USDA Expects Lower Farm Prices Next Year

Since ancient people quit hunting and gathering, the food supply has revolved mostly around domesticated livestock and crops. When producers had more than they could use, they traded or sold it to others. Often when they didn’t have enough to eat, there was starvation.

Food in the American sense today is mostly an economic sensation, with due apologies to fine cooks, gourmands and assorted millions of backyard barbecue chefs.

It’s the size of the weekly supermarket bill that counts most with consumers. For farmers, its the realization that they get only about 30 cents from each dollar spent on food, while about 70 cents goes for processing and moving products from the nation’s 2.17 million farms to consumer tables.

Thus, one of the annual rites at the Agriculture Department is to analyze the nation’s food situation and make predictions for shoppers in the coming year. The most recent forum was last week’s 64th annual National Agricultural Outlook Conference.

“Obtaining low prices for groceries continues to be mentioned by over 90% of all consumers as the major reason for choosing their supermarket,” Jane Kolodinsky, an assistant professor at the University of Vermont, told the conference.

“It is likely that consumers will be sensitive to price increases,” she said. “Given low inflation levels for groceries during the 1980s, any price increases may be seen as ‘irregular’ and immediately noticed.”

Kolodinsky added: “If food prices do rise, consumers will probably engage in both cutting down on food purchases and increasing savings on their food bills through price information search (bargain hunting). Food items with a large value added from farm to market might be the first items to be cut back on.”

In other words, she said, if food prices rise too much out of line with other consumer goods, family shoppers are likely to cut back on packaged and convenience grocery items.

“Food manufacturers are likely to increase savings available to consumers on these items by way of increasing available coupons or offering supermarkets incentives to place these types of items on ‘special’, making price information search more profitable for consumers,” Kolodinsky said.

Expect Larger Rise

According to USDA economists, consumer food prices probably will rise an average of 4.1% this year, compared to a 1986 gain of 3.2%. The 4.1% increase would be the sharpest annual rise in food prices since a 7.9% gain in 1981.

Ralph Parlett of the department’s Economic Research Service said indications point to a 1988 increase “in the lower end of the forecast range” of 2% to 4%.

“While the increase this year is slightly higher than the trend of the last five years, it is not a signal of renewed food price inflation” Parlett told the conference.

Parlett said higher farm prices for a few commodities have had a significant impact on retail food prices this year. Those included meat and fresh fruit and vegetables.

Meat accounts for nearly 21% of the government’s food-at-home consumer price index, or CPI, reported by the Bureau of Labor Statistics. Fresh fruit and vegetables account for more than 10%.