Purdue News
Purdue News
August 30, 1996
"Retail food price rises will outpace the rise in the overall cost of living this year, as they did last year," said Joe Uhl, marketing specialist in Purdue's Department of Agricultural Economics.
Uhl said food prices aren't expected to rise at double-digit levels as they did in 1973-74 and 1979, but increases will be on a broad range of frequently purchased products that make up a large share of the consumer's food budget.
"It'll be difficult for consumers to avoid these price rises," he said. "The increases will be on such necessities as bread, milk, meat and produce.
"These rising food prices are a result of poor crop growing conditions in many parts of the country, reduced world stocks of the major grains, a surge in international demand for U.S. farm products, reduced meat supplies, and concerns about the size of this fall's grain harvests. Many crops were planted late this spring and are subject to early frost dangers. Very low grain stocks make the food price situation more precarious this year."
According to Uhl, grocery store food prices rose at an annual rate of 4 percent in July, compared to 2.8 percent in 1995. This increase primarily was in the cost of fruits and vegetables, pork and poultry, dairy, and cereal and bakery items.
"These retail food price increases are closely associated with rising farm prices of these commodities," Uhl said, although food marketing costs also have risen.
The price increases have been uneven. For example, butter rose 30 percent from January to July. Bacon prices were up 19 percent, and flour prices 18 percent. However, grape prices dropped 26 percent, lettuce prices declined 18 percent, and egg prices fell 10 percent from January to July. Other products, such as ground beef, pasta, turkey and frankfurters, remained stable.
Pent-up commodity costs and rising labor and energy costs will fuel increases in grocery store prices for the second half of 1996 and into 1997, Uhl said. Beef prices stopped falling in June and are expected to rise into 1997. Fruit and vegetable supplies continue to be plagued with variable weather and growing conditions, he said. Pork, chicken and egg prices will persist at relatively high levels before supplies begin expanding next year. Dairy prices will continue at historically high levels, and prices of grain-based foods will keep rising until wheat supplies are replenished. An early frost this fall, reducing grain harvest, could accelerate food prices in the second half of the year, according to the specialist.
Steve Hiemstra, food economist in Purdue's Department of Restaurant, Hotel, Institutional, and Tourism Management, reported that wholesale food prices and restaurant food prices also will continue increasing. The prices of finished wholesale foods are expected to reflect increases earlier in the food channel, or closer to the farm gate. For 1997, Hiemstra said, price increases are likely to be in the 4 percent to 6 percent range if farm-level prices continue in line with current expectations and labor and other marketing costs increase moderately.
In the first half of 1996, the cost of eating out increased 2.2 percent, compared with 3 percent for grocery store prices. According to Hiemstra, dining out accounts for 47 percent of consumer food expenditures.
"Some further acceleration in menu price increases can be expected during the last half of 1996 and into 1997," Hiemstra said, "as restaurateurs reprice their menus to account for rising wholesale food costs, as well as significantly increasing labor costs. Farm food accounts for only 16 percent of the food dollar spent in restaurants, so wholesale food price increases are less important than are labor costs. Of equal or more significance in the coming year is the 11 percent increase in the minimum wage slated for Oct. 1, 1996, and another 8 percent increase in 1997."
Overall, Uhl and Hiemstra said, prices for food away from home in 1997 are expected to increase in the range of 2.5 percent to 3 percent over those in 1996.
All foods are expected to rise 4 percent to 6 percent in 1997, compared to 3 percent to 5 percent levels in 1996 and 2.8 percent in 1995.
ACS code/960830 Ag Uhl/9608f37
Sources: Joe Uhl, (317) 494-4219; e-mail, Uhl@agecon.purdue.edu; Web, https://www.agecon.purdue.edu/index.htm
Steve Hiemstra, (317) 494-6844; e-mail, hiemstras@cfs.purdue.edu
Writer: Andrea McCann, (317) 494-8406; e-mail, mccann@aes.purdue.edu
