Higher food prices on the horizon

Dive Brief:

  • The U.S. Department of Agriculture estimated that retail food prices will rise between 2.5% and 3.5% this year, up from 1.4% last year. The inflation comes despite sharp decreases over the past year in grain prices, which includes corn, after a big U.S. harvest.
  • Federal forecasters estimate retail food prices will rise as much as 3.5% this year, the biggest annual increase in three years. The prices for many agricultural products have risen as the result of a drought-induced scarcity.
  • In the U.S., the increase in food costs comes from higher meat and dairy prices, due in part to tight cattle supplies after years of drought in states such as Texas and California and the increasing demand for milk from Asian countries. Prices for fruit and beverages like coffee are also on the rise.

Dive Insight:

Dry weather bears much of the blame for shortages. California, a pivotal agricultural producer in the U.S., is suffering from drought conditions, which affects both crops and and livestock production. In Brazil, an absence of rain has resulted in a sharp increase in the cost of arabica coffee: Arabica-coffee figures hit a two-year high of $2.0505 a pound on March 13. Cocoa prices have also soared up 12%. 

Food prices have increased 2.8%, on average for the past 10 years, which puts them at a higher inflationary level increase than all goods, which rose 2.4%. Dealing with higher food prices is challenging for food producers, restaurants, and retailers, and it's not a simple matter to pass on the cost to consumers when there is strong competition. Absorbing the cost, on the other hand, cuts into profit margins that are already thin. This means they will have to come up with a strategy to stay viable at a time when consumers shop carefully and frugally. 

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Filed Under: Manufacturing Corporate
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