Drought predicted to boost food prices nationwide

Consumers not likely to cut back, experts say

A creek bed just north of Sylvania in Whiteford Township, Michigan, is completely dry as the drought in the Midwest continues with temperatures in the 90s and scant rainfall for weeks.

As drought continues to plague much of the nation, agricultural economists said Wednesday the dry conditions might lead to slight increases in food prices, but affirmed it seems unlikely prices will rise enough to significantly impact consumer behavior.

"It's sort of like gasoline prices going up 25 cents per gallon," said Matt Roberts, an agricultural economist at Ohio State University. "A lot of people will say that looks like a lot, but if you look at overall expenditure patterns, it doesn't change anybody's consumption."

The Economic Research Service sector of the U.S. Department of Agriculture released its Consumer Price Index for food on Wednesday. The index measures the changes in food retail prices by comparing current prices with those forecasted by the department for the next 12 to 18 months.

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Ephraim Leibtag, deputy director for research at the Economic Research Service, said the drought -- although the worst since the 1950s -- has not had a major impact on prices for 2012, at least so far.

"It's mostly a timing issue," Mr. Leibtag said. "If a particular crop or farm product is going up in price right now in the summer, it takes a little while to work through the system and eventually get to grocery stores and restaurants."

The index did, however, predict a slightly elevated inflation level for 2013 because of the drought's effect on production costs.

Mr. Leibtag said food price inflation normally hovers between 2.5 percent and 3 percent each year. For 2013, the USDA predicted inflation between 3.5 percent and 4.5 percent.

"It's a little higher than the average, but we're nowhere near anything out of the ordinary at this point," Mr. Leibtag said. "Our forecast may have predicted higher-than-average inflation, but it's not abnormal."

Mr. Leibtag said that the drought is unlikely to change people's eating behaviors. "What does happen is there are some trade-offs within categories," he said.

For example, if the price of beef rises, consumers are more likely to buy chicken instead, rather than choosing to buy neither product.

Nevertheless, if prices of more nutritious foods were to rise significantly, there might be the potential for people to substitute less healthy options for healthier fare.

"If prices of something go up, people eat less of it," said Paul Rozin, a professor of psychology at the University of Pennsylvania whose research focuses on understanding the role of food in individuals' lives.

"So if you're trying to do anything like eat healthier foods and things are not going well for you, you're less likely to follow through on it."

Mr. Roberts said that while there hasn't yet been a large impact on retail food prices, consumers can expect to see the first increases in the prices of dairy, egg, and poultry, with small increases coming for pork and beef. He attributed these early increases to the fact that corn and soybeans, both of which are components in animal feed, have been affected by the drought.

Although the two grain products have been impacted by dry weather, with corn up $2 per bushel and soybeans up $4 per bushel, Mr. Roberts said that it's unlikely these price increases will carry over to affect the everyday food shopper.

"There's really not much, if any, retail grain purchased," Mr. Roberts said. "There are products made with grains, but typically the grain portion of those is a very small piece of the value, so increases in prices don't really affect them ... We may see an increase in cooking oil prices, but I would be shocked if it's really noticeable to a family budget."

The Phoenix Earth Food Co-op at 1447 W. Sylvania Ave., which promotes local produce, noted that there has been about a 10 percent increase in produce prices with items increasing about 15 to 30 cents per pound.

Sean Fitzgerald, the produce manager at the co-op, said the co-op's local grower has struggled with the heat and has said he doesn't remember a year when he's needed to water his crops as extensively as he has this year.

Mr. Fitzgerald also confirmed that the price of meat has gone up slightly, with beef increasing about 40 cents per pound in the last year.

"It's been a struggle to keep prices low and affordable," he said. "When they're going up you don't want to turn people away, but you can only accept so low of a profit to keep up with the competition -- it's a fine line."

While Mr. Fitzgerald said consumers face slight price increases, he doesn't think the minor changes will impact the health decisions of his customers.

"I would say our main customer base is very concerned and informed on topics of [what is healthy]," Mr. Fitzgerald said. "You can make it work -- you've just got to be smart about it."

Although farmers face difficult conditions and consumers might be concerned about the state of local produce, Mr. Roberts was confident this year's poor weather would take a relatively quick turn toward a more positive direction.

"This is a transitory shock," he said. "All it takes to cure a drought year or low yields from bad weather is one normal year ... this is something that we know exactly why it's happened and we know that it happens to this extent about one time every 25 to 50 years."

Contact Madeline Buxton at: mbuxton@theblade.com or 419-724-6368.