Buyers Guide: In a new normal

The price to buy food is going up. Or is it?

Food prices (for the purpose of this article, food prices come from the Consumer Price Index (CPI) unless otherwise stated) generally increase between 2.7% and 2.8% each year. In 2011, consumers were hit hard; the supermarket CPI—the price you pay for goods at a grocery store—increased by 4%, largely due to higher commodity and fuel prices. In 2012, inflation was slightly lower than the norm at 2.6%.

But 2013 brought relatively flat food price increases, at 1.4%.

“Consumers, especially the supermarket shoppers, really got a break [last year],” says Ricky Volpe, economist with the USDA’s Economic Research Service, which disseminates the CPI. “Now in 2014, inflation has kicked up. As of right now, we’re forecasting that inflation is going to be within the range of normal, but consumers are going to notice because food prices have been relatively flat for a while now.” 

Some items did see higher jumps in price in 2013. Poultry, for example, spiked at 4.7%, tying it for first with fresh vegetables as the largest percentage increase in 2013.

“There was nothing on the supply side to suggest that [the increase in poultry prices] would happen,” Volpe says. “We were just looking at an increase in chicken demand.”

For the first time in more than 100 years, Americans consumed more poultry than beef in 2012. Per capita consumption of chicken rose from under 20 pounds in 1909 to 60 pounds in 2012. Beef consumption during the same time period dropped from more than 80 pounds to less than 60 pounds.

Beef prices are at record highs, Volpe says. Increased exports to Asian countries have resulted in higher prices for American cattle. “Cattle inventories right now are comparable to where they were in the 1950s,” he adds. “The population is more and we’re exporting a lot more. We have a real disconnect in supply and demand in the beef market. This has resulted in very high inflation of beef prices.”

Bill Lapp, president of Advanced Economic Solutions, cautions that beef prices won’t come down for a while. Both Lapp and Volpe say it will take longer for U.S. production of beef to expand to catch up with demand than other food items because of the time it takes to raise cattle for processing. 

Weather, obviously, is a huge factor in just about all agricultural products. The drought in California has many worried about the potential effect on prices.

Ninety-five percent of all processing tomatoes (think ketchup, pasta sauce and salsa) are grown in California. “If something substantial happens to the tomato crops in California, in a matter of months you’ll see that reflected in the price,” Volpe says.

Nearly 17% of consumers’ food spending is affected by the commodities produced in California, Volpe adds. Translation: If the drought continues, expect to see increases in those crops that have a majority produced in the Golden State.

Those items include artichokes (99% of U.S.-grown artichokes come from California), shelled almonds (99%), kiwifruit (97%), walnuts (99%) and avocados (88%), to name a few.

So what can consumers expect for 2015? Both Volpe and Lapp are optimistic that next year’s food price inflation will remain close to historical averages. Lapp describes it as “benign. It doesn’t seem to be accelerating. I’m not overly concerned about it right now.”

Volpe says, barring any “wild cards”—significant weather events—2015’s CPI will see normal increases.

“Consumers are probably going to see relief in poultry, pork and egg prices in 2015, but that’s probably not going to be the case with beef,” he says. “We expect at the tail end of 2014 that fluid milk and grain prices will go up a bit. All else being equal, I would expect we’re on track for another 3% increase in food prices in 2015.”

Food Pricing Trends

Protein
Fruit
Vegetables
Dairy
Grains

Protein

Beef

2013 price: 2%
2014 forecast: 3-4%
What's affecting price: Higher feed and fuel costs. Ranchers are selling off herds at a loss because they can’t afford to feed them. Ironically, this should depress prices, but so much American beef is being exported that domestic prices remain at near record highs.
Operator innovation: Breckenridge Village Retirement Community, Willoughby, Ohio. Beef Tenderloin and Woodland Mushroom Roulade with a Lobster and Béarnaise Ravioli. By offering a desired commodity—the tenderloin—at a smaller portion size and combining it with other flavorful items, chefs can make beef affordable and healthier. This dish comes in at less than 700 calories.

Pork

2013 price: 0.9%
2014 forecast: 2-3%
What's affecting price: PEDv—short for Porcine Epidemic Diarrhea virus—could cause a two-year shortfall in production. The virus makes adult pigs ill, but it kills entire litters of piglets, whose bodies aren’t strong enough to survive this flulike sickness. Combined with a general decline in production of 6% to 7% last year, hogs are at their lowest market inventory in seven years.

Chicken

2013 price: 3.3%
2014 forecast: 2-3%
What's affecting price: A lack of breeder hens is making it difficult for producers to generate more stock. Five or six years earlier, when corn prices skyrocketed, primary breeders reduced the number of “grandparents” they kept around. Now that chicken is in demand and feed prices have declined, chicken companies can’t get breeder hens from the primary breeders. It will take a couple of years before breeder stocks match demand. Importing chicken isn’t the answer, because only two countries—Canada and Chile—are approved to export chicken to the U.S.
Tip: Look to the back of the bird—thigh and wings, as these prices haven’t increased as much as breast meat because there isn’t as much demand.

Fish (cod, pollock, salmon)

2013 price: Flat—2% (depending on species)
2014 forecast: 3-6%
What's affecting price: Sustainability efforts are causing groups like the Alaska Seafood Marketing Institute to set catch limits on various species, which is inflating prices for some species.
What's new in the industry: As a countermeasure, groups like the Monterey Bay Seafood Watch are pushing consumption of less popular, but more sustainable, fish. Some restaurants and foodservice operations are beginning to diversify the kinds of fish they offer customers, along with marketing efforts to encourage sales.
Operator innovation: Lake Vista of Cortland, Ohio. Herb-roasted Halibut with Sun-dried Tomato Risotto. This takes advantage of seniors’ desire for more seafood while promoting portion control. A 4-ounce portion keeps down the cost of the dish.

Eggs

2013 price: 3.3%
2014 forecast: 3-4%
What's affecting price: A strong market for exports has kept egg prices high. Drought in California could have long-lasting effects on egg prices
What's new in the industry: The trend toward the use of cage-free, organic, Omega-3 eggs has some producers considering shifting their methods to take advantage of eggs that command higher prices

Beans

2013 price: 4.6%
2014 forecast: 1-2%
What's affecting price: There’s a good supply of dry beans, most of which are grown in Minnesota and the Dakotas. Weather is always a factor, though, meaning too much or too little rain can affect the crop’s output.

*Prices are based on the Consumer Price Index.

Sources: Agricultural Marketing Resource Center, Alaska Seafood Marketing Institute, American Egg Board, Bureau of Labor Statistics, Monterey Bay Seafood Watch, National Cattlemen’s Beef Association, National Chicken Council, National Pork Producers Council, Northarvest Bean Growers Association, Organization for Economic Cooperation and Development, Rabobank

Food Pricing Trends

Fruit
Vegetables
Dairy
Grains

Fruit

Tomatoes

2013 price: 11.7% (California), Flat (Florida)
2014 forecast: Too volatile to predict
What's affecting price: Curly-top virus, beet leafhopper, excessive heat and drought in California have combined to push up prices for these tomatoes, 95% of which are processed into sauces and the like. In Florida, however, a flood of Mexican tomatoes into the market has made it difficult for farmers to make much money on their tomatoes.
What's new in the industry: A new trade agreement with Mexico, signed in 2013, should eventually bolster Florida tomato prices.

Avocados

What's affecting price: Supply and demand have the greatest effect on the price of avocados. Weather also impacts supply, particularly as it relates to California-produced avocados, where the recent drought has already reduced the expected size of the 2014 crop from what was produced last year. Nearly 30% of the world’s supply is grown in California, while more than 60% is grown in Mexico.
What's new in the industry: Due to the nutritional value and the proliferation of ethnic menu items, demand for avocados has been increasing each year.
Operator innovation: Tufts University, Medford, Mass. Avocado Citrus Sauce over Grilled Chicken. Avocados are for more than just guacamole: Top off traditional and ethnic burgers, sandwiches and salads; use as a main soup ingredient or sauce component.

Blueberries

What's affecting price: Supply plays the greatest role in blueberry pricing, but recent technological advancements and expanded production across the country have allowed for increased crop supply. The US Highbush Blueberry Council estimates a harvest of approximately 805 million pounds by 2017. 
What's new in the industry: Demand for blueberries has increased during recent years due to the fruit’s health and nutrition benefits, convenience, taste and versatility.

Strawberries

What's affecting price: Weather and supply are the biggest factors in the pricing of strawberries, with prices at the lowest during the peak summer season. More than one-third of U.S. strawberries are grown in California, and the state’s drought issues may impact crop availability. Florida produces the largest amount of strawberries, which are the most popular berry, accounting for just more than half of all berry sales. Second to strawberries are blueberries.
What's new in the industry: A consumer favorite and a signal of summer, strawberries continue to increase in popularity because of their sweet flavor, convenience, versatility and nutritional value.

Apples

What's affecting price: Weather is the greatest influence on price and availability of apples. Grown in every state in the continental U.S.—Washington, New York and Michigan are the top three apple-producing states—demand continues to be met.
What's new in the industry: New methods of preservation have increased usage, like apple slices now available at McDonald’s, requirements set by the National School Lunch Program, and apple’s health benefits, convenience, variety and versatility keep this fruit the apple of our eyes. 

*Prices are based on the Consumer Price Index. According to the CPI, fresh fruit prices are projected to increase 2.5% to 3.5% in 2014.

Sources: Agricultural Marketing Resource Center, Bureau of Labor Statistics, California Avocado Growers, California Strawberry Commission, California Tomato Growers Association, Hass Avocado Board, Florida Tomato Committee, Growingproduce.com, MSN Money, Produce Marketing Association, U.S. Apple Association, US Highbush Blueberry Council, United States Department of Agriculture, United States Department of Agriculture Economic Research Service

Food Pricing Trends

Protein
Vegetables
Dairy
Grains

Vegetables

Lettuce (iceburg and romaine)

2013 price: 16.1% (iceberg), 28.6% (romaine)
2014 forecast: Expected to rise dramatically because of recent bad weather. A recent study found lettuce prices could increase by up to 34% because of the drought in California. 
What's affecting price: After two years of overabundance that caused prices to drop by double digits, harsh weather in southern California, Arizona and Florida last year, along with heavy rains on the East Coast, damaged crops and reduced supply. Costs are expected to skyrocket. One bright spot is California’s Salinas Valley, which reportedly has an oversupply of leafy greens.

Corn

What's affecting price: Weather is the most influential factor in the price, as rainfall greatly affects production. As a highly versatile and widely used crop worldwide, several other factors influence the price, such as demand and disease. Because of its current profitability, foreign countries also are planting more corn, offsetting exportation needs. The EPA may reduce renewable fuel standards, reducing the price per bushel by 75 cents.
What's new in the industry: With the growing consumer interest in purchasing more locally grown food items, more farmers are swapping out acres of land typically used for corn production to grow other varieties of vegetables, decreasing corn output. With the number of renewable fuel options growing, demand for corn ethanol is decreasing. Due to increased consumer interest in food quality and sourcing, as well as new research into the effects of a grain-based diet for livestock, other items are being used for animal feed.

Onions

What's affecting price: Weather has the biggest impact, as rainfall is key for a bountiful harvest. Onions are seasonal and are commercially grown in more than 20 states, with the largest production areas in Idaho, eastern Oregon, Washington and California.
What's new in the industry: During the last decade, use of red onions on salads, burgers and sandwiches has increased, in part due to the color the variety adds to a plate. About 8% of the onions produced in the U.S. are red, while 87% are yellow and 5% are white.

Broccoli

What's affecting price: One of the few vegetables available year-round, weather and supply play the biggest roles in pricing. Popular among children, consumption of broccoli continues to increase.
What's new in the industry: The popularity of salad bars has increased consumption of broccoli, though it still stands up as a side dish and entrée component.

Potatoes

What's affecting price: Weather is the most important factor, with supply driven by consumer demand for both fresh and high-quality processed products. Increased production in other countries has reduced the number of planted acres in the U.S., and a recent blight of infections has posed a threat to production worldwide.
What's new in the industry: With international competition on the rise, growers are implementing more efficient technology and production practices, and proper harvesting, handling and storage of harvested crops remain high priorities. Potatoes remain quite popular—81% of Americans say they eat them once a week—and lesser known varieties are growing in popularity, like French fingerlings and purple Peruvian.

Sweet potatoes

What's affecting price: Like potatoes, weather and supply and demand are the biggest factors in sweet potato pricing, as well as import and export needs. Farmers must combat viruses and fungi that attack the roots of the plants with control measures taken at every stage of production from field to packinghouse.
What's new in the industry: Because of their nutritional benefits, convenience and recent culinary popularity, sweet potatoes are having their heyday. Total purchases by the USDA in 2013 set an all-time record of more than 26 million pounds—a 109% increase compared to 2012. The USDA has already committed to purchase 8.8 million pounds of fresh sweet potatoes in 2014, in addition to 8.6 million pounds of canned product and 831,000 pounds of frozen product. 

*Prices are based on the Consumer Price Index. According to the CPI, fresh vegetable prices are projected to increase 2% to 3% in 2014.

Sources: Agricultural Marketing Resource Center, Agweek, Bloomberg Businessweek, Bureau of Labor Statistics, California Agricultural Statistics Review 2013-2014, California Ag Today, California Department of Public Health, Growingproduce.com, Idaho Potato Commission, Los Angeles Times, National Corn Growers Association, The National Onion Association, National Sweet Potato Association, The New York Times, North Carolina Sweet Potato Commission, Northwest Potato Research Consortium, The Packer, The Potato Association of America, Produce Marketing Association, United States Department of Agriculture, United States Department of Agriculture Economic Research Service, United States Sweet Potato Council Inc., University of California (UC) Vegetable Research & Information Center, Wall Street Journal

Food Pricing Trends

Protein
Fruit
Dairy
Grains

Dairy

Milk

What's affecting price: Milk prices tend to run in a three-year cycle, with 2014 being the high point. More U.S. milk is being exported to China, as many in that country still harbor qualms about the safety of milk produced there. As nations become more industrialized, they adopt a more Western-style diet, consuming more dairy. Worldwide supply for milk has not kept pace with demand, meaning prices are high. U.S. dairy exports have increased from 5% to nearly 16% in the past 15 years. Five percent of the milk produced in the U.S. ends up in schools. 
What's new in the industry: The explosion of the Greek yogurt category has diverted some fluid milk into yogurt production.
Operator innovation: St. Mary’s County Public Schools, in Maryland, started serving a cookies and cream flavored milk earlier this year. The milk contains more calories and sugar than non-flavored milk, but the district is hoping the flavor entices children to drink more of the calcium-rich beverage.

Cheese

What's affecting price: Milk is the biggest ingredient, so prices for cheese tend to go in tandem. Feed costs for dairy cows have increased; hay has jumped from $100 per ton in 2010 to $230 per ton in 2013. Drought also caused a spike in cheese prices. Texas’ three-year epidemic caused many farmers to sell off beef cattle, which increased demand for cattle leading some dairies to sell off their older cows for a higher price, resulting in fewer dairy cows. Farmers say that sell-off is higher than the 10-year average. Legislation focused on food safety (the Food Safety Modernization Act, for example) has increased costs for small producers through additional audit requirements and risk assessment procedures. U.S. cheese exports are also increasing; the U.S. is now the No. 1 exporter.  
What's new in the industry: Experts say the variety of artisan and specialty cheeses will increase as the skill level of American cheesemakers improves. These American varieties are unique to the producer and terroir, making them distinct in flavor profile. Some popular names—feta, Parmesan and ricotta, for example—could be in jeopardy if the European Union (EU) has its way. The EU is making a case that only Europeans who originated the cheeses be allowed to use the names.

*Prices are based on the Consumer Price Index. According to the CPI, dairy product prices are projected to increase 2.5% to 3.5% in 2014.

Food Pricing Trends

Protein
Fruit
Vegetables
Grains

Grains

Wheat

What's affecting price: Worldwide demand for wheat is high. Coupled with drought in the Central Plains the past few years, farmers have received top dollar. Last year the price per bushel was $7.79, a record high. That has come down a bit this year to $6.90. When Russia, one of the largest wheat-exporting countries, banned exports in 2010, there was a spike in price. Ukraine is also a large exporter of wheat; Crimea accounts for only 7% of the country’s wheat production, so the political unrest isn’t a major factor—at least for now. Of bigger concern is the weather; there’s a drought there. China, a large wheat producer with little exports because most of it is consumed domestically, decided to import more wheat from the U.S. this year to bulk up its reserves. 
What's new in the industry: Farmers are hoping one day to use drones to help monitor vast acres of their crop at a lower price than surveying by car. The Water Resource Development Act is being reauthorized. The act provides funding for U.S. waterways, which help farmers export wheat in a cost-effective way. The U.S. exports half of the wheat it produces. The wheat industry relies heavily on research from public institutions, which are largely funded through the farm bill. These researchers are developing new varieties, including insect-resistant, freeze-tolerant and drought-tolerant ones.

Rice

What's affecting price: Supply greatly affects the price. The U.S. exports 50% of the rice it grows, but alleged unfair trade practices from chief exporters, including Thailand, Vietnam and Brazil, are hurting the U.S. industry. 
What's new in the industry: The development of hybrid varieties is helping to drive up yields, while reducing water and herbicide usage. Lasers and GPS are helping to build level fields, which reduces water usage.

*According to the CPI, cereals and bakery product prices are projected to increase 1.5% to 2.5% in 2014.

Sources: Beehive Cheese Co., The Columbus Dispatch, Gourmet Foods International, National Association of Wheat Growers, National Milk Producers Federation, Southern Maryland Newspapers, U.S. Dairy Export Council, United States Department of Agriculture Economic Research Service, USA Rice Federation, US Wheat Associates

Food Pricing Trends

Protein
Fruit
Vegetables
Dairy