USDA Predicts Increased Food Prices

The USDA has released their projections for food price inflation in 2011/2012, showing troubling forecasts that may send you to the grocery store today, before paying higher prices tomorrow. The report shows that the Consumer Price Index (CPI) for all food increased 0.8 percent between 2009 and 2010, and is forecasted to increase 3.5 to 4.5 percent in 2011.

Bruce Krasting notes that the USDA’s projections are especially troubling considering Federal Reserve Chairman Ben Bernanke has said he wants to contain inflation (although excluding food and energy) at less than 2%. Food inflation is running at double his target. Writing in Business Insider, Krasting says the problem is even more serious than the USDA indicates and that global demand is set to push prices even higher as time goes on:

“It’s not surprising that the US pays less for food as a percentage of income than any other country. But the comparisons are still interesting. The US spends 6.5% of disposable income for food. Poorer countries like Nigeria, Kenya and Cameroon are forced to pay ~45% of incomes to put food on the table. The high population countries are as follows
Vietnam = 38%

Indonesia = 32%

India = 28%

China = 22%

I find these numbers troubling. There is only one direction for them to go. The developing countries with big populations will see greater gains in income, with that will lead to increased food consumption. Approximately 30% of income goes to food in these areas.  It’s hard not to see that this is going to push up the prices the globe pays for everything we eat.

For example, the USDA put the per person food cost in China at $129 in 2000. Today that number is $360 (280% increase). Over the same period the USA consumption increased only 42%.”

Items that are expected to inflate the most include  beef, cooking oils, and seafood. Processed vegetables and beverages were projected to to see smaller changes in the CPI. The Wall Street Journal notes that “the midpoint of the new USDA outlook signals the sharpest acceleration in the food inflation rate from one year to the next since 1978, and makes the increase itself the biggest since 2008, when prices rose 5.5%.” While things may seem bleak for the rest of the year, the USDA projects that prices will rise only 2.5 percent next year.

The report also found that food-at-home prices increased 0.3 percent, the lowest annual increase since 1967, while food-away-from-home prices rose 1.3 percent in 2010. Total food expenditures for all food consumed in the U.S. were $1,240.4 billion in 2010, a 3.4-percent increase from $1,199.8 billion in 2009. Spending on food away from home accounted for 47.9 percent of total food expenditures in 2010; spending for food at home accounted for 52.1 percent.

Bloomberg Business Week notes that the Bureau of Labor Statistics earlier this month said consumer food costs rose 0.4 percent in September, capping a 12- month gain of 4.7 percent.