USDA Expects Food Prices to Rise Nearly 5 Percent

July 21, 2008— -- Regardless of whether the current economic woes are officially labeled a recession, consumers are starting to feel the same pain they feel at the pump at the supermarket shelves.

Food prices have already jumped more than 5 percent this year, and some of the largest food manufacturers say they plan to raise prices again.

From the deli to the dairy aisle, prices are already high and are going to keep going up. The United States Department of Agriculture predicts that all food prices will increase up to an additional 5 percent in 2009.

Kraft Foods, Kellogg's and Tyson all say they may be forced to raise prices on some items by more than 20 percent, citing higher energy costs.

"The high prices we're seeing at the grocery store are going to look good by comparison," said Scott Saber of the Grocery Manufacturers Association.

Experts attribute a combination of factors to consumers' growing grocery bills: World demand, bad weather, and transportation costs are all partly responsible.

"There's a lot of discussion about why raw food costs globally are going up so much, and why energy prices are going up so much, but those are what are feeding into the retail system, what are leading to higher costs," said Ephraim Leibtag, an economist with the Economic Research Service.

But, above all, grocers blame the price of corn. About a third of the nation's corn crops are now used to make bio-fuels instead of food. And as demand increases, so does the price of corn. The cost of a bushel of corn has doubled in the last year.

"Every consumer, no matter what they buy, is being touched in some way by our decision to divert one third of our corn into our fuel supplies," Saber said. "Anything we eat that is made from corn or fed by corn is going to increase dramatically over the next few years."

In the dairy aisle, the price of eggs has already jumped 40 percent this year.

"Because the cost of feeding animals has gone up so much in the last few years, the price of basic staples -- milk, meat and eggs -- has gone up dramatically, as well," Saber said.

Milk has gone up 9.9 percent and butter has risen 6.5 percent, and the prices of both will continue to rise, experts say.

In the deli, meat prices are already at a 22-year high, but the cost of chicken and beef could go higher. Pork producers expect their prices will jump as much as 18 percent this year, which means even that package of links, hot dogs or frozen sausage pizza could cost more.

And any product that uses corn or vegetable oil could climb, too, which means that nearly every processed food is at risk. Baked goods and cereal will increase by 9 percent, experts say. Cookies, macaroni and cheese, and even processed cheese will take a bigger slice out of your wallet.

"We don't know what the straw that breaks the camel's back will be," Mesirow Financial chief economist Diane Swonk said. "This not a complete, horrible recession, but for most American households, it is a recession.

"The reality is that Americans have to cut back," she said. "They're having to make trade-offs on necessities that are discretionary. They can't go out to eat as often and they can't bring food in as often."

School districts across the country are also scrambling to deal with the added costs. They are trying to adjust budgets and reorganize menus to provide a balanced lunch to students for under $2. But, with schoolyard essentials, like milk and juice, increasing in price, schools have been forced to absorb the added costs and are suffering.

The combination of high energy costs, world demand and corn production will collide, hitting Americans' supermarket receipts the hardest.