Food prices forecast to rise in 2010

by Jay Sjerven
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WASHINGTON — Food price inflation in 2010 should range between 2.5% and 3.5%, up from 1.8% in 2009 but down from a multi-year high of 5.5% in 2008, said Ephraim Leibtag of the Economics Research Service of the U.S. Department of Agriculture. The forecast range for 2010 was in line with the average rate of food price inflation registered during the recent 10 years (2000-2009) at 2.9%. Dr. Leibtag presented his forecast on Feb. 18 during the U.S.D.A.’s 2010 Agricultural Outlook Forum.

Dr. Leibtag said the spike in food price inflation in 2008 resulted from higher agricultural commodity costs, higher energy and transportation costs and increased U.S. agricultural exports due to a weaker U.S. dollar and expanding global demand. The United States was ideally positioned to expand its share in world agricultural exports in 2008 because of crop shortfalls in other key food-exporting nations that year.

Dr. Leibtag attributed the drop in food price inflation in 2009 to levels well below the 10-year average to food commodity costs retreating rapidly from their highs set in the summer of 2008, the sharp decline in energy prices as the recession deepened and spread and weakening domestic and global demand for U.S. agricultural products.

The outlook for higher food price inflation in 2010 was based on expectations for further recovery in the U.S. and global economies from the severe recession and renewed upward pressure on energy and commodity prices that would be expected to accompany such a recovery. A stronger recovery would support a food price inflation rate toward the top end of the forecast range, while a weaker recovery might keep food price inflation near the lower end of the range, Dr. Leibtag suggested.

The forecast for a 2.5% to 3.5% rise in food price inflation in 2010 applied to both food served away from home and food prepared at home. In the case of food served away from home, the forecast range for 2010 compared with food price inflation rates of 3.5% in 2009 and 4.4% in 2008. For food prepared at home, the forecast range compared with food price inflation rates of 0.5% in 2009 and 6.4% in 2008.

The food price inflation rate in 2010 was forecast to be strongest for fish and sugar and sweets, both categories projected up 3.5% to 4.5% from 2009. Inflation rates were forecast to be the weakest for beef, pork and poultry, each up 1% to 2% from 2009.

In the case of beef and pork, prices declined in 2009 with beef prices dropping 1% and pork prices dropping 2% from 2008 averages. Poultry prices in 2009 rose 1.7% from the year before.

The dairy industry was expected to see prices of its products rise 2.5% to 3.5% after pronounced weakness in 2009, when prices dropped 6.4% compared with 2008.

Dr. Leibtag said another ailing sector, the egg sector, should see prices advance 2% to 3% in 2010. Egg product prices in 2009 plummeted 14.7% from 2008.

Prices of fresh fruit and vegetables were projected to rise 3% to 4% in 2010. In 2009, fresh fruit prices dropped 6.1% from the year before, and fresh vegetable prices dropped 3.4% from 2008.

Prices of cereals and bakery products were projected to advance 3% to 4% in 2010 compared with a 3.2% gain in 2009. The price inflation rate for cereals and bakery products was 10.2% in 2008, an increase surpassed only by the 13.8% surge in pricing seen in fats and oils in that year.

Dr. Leibtag qualified his forecasts suggesting food price inflation might be greater in the event of post-recession inflation affecting all commodity prices, including food, or lower if U.S. and world economies falter and recession returns.

Other factors that might affect the forecast included significant changes in expected global demand for U.S. exports, the food/energy price connection and food commodity price volatility.

Dr. Leibtag reminded forum participants only 19c of the consumer’s dollar spent on food goes back to the farm with costs associated with energy, transportation, packaging and advertising accounting for a greater share at 20c. Labor costs remained the single most important factor in food prices, accounting for 38.5c of the consumer’s dollar spent on food.

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