Don't panic over high food prices
by Sarah West
Jun 05, 2009 | 384 views | 0 0 comments | 5 5 recommendations | email to a friend | print

by Diane Sagers


Trips to the grocery store have been painful in recent months as food prices have gone up. The increase in commodity prices has been pretty good news for the farm industry, but the costs associated with production eats at those profits. The news hasn't been so good for consumers.

For every $1 increase in the price per bushel of corn, for example, also shows increases in other costs as well. The higher cost of oil affects all aspects of food prices. It increases the cost of fuel to run farm equipment and the costs of energy for processing that corn, for manufacturing containers and for packaging. Of course there is a fuel cost associated with transporting the final product to the market as well.

A number of costs factor into food prices and there are many opinions as to what is the most important factor. Some think the price increase at the grocery is caused by the increased prices of commodities, others say it is due to the rising fuel and energy costs, and still others think it is because U.S. consumers want more foods and more options for food products.

Economists from the USDA say that all of these factors play into the equation. Certainly higher energy and transportation costs are affecting the price of all retail goods.

The law of supply and demand is also in play here. The drought in Russia, the Ukraine, and especially Australia, reduced crop yields. Heavy rainfalls in the U.S. reduced supplies here at home.

These basic commodities -- corn, other grains and beans -- not only provide food for people, they are also the basic feed for livestock. As those supplies become more costly, the price of the meat and poultry they feed also increases. The price of fundamentals like food oils and bakery goods also feel the impact.

While the price of food isn't likely to go down immediately, USDA economists believe that food costs will not increase as much this year as they did last year. They are expecting a 3 to 4 percent increase in food prices across the board during 2008.

However, the costs of some food items are likely to increase more than others. It takes an economist to figure it all out, but the economists with the USDA predict that the price of soybean and vegetable oils will go up about 6 to 7 percent and wheat and other grains are likely to go up 5 1/2 to 6 percent this year.

It is surprising that livestock and poultry prices do not appear to be going up as much as one might think in the short term and pork prices are fairly stable.

Consumers noticed that dairy prices jumped in 2007 -- 7 percent to be exact. Prices for dairy products are fairly steady and could even decline a little in 2008.

Due to weather considerations and supplies available, fruits and vegetable prices may increase 3 to 4 percent for fresh fruits, while the cost of fresh vegetables could decline.

The costs of fresh fruits and vegetables could see a price increase due to weather. Fresh fruit prices will likely go up 3 to 4 percent while fresh vegetables may not go up as much. Associated packaging and processing costs will also affect the price of processed fruits and vegetables.

All is not doom and gloom, however, so don't press the panic button. Food prices are cyclical. Since grain is selling at a higher price, farmers are likely to plant more of it. After the growing season, the prices could drop somewhat. You also have the option to make adjustments in your food choices and the kind of cooking you do. You also have the option to plant a garden and enjoy the added advantage of homegrown goodness from the foods you eat. If you are working on storing a supply of food, gradual and steady are still the keywords. Pushing the panic button and rushing to the store to buy everything in sight will cost you a good deal more than paying attention and watching for sales and buying the things you need gradually.

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