Drought impact to reach food prices in 2013

by Jay Sjerven
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WASHINGTON – The Economic Research Service of the US Department of Agriculture in its Food Price Outlook issued Dec. 21 indicated food price inflation in 2013 likely will be higher than in the current year largely because of the delayed impact of the worst drought in decades across the Midwest.

“Retail food prices, despite the severe drought in the Midwest, have been flat in 2012,” the ERS said. “The food-at-home Consumer Price Index (CPI) increased a total of 0.3 percent from January to November 2012. Prices rose for beef and veal, poultry, fruit, and other foods in 2012; however, prices fell for pork, eggs, vegetables, and nonalcoholic beverages. For the remaining food categories, prices remained unchanged for the most part. The drought has affected prices for corn and soybeans as well as other field crops, which should, in turn, drive up retail food prices. However, the transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of the drought is expected to be realized in 2013.”

The ERS forecast food prices overall to rise between 3 percent and 4 percent in 2013 from the current year. That compared with a price rise in 2012 forecast at 2.25 percent to 2.75 percent compared with 2011. The per cent change in food prices from the previous year was +3.7 percent in 2011 and +0.8 percent in 2010.

“Looking ahead to 2013, inflation is expected to remain strong for most animal-based food products due to higher feed prices,” the ERS said. “Furthermore, inflation should be above the historical average for food categories such as cereals and bakery products as well as other foods.”

Prices of food served at home were forecast to rise 3 percent to 4 percent in 2013 compared with a forecast hike of 2.25 percent to 2.75 percent in 2012 (in both cases, the same as the all-food outlook). Meanwhile, prices of food served away from home were forecast to rise 2.5 percent to 3.5 percent in 2013 compared with a forecast rise of 2.5 percent to 3 percent in 2012.

Food price inflation in the past decade was the strongest in 2008, when food prices rose 5.5 percent from the previous year. Food price inflation in the past decade was the lowest in 2010 at 0.8 percent.

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