A look at what’s behind higher food costs

Higher fuel and corn costs help push up food prices.

SCRIPPS HOWARD

It’s not just the fuel pumps that are hitting consumers’ pocket books.

It’s the Saturday morning omelet, the sandwich at lunch and the chicken dinner.

In 2007, prices of food bought at the grocery store were 4.2 percent more expensive than in 2006, according to the U.S. Department of Labor’s Bureau of Labor Statistics. The increase was the highest percentage year-over-year jump since the 6.5 percent price increase in 1990.

The trend, experts say, is not expected to stop anytime soon.

“We haven’t seen food inflation of this magnitude since the early 1990s,” says Brian Todd, president of The Food Institute, a nonprofit organization that provides information on the foodservice industry.

Todd and other industry analysts expect food prices to continue to climb anywhere from 3.5 percent to 5 percent throughout 2008.

During December 2007, grocery store food prices were 5.6 percent higher than the same month a year before, according to the bureau’s Consumer Price Index data.

As is the case for most increases in food costs there isn’t just one cause, Todd says.

One of the major underlying factors is the rising cost of fuel. The energy needed to produce, transfer and store food items is coming at a bigger price tag.

“At the same time, some of the raw product costs — particularly for the costs of manufacturing, wholesale ingredient prices — were up substantially,” he says. “The retail end of it kind of held the line as much as they could.”

And then there’s the demand for ethanol.

“You’ve got these government mandates that we’re supposed to be producing so much corn,” said Jeff Thredgold, a regional economist for Vectra Bank Colorado. “What it has done is push corn prices dramatically higher, which has an impact.”

The higher prices of corn, a key ingredient in feed and a variety of foods, have carried forward to products such as tortillas, cornbread, beef and poultry.

Throw in a strong global economy where rising standards of living in India and China have spurred demand for meat, soybeans and wheat, and one gets a situation where some food products have increased 6 percent to 7 percent on average, Thredgold says.

Consumers continue to absorb the increases, says Marshal Cohen, chief industry analyst at the NPD Group.

“What we’re starting to see is the recognition that consumers aren’t balking at small increases,” he says. “The gas prices are the perfect example.”

The situation also is lending itself for some grocery chains to tally up more profits.

“Usually, when prices are rising, it’s an advantage for the retailer,” said Ron Paul, founder and president of food industry consulting firm Technomic. “With rising inflation, the middle man and the retailer tend to benefit.”