When will food prices stop rising? No time soon, experts say

ByJohn Yaukey, Gannett News Service

WASHINGTON -- Any spike in prices begs the question: When will it end?

Unfortunately, for millions of cash-strapped consumers, the cost of putting a meal on the table or a beer on the bar is likely to remain high for years, economists say.

Typically, food price swings go through cycles that can last a few years. That was the case in the 1970s, when food prices were pushed up by high energy costs, decreased supplies and regional droughts.

But those forces were fairly elastic, and prices contracted again. From the mid-1970s until recently, food prices on average fell dramatically.

This spike is different.

"Some of the reasons are rooted in the new world economy," said Edward McLaughlin, an expert on food retailing at Cornell University.

Those reasons include the use of grains for fuel and the developing world's increasing demand for a higher-protein diet, which also cuts into grain supplies. Add those factors to more typical trends, like soaring energy costs, and it's clear the latest jump in prices has unique twists for consumers the world over, economists say.

Perhaps most worrisome, some leading causes of the recent price increases show no signs of receding, prompting some economists to warn of "the end of cheap food."

The Agriculture Department expects U.S. food prices to rise beyond inflation for the next few years.

"The question now is the rate of the increase," said Ephriam Leibtag, an economist with the department's Economic Research Service.

Overall, food prices in this country have gone up almost 5% during the past year, the highest annual increase in almost 20 years, according to the Labor Department. Some staples have risen well beyond that.

Egg prices have shot up more than 30%, dairy prices have jumped 12% and the price of baked goods has risen 9%.

In 2008, the consumer price index for all food is projected to increase 4% to 5% as retailers pass on higher energy and commodity costs to consumers.

That's almost twice the inflation rate of about 2.6%.

Despite the recent price hikes, Americans spend less of their income on food now — about 9% — than they have historically. In the 1950s, they spent about 21% on food, according to The Economist magazine.

But that doesn't mean much to shoppers trying to keep pantries stocked.

"The prices just inch up every week without stop," Joanne Krebble said while shopping at the Brookville Market in Washington. "It's everywhere you look."

If meat still seems like a relative bargain, it won't be for long, economists say. Meat prices overall haven't changed much recently but probably will by year's end.

As more corn is used to make ethanol, animal feed costs rise. And consumers, each of whom eats almost 200 pounds of meat, poultry and fish per year, are starting to see that at the checkout.

The price for chickens, which mature much more quickly than cows or pigs and reflect higher feed prices sooner, have increased 4.6% in the past year, according to the Agriculture Department.

"Look to late 2008 or early 2009 for noticeable increases in the price for protein," said Bill Lapp, president of the research firm Advanced Economic Solutions in Omaha

Corn growers have come under fire for selling food for fuel. Rick Tolman, CEO of the National Corn Growers Association, says such criticism is unfair.

"The increase in food prices has many causes — higher corn prices is one of the minor reasons," he said. "Higher fuel prices and rising world demand for food are the primary reasons."

Tolman said higher fuel prices have three times the impact of higher corn prices. He noted that in 2003, corn was $2.50 a bushel and a barrel of oil was $11. Today corn is $5.65 a bushel and oil has soared to well over $120 a barrel.

Tolman said corn growers are working hard to keep production in line with demand for both food and fuel.

"Corn is in the midst of a tremendous boom in technology," he said. "Corn yields in the U.S. have doubled over the last 40 years and are on track to double again in the next 20."