, including milk, cheese and ice cream. The demand for milk also is rising, and it's a heavy commodity to transport, Volpe says.
Flour up 4.4%
Biofuels, especially ethanol, can push up the cost of wheat and flour because farmers might grow less wheat and more corn if they can make more money growing crops for fuel instead of food, which decreases the overall supply. If wheat crops in other areas of the world are hit by drought or extreme weather, the international demand drives up prices, too.
Sugar up 2.7%
Both granulated and brown sugar can be made from beets or cane, and because cane doesn't grow as well in the U.S. as beets, rising gas prices hit cane sugar harder than beet sugar. (Manufacturers aren't required to label whether sugar is made from cane or beets.)
For the past few years, we've been tracking the prices of 19 common ingredients, plus one household essential - toilet paper. The latest price check found that it costs about $2.50 (or roughly 6.5 percent) more to buy the same products now than it did in late 2008 - the last major gasoline spike. Lettuce, butter, coffee, corn flakes, sugar and bread cost significantly more than they did in 2008, while milk, frozen orange juice and fresh broccoli actually cost less than they did three years ago. Apples, mayonnaise, dried lentils and eggs cost about the same. Hard to believe? Take a look at the numbers on Addie Broyles' Relish Austin blog at austin360.com/relishaustin .