USDA: Drought will lead to higher food prices in 2013

Associated Press

MINNEAPOLIS

The drought gripping more than half the country is a major reason consumers can expect to pay 3 percent to 4 percent more for groceries next year, the U.S. Department of Agriculture said Wednesday.

Milk, eggs, beef, poultry and pork prices will all be affected because the drought has pushed up prices for feed, and that eventually will translate into higher prices for steaks, hamburger, pork chops and chicken. The good news for cost- conscious consumers is that prices for fruits and vegetables, as well as processed foods, aren’t affected as much by the drought.

Exactly how much more people might pay for a pound of hamburger, for example, isn’t known because those prices are affected by lots of factors, including how much of the increase a given supermarket might pass along to the consumer. But beef prices as a whole are expected to see the biggest jump at 4 percent to 5 percent, according to the USDA.

Dairy product prices are forecast to climb 3.5 percent to 4.5 percent; poultry and egg prices are projected to rise 3 percent to 4 percent; and pork prices are expected to rise 2.5 percent to 3.5 percent in 2013, the agency said.

“In 2013, as a result of this drought, we are looking at above-normal food-price inflation. ... Consumers are certainly going to feel it,” USDA economist Richard Volpe said.

Normal grocery-price inflation is about 2.8 percent a year, Volpe said, so even a 3 percent increase is slightly higher than usual. The USDA kept its projected food-price increase for 2012 steady at 2.5 percent to 3.5 percent, saying average retail food prices were flat for the first half of 2012 thanks to unusually low fruit and vegetable prices as well as lower prices for milk and pork.

The new forecasts are the agency’s first food-price projections to factor in the drought, though experts have been warning for a few weeks that prices will rise. As fields dry out and crops wither across much of the country’s midsection, prices for corn, soybeans and other commodities have soared in anticipation of tight supplies. That means farmers and ranchers will have to pay more to feed their livestock, and those costs eventually get passed on to consumers. Food prices typically climb about 1 percent for every 50 percent increase in average corn prices, according to agricultural economists.

Processed foods aren’t affected as much because feed costs don’t account for as much of their price tag. And fruits and vegetables aren’t expected to be any more costly because they are irrigated even in normal weather. The USDA is projecting an overall 2 percent to 3 percent increase for all fruits and vegetables next year, the same as it expects this year.

USDA economists were aware of the drought a month ago when they did their last projections but didn’t know how bad it would get, Volpe said.

“This drought was a surprise for everybody,” Volpe said. “The USDA was forecasting a record year for the corn crop until this drought materialized. Now we’re not going to get that.”

The drought now covers around 60 percent of the continental United States, the largest area since the epic droughts of the 1930s and 1950s.