Dry, dry summer; cold, cold winter. It's been a crazy year, weatherwise. What will it translate into, food costwise? What other factors will have an impact on food prices? Just what can consumers expect at the supermarket checkout counter in 1989?
These are important questions because food is a major consumer expense. During 1987, for example, consumers spent $377 billion for foods produced on U.S. farms (that doesn't include all the imported foods and food products). Of that amount, about one-fourth went directly to the farmers, and the other three-fourths went for marketing and processing costs. (See chart above.)If you want a little historical perspective on food prices, check out the chart below right. A bushel of potatoes for 75 cents? A pound of roast beef for 14 cents? Sounds wonderful. But one thing to remember is that food may have cost less in days gone by, but it accounted for a greater percentage of income.
According to the UDSA's Economic Research Service, in 1869 the average American earned $791 and spent $479 on groceries - or 61 percent of his income. In 1987, food costs totaled about 12 percent of income.
During the late 1970s, it seemed like food prices doubled every time you went to the supermarket. In the '80s, inflation has slowed considerably, but food prices continue to show some increase.
Overall, food prices rose about 4 percent in 1988 - about what they rose in 1987. A similar overall increase is expected for 1989, although there will be variations in individual categories.
Three major factors influence retail food prices, says Ralph L. Parlett, agricultural economist with the Economic Research Service. They are: farm prices, costs of processing and distributing food, and consumer demand. Each of these factors may have some impact on food prices for 1989, but the impact varies.
"Strong consumer demand has had a major impact on some foods, while higher farm prices and higher processing costs have affected others," says Parlett. Weather has been a factor in influencing farm prices. The drought was particularly hard on some grain, fruit and vegetable producers.
At this point, says Parlett, it doesn't look like the "Arctic Express" will have a major effect on prices. "The California freeze affected lemons somewhat, but lemons are a small part of the total production. At this time of year, we get a lot of our produce from Mexico. It's a transition time between winter and summer seasons for California and Florida. We'll be keeping an eye on it, but for the whole year, I don't think the cold will have much impact."
Here are some of Parlett's assessments of what happened in 1988 and what to expect in 1989:
MEATS: Per capita consumption of red meat and poultry reached 220 pounds in 1988, the highest ever. While beef production was down about 1 percent, pork production was up about 7 percent, and poultry production up about 5 percent.
Despite larger supplies, poultry prices increased last year, reflecting increased consumer demand. Beef prices were also up last year - about 5 percent - because of decreases in supply.
1989 outlook: Beef production will continue to decrease, so expect prices to stay at higher ranges. Pork production and demand are expected to remain about the same, and so will prices. Poultry prices are expected to increase 2 to 4 percent, as demand increases even more than previously anticipated. Heavy advertising and promotion campaigns for chicken items by fast food firms had a major impact on demand last summer, says Parlett, and the fast food industry is planning more promotions this year.
CEREALS AND BAKERY PRODUCTS: Cereal and bakery prices increased an average of 6.5 percent in 1988. One reason is because demand for cereal products has increased drastically in recent years. The proliferation of new cereals on grocery shelves, all claiming high fiber and other nutritional benefits, is evidence of new consumer demand for health-related foods.
1989 outlook: Cereals and bakery products are expected to rise 4 to 7 percent. There will be some lingering effects of the drought, as cost increases for grain that occurred in 1988 will continue to influence consumer prices.
VEGETABLES: Fresh vegetable prices rose about 6 percent in 1988. The drought had a major impact, as did a lettuce disease that plagued production early in the year.
Processed vegetables, such as peas, snap beans and sweet corn, were also severely hit by the summer drought. Consequently, prices rose about 15 percent.
1989 outlook: Fresh vegetable production will likely expand because of strong prices this year. Barring further drought, little change in prices is expected in 1989. Supplies of canning vegetables will remain low for most of this year, and retail prices could continue to increase as stocks dwindle.
FRUITS: The cost of fresh fruits increased about 8 percent last year. Major influences were a smaller apple crop and slightly smaller supplies of other non-citrus fruits. Banana imports were down due to labor problems in Colombia and insect infestations in some other places.
Overall costs for processed fruit increased more than 10 percent in 1988, primarily because of higher prices for frozen concentrated orange juice reflecting increased demand.
1989 outlook: Barring unexpected weather-related increases, fruit prices are expected to increase at about the same rate they did in 1988. Strong prices and higher demand may lead to increased supplies, but import-export availability will also play a role.
DAIRY PRODUCTS: This category showed one of the smallest price increases for 1988 - about 2percent. Supply and demand has remained relatively stable.
1989 outlook: Dairy products are expected to rise at a slightly higher rate in the coming year, due largely to increased export of nonfat dairy products. Higher processing and distribution costs will have some impact. Expect increases of 2 to 4 percent.
EGGS: Egg prices tend to vary somewhat during the year, but averaged a 5 percent increase in 1988. Higher feed grain prices resulting from the drought caused producers to cut back on production. In addition, use of eggs in processing increased, further reducing supplies of cartoned table eggs.
1989 outlook: Retail prices will continue to rise - as much as 15 to 20 percent as production decreases.
(CHART #1) A little history of food prices
ITEM YEAR PRICE IN DOLLARS
1869 1925 1987
Superfine wheat flour,1 barrel $7.36 $11.96 $39.20
Potatoes, 1 bushel .75 2.16 16.80
Cheese, 1 lb. .24 .38 3.20
Beef steak, 1 lb. .15 .36 2.88
Roast coffee, 1 lb. .35 .50 2.78
Butter, 1 lb. .38 .55 2.17
Bacon, 1 lb. .19 .47 2.14
Black tea, 1 lb. 1.40 .83 2.11
Pork sausage, 1 lb. .19 .46 1.99
Fresh pork, 1 lb. .13 .27 1.90
Chuck roast, 1 lb. .14 .23 1.68
Smoked ham, 1 lb. .22 .52 1.54
Eggs, 1 doz. .29 .55 .78
Milk, 1 qt. .09 .14 .57
What a dollar spent on food paid for in 1987
Other costs/7 cents
Interest (net)/2 cents
Before tax profits/2.5 cents
Fuels and electricity/3.5 cents
Intercity transportation/4.5 cents
FARM VALUE/25 cents