advertisement

Grocery prices don't fall despite drops at the pump

Sunday, March 8, 2009 | 12:01 a.m. CST; updated 12:38 a.m. CST, Sunday, March 8, 2009

COLUMBIA — Judy Ganey knows it's much cheaper to fill up her car today than it was a year ago.

But when gas prices began a steep fall in late October, she expected to pay less at the grocery store as well.

Food price forecast for 2009

Percentage changes forecast for food prices 2009 show eggs and dairy prices declining while meat, poultry, fruits, vegetables and others will go up.

Eggs: 4 percent to 5 percent decrease

Dairy products: 3 percent to 4 percent decrease

Meats, poultry and fish: 2 percent to 3 percent increase

Fruits and vegetables: 4 percent to 5 percent increase

Sugar and sweets: 3 percent to 4 percent increase

Cereals and bakery products: 2.5 percent to 3.5 percent increase

Nonalcoholic beverages: 3 percent to 4 percent increase

Other foods: 3 percent to 4 percent increase

Source: U.S. Department of Agriculture



Related Articles

Ganey’s assumption seems to make sense. After all, consumers were told higher fuel prices make it more expensive to grow and move food.

Customers had complained about the increase in food prices until grocers said it was because fuel and transportation were increasing, said Ganey, who was shopping for groceries at Schnucks in Columbia. So when fuel prices are down, you would expect food prices to go down as well, she said.

Economists agree that it's not that simple. Retail food prices are based on a complex set of variables, such as planting conditions, weather and energy costs.

“Today, gas prices are low, but that doesn’t mean that next week the price of food is going to be down,” said Harvey James, anagriculture economics associate professor and director of graduate studies at MU. “It’s going to take awhile.”

Although fuel costs are not the only factor in food prices, it’s important to remember that fuel prices do affect food production at almost every level, he said. That means the costs in production within the past year are affecting the cost of food on the shelf today.

“Costs from six months to a year ago are affecting current food prices,” James said.

Lori Willis, director of communications for Schnuck Markets Inc., said there's a tendency to make a direct correlation between food and fuel, "but it's never as direct as that.

"Right now, the bad weather in Florida and the hurricane in South America are affecting crops. Eventually, that affects food prices," she said.

Unlike gas prices, which are largely based on the cost of crude oil, products such as cereal or bread use a number of ingredients. Much of the food bought today includes staples that were processed or grown months ago when costs were higher.

"Food suppliers can also be locked into contracts and costs that they can't get out of," Willis said.

Contracts to purchase supplies at some distant date for a predetermined amount, or "futures," also affect food prices, she said.

Food costs are affected by higher demand in countries such as China and India, as well as the diversion of America's corn crop to the new biofuels industry.

Fuel prices on a national and local level have been on a downward trend since the end of October. According to GasBuddy.com, regular gas was $2.76 a gallon one year ago. In July, the national average hit $3.97 a gallon. Today, gas costs $1.91 a gallon on average across the nation.

“When gas prices are high, it costs more for the tractor to cross a field with the same acreage,” said Carl Brandt, president of the Missouri Restaurant Association.

Food prices rose 5.5 percent overall last year, the highest increase since 1990 and nearly double the 20-year average of 2 percent to 3 percent, according to the U.S. Department of Agriculture.

The increases in fuel prices throughout the summer months of 2008 directly affected the shelf price of food, Brandt said. It’s not the only factor in the increase in food prices, but it's a key one. Farmers growing corn rather than livestock feed for ethanol also drives up food prices because it diminishes the supply of corn.

James said companies are also reducing the sizes of food products in an effort to avoid a price increase on consumers.

"I'm a consumer, too, and I can't buy a half-gallon of ice cream," James said. "The cartons are only 1.75 quarts or 1.5 quarts."

So, will consumers ever see the effect of low fuel prices on food? Brandt and James agree that in the second half of 2009, food costs will reflect the drop in fuel prices from October 2008. At least the increases would not be as significant as they have been in the past few years, they said.

The Consumer Price Index for all food is projected to increase 3 percent to 4 percent in 2009. Food-at-home prices are forecast to increase 2.5 percent to 3.5 percent, while food-away-from-home prices are predicted to go up 3.5 percent to 4.5 percent.

“The truth is that food prices will never get back to where they were before,” Brandt said. “The cutbacks we may see are not long-term, only short-term.”

For Gary Stamper and his family, a $100 cartload of food a year ago now rings up at $120 to $125. “We are still buying the same items and the same amount of items, but it is $20 to $25 more,” Stamper said.

“Consumers do have quite a bit of control over fluctuating food prices,” James said. They can buy less, shop around and use coupons to fight price increases.

“If consumers reallocate and lower their expenditures on what they buy, there will be a downward pressure on food prices that in turn offsets higher production,” he said.

Despite the relief consumers have felt at the pump with decreasing fuel prices, many have started to make necessary adjustments in the supermarket aisles to keep their budgets in line.

“We do most of our shopping now at Aldi,” Anne Ruhr said while making an emergency grocery run at Schnucks. Aldi is a discount grocer that sells off-brands, requires self-bagging and has a no-frills shopping environment.

Ruhr said her family can’t afford a one-stop shopping trip to regular grocers anymore. What Ruhr can get for $50 in a cart at Aldi costs $80 to $100 elsewhere, she said. The German-based chain reported earlier this year that its sales rose 24.8 percent in 2008.

Walmart Stores said last month that sales rose to $108 billion in the fourth quarter of 2008. In 2007, Walmart reported $106 billion in sales for the same period.

“Walmart recorded the strongest sales result in its history in the fourth quarter," said Mike Duke, chief executive of Walmart Stores, in a widely quoted press release.

For Schnucks, the grocer is looking to its private brands for help. 

"Our sales of private brands have doubled in the past year," Willis said.  "There are significant savings to be had for consumers with the private brands. In price comparisons, it is obvious that private brands are just as good as national brands, and cheaper."

Willis said Schnucks is doing everything possible to maintain its value promise to customers.

Erin McKenzie of Columbia said she always buys generic brands, which stabilizes her budget.

“I don’t pay that close of attention, but it hasn’t been anything drastic enough to notice,” McKenzie said.

Supermarkets might not be lowering their prices yet, but they seem to be helping consumers in other ways.

Hy-Vee stores publish weekly budget-friendly menus that coordinate with weekly advertised specials. The menus can be found at stores and online at hy-vee.com.

Schnucks is promoting home-cooked meals, as well. Schnucks Cooks is a station in local stores where a cook demonstrates recipes. 

"People are returning to cooking at home more to help weather this economic storm," Willis said. "Schnucks Cooks aims to help these people by providing low- budget, nutritious meals."

Consumers say they do anticipate lower food prices in the second half of 2009.

“It’s only fair to pass along the decrease to consumers if stores are passing along the increase,” Ganey said.


Like what you see here? Become a member.


Show Me the Errors (What's this?)

Report corrections or additions here. Leave comments below here.

You must be logged in to participate in the Show Me the Errors contest.


Comments

Leave a comment

Speak up and join the conversation! Make sure to follow the guidelines outlined below and register with our site. You must be logged in to comment. (Our full comment policy is here.)

  • Don't use obscene, profane or vulgar language.
  • Don't use language that makes personal attacks on fellow commenters or discriminates based on race, religion, gender or ethnicity.
  • Use your real first and last name when registering on the website. It will be published with every comment. (Read why we ask for that here.)
  • Don’t solicit or promote businesses.

We are not able to monitor every comment that comes through. If you see something objectionable, please click the "Report comment" link.

You must be logged in to comment.

Forget your password?

Don't have an account? Register here.

advertisements