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Rise in food prices a trend seen around the world

January 13, 2011
By Jenny Kirk

As food prices hit a record high around the world in December, the latest American Farm Bureau Federation (AFBF) Marketbasket Survey reported a fourth quarter increase in retail food prices at the supermarket, though Minnesota was slightly below the national average.

According to the United Nations' food agency (FAO), those record prices could move beyond levels in 2008 when riots broke out in numerous countries.

"It's worldwide and not just a local phenomenon," said Brian Buhr, economist for the Minnesota Department of Applied Economics. "But it's getting to be a concern here, especially because of the economy."

Buhr said the last time economists reported a record high was in 2008.

"We're at a record high now," Buhr said. "Last time was right before the economic crisis, in the summer of 2008. Now we're kind of seeing a little bit of the same thing. This past summer, things looked reasonably well, but then in the fall, we started to see some of these issues come up."

Buhr said that one of the biggest drivers is lower stocks for commodities, which are driving up prices.

"It's more of a reduced production phenomenon right now," Buhr said. "With wheat, we have the Russian issue. It's like a snowball effect, like we saw in 2008. Poor crops are starting to cause rippling through the commodity markets now. It means you sort of hope that the southern hemisphere, like Australia, which is moving into the harvest season soon, does very well and moves those stocks back up."

With a strong harvest from the southern hemisphere, consumers could see a short-term improvement, while the longer term stability would require a better northern hemisphere harvest, especially from the U.S. and Russia.

"The impacts of food prices aren't that big in the U.S.," Buhr said. "Last time, you might remember hearing about the riots in developing countries because it's a bigger issue there. But it also depends on the income levels in households. Average households spend roughly 15 percent on food, but lower income households tend to spend more on food so it hits them worse."

The AFBF survey showed a $46.97 increase in the total cost of 16 staple food prices, up about 2 percent (80 cents) compared to the third quarter. Minnesota's total cost was $46.86. Bacon, eggs, whole milk, sliced deli ham and bread reportedly increased the most in dollar value.

Bacon went up 68 cents ($4.32 per pound) nationally, while eggs and whole milk increased 19 cents ($1.60 per dozen / $3.35 per gallon). While eggs cost the same, milk in Minnesota was above the national average at $3.64 per gallon. Sliced deli ham increased 18 cents ($4.84 per pound) nationally, while bread went up 14 cents ($1.75 for a 20-ounce loaf).

The entire issue still comes down to simple supply and demand. It's about what people are consuming.

"In 2008, we didn't have nearly the prices we're seeing in meat," Buhr said. "Some of it has to do with reducing production because we've had high grain prices. We're starting to see those products rise, like beef. There was a little bit of an inflationary push back in 2008. It's interesting because we didn't see the drop in production then."

Minnesota's supermarket prices also tipped the scales above the national average in sirloin tip roast ($4.20 in Minnesota / $3.95 U.S.), shredded cheddar cheese ($4.33 / $4.16) and toasted oat cereal ($2.92 / $2.88). Most items in the survey which showed a fourth-quarter increase also showed a year-to-year increase.

"Hearty breakfast lovers felt the pinch in the fourth quarter of 2010," AFBF economist John Anderson said in a recent news release from the Minnesota Farm Bureau. "Increased consumer demand for meats and dairy products that began in 2009 continued through the fourth quarter of 2010."

Coupled with rising gasoline prices, higher energy costs and high unemployment rates, rising food prices could start to add up and cause significant complications for consumers who are still trying to recover from the economy crisis.

"Corn is up to six dollars, and the hog and cattle market have really taken off, too," Buhr said. "There were also freeze issues in the citrus crops. Sometimes you forget how much of a global market it is. It'll turn around, but we just don't know when."



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