Food Prices Will Be in Check, USDA Says

U.S. consumers can expect their grocery bills to rise a negligible 2.2% to 3.2% this year, thanks to intense industry competition that should keep food prices in check for the rest of the decade, the U.S. Department of Agriculture said Thursday.

Consumers will get a break with cheaper steaks, beef roasts and hamburger this year, said Ephraim Leibtag, the USDA’s food inflation expert.

Beef prices are likely to drop by an average 3% to 4% in 2004 as a result of the first U.S. case of mad cow disease, he said. Most nations have shut off imports of U.S. beef since the cow was diagnosed in December. That resulted in a growing glut of meat in the American market that will push down prices.

However, fish prices may rise by 3% because of the expense of complying with country-of-origin labeling rules that take effect Sept. 30.

“In food particularly,” Leibtag said at the USDA’s annual agriculture outlook forum, the slow rise in prices “has to do with competition” among retailers. Adoption of technology and gains in productivity also will help keep prices down throughout the decade.

Barry Bannister, an analyst with Legg Mason Wood Walker, said the USDA forecast was overly influenced by low commodity prices of recent years. A cyclical rise in commodity prices was to be expected in coming years, he said.

“I think there are enough major players” in the food retailing sector to assure strong competition for the U.S. food dollar despite continued consolidation in the grocery industry, he said. Besides the traditional grocery store, food now is sold in warehouse stores, drugstores and convenience stores.

So far this decade, U.S. food prices have risen by an average 2.2% a year.