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Immediate food price increases may not be because of drought
By MICHELE F. MIHALJEVICH
Indiana Correspondent

WEST LAFAYETTE, Ind. — Recent price increases at the grocery store for staples such as milk and bread probably aren’t directly related to the drought, but consumers should prepare to pay more at the supermarket later this year and next, thanks to the summer’s hot, dry weather.

“(The increases) are pretty early to be related directly to the drought,” said Vickie Hadley, interim director for Purdue University’s extension office in Allen County. “We really won’t start to see those until late 2012, right at holiday time. We won’t know where we’re sitting until after harvest is complete. After that, it’ll take a little while for (prices) to catch up.”

In some areas of northeastern Indiana and elsewhere, milk prices have risen at least 20 cents a gallon in the last few weeks, and the prices of bread and other staples have edged up as well. Rather than the drought, factors such as the higher cost of transportation could be behind these recent increases, said Corinne Alexander, associate professor of agricultural economics at Purdue.

The drought will affect prices, especially starting in 2013, she said. For example, prices for dairy products will probably go up 2-3 percent this year, and 3.5-4.5 percent next year.

For all food items, normal price inflation in a given year is 2-3 percent, but this year could see increases of 2.5-3.5 percent, and next year, possibly 3-4 percent, she said. “The main impact of the drought is going to be in livestock products, such as dairy and all meat products,” Alexander said. “We’ll probably see (increases) soonest with milk and eggs, but by next year, we’ll see it all across the livestock market.”

The drought and producers’ reactions to it may cause a bit of a price rollercoaster in the livestock market in the coming months, she noted. The drought will probably add to higher feed costs, causing some producers to liquidate their herds, which will temporarily cause a glut in the market and a short-term lowering of prices, she explained.

Once the glut has worked its way through the system, reduced availability will lead prices to rise again, she added. Depending on the region of the country, consumers may see price changes on different items at the grocery store.

“A lot of retail stores will say ‘these are the items we’re going to hold the (price) line on,’” Alexander said. “They each choose different items. You can see an item at a sale price because that’s the one that particular retailer chose to keep lower-priced.”
Next year, consumers will pay more for a variety of items because of the drought, according to figures provided by The Food Institute.
For example, the drought is projected to cost a family of four about $351 next year for the same total food purchases over 2012, both for food consumed at home and away from home.
The drought will cost the average family of four $44.20 next year for meat, poultry, fish and eggs consumed at home; about $30 for cereal and bakery items; about $29 for fruits and vegetables; and about $35 for dairy products.

“If it’s a basic staple such as milk or bread, consumers will continue to buy them,” said Brian Todd, president and CEO of The Food Institute. “But you may see consumers make changes in how they purchase other items, such as switching to store brands or looking for cheaper substitutes for what they purchase now.”

Consumers need to be aware that only 15-16 percent of the price of any given food item is related to what’s coming from the farm, he said. Other factors include processing, shipping and labor, he added.

Those factors may keep prices from dropping in 2014 even if farmers have a normal growing season next year, noted Hadley, also a health and human sciences extension educator in Allen County.

“Once they go up, they’re only going to come down a few cents,” she explained. “Fuel, for example, is a big input cost. If it stays up or continues to go up, that will affect prices, as well.”
9/26/2012