High food costs causing changes, finger pointing

As Alice Locklin left the Hy-Vee grocery store on a weekday afternoon, her cart contained just a few, carefully picked groceries. Her grocery bill is higher now than ever before, and Locklin has been cutting back on certain items, watching for sales and taking small shopping trips more frequently.

“It seems so ridiculous,” Locklin said. “I remember when a loaf of bread for $1 was exorbitant!”

Some items, like sweet potatoes, have become too expensive for Locklin to buy, except on special occasions.

“The only time I buy sweet potatoes now is Thanksgiving and Christmas,” Locklin said.
Hy-Vee had the lowest prices in CBT’s sampling of typical food items purchased at three grocery stores in Columbia. But prices overall have risen significantly.
An analysis of data from the Farm Bureau’s quarterly Marketbasket Survey shows that consumers in Missouri were paying 36 percent more for six typical food items in the first quarter of this year than they were in the same period three years ago. (see charts on Page 13)

Nationally, the increase in food prices last year – 4.9 percent – was the biggest jump in nearly two decades. And experts say the upward trend likely will continue.

he dramatic rise in food prices has caused shoppers, diners and restaurant owners in Columbia to make adjustments. The rise also has sparked a debate over its cause.

Those who make a living feeding Columbia, saddled with higher prices from their distributors and the tightening budgets of local shoppers, face a tough question: How much of the increased cost can retail stores absorb, and how much can the stores pass along to customers?

Tom Klucking, the Hy-Vee store manager, faces that issue daily. He needs to price items fairly to keep customers coming back, but as margins shrink on the semi-truckloads of food delivered to the store each day, he sometimes has no choice but to raise prices.

Klucking said the store’s main response to the inflation has been to shop more carefully from distributors.

“Me and my department managers are continually looking for special buys that are out there and bringing in items that are below cost and putting them on our displays,” Klucking said.

Nevertheless, with a few items, the store has had to take a loss.
“Over the winter, milk went really sky high,” Klucking said. “We really did not want to take any of our gallon milk over the $4 threshold. If we were following our normal margins, we would’ve had to.”

Customer spending affects pricing decisions

“Egg prices have gone up higher than ever before in history, and it does affect volume because people just cut back on it,” Klucking said.

Rice makes up three quarters of a traditional Indian meal, alongside meat and vegetables. That means Susheel Gill faces a problem when his supplier, Sam’s Club, runs so low on the item that it rations purchases to two 20-pound bags per visit.

“We are having a hard time right now,” Gill said. “We are buying Chinese rice sometimes, and the customers are not too happy with that. I haven’t seen rice at Sam’s for the last four weeks. It comes and goes so fast.”

On a good day, Taj Mahal cooks 20 pounds of basmati rice. Gill used to restock rice twice a week regularly. Now he calls Sam’s Club every day to check if a shipment has come in. When he can get his hands on a bag, he pays $16 for it, up from $12 just a month ago.

Forced to spend more time procuring ingredients and pay more for them, Gill faces an unappetizing decision – continue to eat the cost or increase the price of items on the menu. It’s a dilemma common to restaurateurs these days, as food and distribution prices rise at the highest rates in recent memory.

“People who bring the food to us, all the vendors, they’re feeling the pressure,” Gill said. “Vegetable oil and shortening that we fry the stuff in has gone double. Now I’m paying $46 for a 40-pound case of boneless skinless chicken leg meat. Two years ago it was $32 or $33.”

Gill’s distributor, St. Louis-based Sysco, has introduced a “fuel surcharge” of $7 per delivery to pass on high fuel costs.

The fuel surcharge has become a new reality for local restaurant owners. Main Squeeze owner Leigh Lockhart said her distributors just raised fuel surcharges from between $12 and $16 to more than $20 per delivery, but she’s hesitant to pass the increase on to customers.

“Everybody hates to raise prices,” Lockhart said. “It’s (difficult) explaining it to people.”

As the prices of her ingredients have increased, Lockhart has sought to buy food that’s grown closer to home.

She recently spent a day combing classified ads on the Internet for a local pecan farmer.

“We appreciate, in the wintertime, being able to get organic produce,” Lockhart said. “But I can’t buy apples from New Zealand. That’s just wrong. I think looking at how people are sourcing their product is a new thing in food, and hopefully things like the fuel crisis will bring about more of that.”

High prices here to stay

Restaurant owners worry the high prices will stick, even if food and fuel become cheaper.

“Chicken prices went up two or three years ago when there was the bird disease,” Gill said. “It jumped 25 percent or maybe 30 percent back then, and it never came back down, even now that the bird disease is gone.”

Long-term factors account for most of the increase in commodities prices, so they likely will stay at post-2006 levels, according to a study published in March by the University of Missouri’s Food and Agricultural Policy Research Institute, FAPRI.
The United Nations said in its most recent global agricultural outlook that prices for vegetable oils are expected to remain the highest, 80 percent above the average from 1999 to 2007. Wheat, corn, and skim milk powder are expected to be 40 to 60 percent higher.

The UN report predicts that prices for farm crops will remain substantially higher over the next decade because of fundamental changes in demand, although they will gradually decline from current highs.

The blame game

Klucking “prices items to move” and keeps a close eye on the prices at other local grocery stores. He acknowledges that he’s had a few discussions about higher food prices with cranky customers but said that, for the most part, consumers understand he’s not the one to blame.

The UN report said the increasing use of corn and soybeans for fuel rather than food is one reason for the rise in food prices because it is causing a supply shortage.
The FAPRI report said causes of last year’s increase in commodities prices include the increasing pace of biofuel production – in part driven by high fuel prices – high export demand for U.S. agricultural commodities, and increasing feed and non-feed costs for livestock producers.

Other factors mentioned are climate changes, growing population, increased cost of fuel, and even the low value of the U.S. dollar.

“Biofuel and production can be pinpointed as two factors that are high up on the list, but there are so many reasons for the increase,” Westhoff said.

Dan Cassidy of Fulton, chief administrative officer for the Missouri Farm Bureau, said the rising food prices, which are taking place locally, nationally and globally, “cannot be attributed to U.S. farmers, the renewable fuel standard or even the federal farm bill. In truth, the explanation entails many different things; low grain stocks in other countries, rising global demand for food, increased urbanization and smaller than projected crops this growing season are among the reasons.”

Cassidy points out that people in China and India, making up more than a third of the world population, are consuming more meat and grain as incomes rise. The consumption of meat has increased demand for grains for animal feeding purposes.

The Missouri Corn Growers Association contends that increasing prices of food items are “largely unrelated to ethanol or corn prices, but more to supply and demand.”