Pricier Beef: “Here to Stay” as Food Costs Leap Up

27 Mar 2014 --- Food prices in the US are expected to rise more rapidly this year after a fairly tame 2013, led by increases in beef, poultry and egg prices, according to the US Department of Agriculture (USDA). The food price inflation outlook assumes normal weather, the USDA said, adding that the California drought poses a risk of bigger increases in many food categories, and that high supermarket prices for beef are "here to stay."

Various measures, including overall food, food-at-home and food-away-from-home prices, are expected to rise by 2.5 to 3.5% in 2014. The consumer price index for all food prices rose by 1.4%in 2013.

"While not unusually large, these changes indicate that the record-high supermarket beef prices across the country are here to stay for the coming months," the agency said.

Meanwhile, the ongoing drought in California could have "large and lasting effects on fruit, vegetable, dairy and egg prices" although that impact has not been seen so far, USDA said. California is the Number One US farm state, producing roughly half the nation's fruits and vegetables. The Golden State faces a water crisis after its driest year on record in 2013. Large amounts of farmland are likely to go unplanted this year.

In other categories, USDA said farm egg prices have been exceedingly volatile recently, rising by 20% in February after falling by 28% in January. Farm cattle and wholesale beef prices rose in February, by 1.1% and 2.4 % respectively.

The category that includes many processed, shelf-stable foods is expected to rise by 2 to 3% in 2014 after being flat in 2013. Those items, produced by companies such as Kraft Foods Group and ConAgra Foods, account for 12% of US consumer food spending.

USDA said retailer profit margins, which have contracted since the severe 2012 drought, could expand this year, which would contribute to inflation.

Retail prices for cheese, ice cream, and other processed dairy foods also could be on the rise before long, a lagged result of contraction in the U.S. dairy herd, USDA said.

Since 1990, U.S. grocery store prices have risen by an average of 2.8% per year, according to USDA. Average supermarket prices fell between February and December 2013, by 0.2%.

The announcement by USDA corresponds with activity in the UK, where a gradual decline in the consumption of meat products has been observed due to increases in price, and the fallout from the horsemeat scandal.

A report by Key Note showed that although the value of the market grew by 6.9% from 2012 to 2013, demand for meat has been dropping due to increases in price. Just under 22% of respondents said they had reduced their meat consumption because of the price, according to a Key Note-commissioned survey, carried out in January this year.

A lack of supply of beef, the UK’s second most popular type of meat, due to increasing demand from developing nations such as the People’s Republic of China, has pushed up its price worldwide.

by Sonya Hook