September 16, 2011

 

Global demand pushes food prices up

 

 

The latest American Farm Bureau Federation Marketbasket Survey states that strong global demand for pork and other protein-rich foods was the main driver in higher retail prices during the third quarter of 2011.

 

The total cost of 16 food items that can be used to prepare one or more meals was US$53.12, up US$1.95 or about 4% compared to the second quarter of 2011 and of the 16 items, 13 increased, two decreased and one remained the same in average price compared to the prior quarter, as shown by the informal survey.

 

AFBF Economist John Anderson said that the global demand for meat and dairy products remains strong and continues to influence retail prices in the US.  He also added that many nations around the world rely on America to provide the food they need to improve their standard of living, particularly through the addition of protein to the diet. Strengthened demand for meats began in 2009, continued through 2010 and remains important as they look ahead to the close of 2011.

 

He also explained that on-farm production costs for energy, fertilizer and fuel continue on an upward trend but those costs are largely borne by farmers and ranchers. But, in addition, after food leaves the farm or ranch, higher costs for transportation, marketing, processing and storage are added and as long as these costs remain elevated, consumers will continue to feel it in the form of higher food prices at the supermarket.

 

Meat and dairy products accounted for about 40% of the quarterly retail price increase. Boneless chicken breasts increased 24 cents to US$3.33 per pound, bacon rose 23 cents to US$4.41 per pound, sliced deli ham was up 17 cents to US$5.43 per pound, shredded cheddar increased 14 cents to US$4.70 per pound and whole milk was up 4 cents to US$3.66 per gallon.

 

Other items that increased in price compared to the second quarter were Russet potatoes, up 36 cents to US$3.43 for a 5-pound bag; Red Delicious apples, up 27 cents to US$1.83 per pound; flour, up 21 cents to US$2.73 for a five-pound bag; vegetable oil, up 20 cents to US$3.21 for a 32-ounce bottle; eggs, up 13 cents to US$1.78 for one dozen; orange juice, up 10 cents to US$3.28 for a half-gallon; bagged salad, up six cents to US$2.73 for a one-pound bag; and bread, up two cents to US$1.88 for a 20-ounce loaf.

 

"At the beginning of 2011, a number of factors including growing demand pointed to continued increases in retail food prices, especially for meats. But there's always a lag time as farmers and ranchers increase the size of their herds to meet higher demand," Anderson explained.

 

 "Extreme weather conditions around the nation have further compounded the issue, diminishing production and further increasing costs."

 

Most items showing an increase in retail price from quarter-to-quarter also showed year-to-year increases. Compared to last year, Russet potatoes increased 30%; flour was up 27%; eggs and vegetable oil were each 26% higher. Yearly increases were also tallied for bacon, up 21%; sliced deli ham and milk, each up 16%; and shredded cheddar cheese, up 15%. The total average price for the 16 items was up about 15% compared a year ago.

 

Two items decreased in price: sirloin tip roast dropped 20 cents to US$4.28 per pound and ground chuck dropped two cents to US$3.27 per pound. Toasted oat cereal remained the same in price at US$3.17 for a nine-ounce box.

 

The yearly direction of the Marketbasket Survey tracks with the federal government's Consumer Price Index for food at home. As retail grocery prices have increased gradually over time, the share of the average food dollar that America's farm and ranch families receive has dropped.

 

"In the mid-1970s, farmers received about one-third of consumer retail food expenditures for food eaten at home and away from home, on average. Since then, that figure has decreased steadily and is now about 16%, according to the Agriculture Department's revised Food Dollar Series," Anderson said. Using the "food at home and away from home" percentage across-the-board, the farmer's share of this quarter's US$53.12 marketbasket would be US$8.50.

 

AFBF, the nation's largest general farm organization, has been conducting the informal quarterly marketbasket survey of retail food price trends since 1989. The mix of foods in the marketbasket was updated during the first quarter of 2008.

 

According to USDA, Americans spend just under 10% of their disposable annual income on food, the lowest average of any country in the world. A total of 85 shoppers in 32 states participated in the latest survey, conducted in August.