Big Jump Seen in Wholesale Food Prices

By MARTHA GROVES

July 13, 1996 12 AM PT

TIMES STAFF WRITER

Wholesale food prices took their biggest leap in more than six years in June, the Labor Department reported Friday, with higher charges for fruits, milk and red meat presaging sticker shock for grocery shoppers nationwide.

After three years of relatively mild food price inflation, severe drought in farm country and heavy overseas demand for U.S. grain are beginning to take their toll.

Savvy shoppers are already noticing that it is costing more to bring home the bacon--not to mention the milk, the beef, the butter and the berries. In May, according to the Bureau of Labor Statistics, grocery stores were charging 20.8% more for bacon than a year ago; butter was 9.4% higher, and white bread cost 7.4% more.

Many economists say they expect the upward trend to continue.

Rising grain prices have caused surges in a wide range of products. A gallon of milk that might have sold for $2 a year ago is now pushing $3 in some urban locations. Ripple effects are being felt in the ice cream business, where popular brands such as Ben & Jerry’s and Haagen-Dazs have gone up by a dime a pint in recent weeks.

“It does all start with the feed prices,” said David Ikari, chief of the dairy marketing branch of the California Department of Food and Agriculture.

Because feed represents half a dairy farmer’s production costs, many farmers in California, the nation’s largest dairy producer, and elsewhere have pared their herds to save money. Others have fed their cows less, with the result that they have less energy to produce milk. Still others, tapped out on their farms’ equity after years of inability to recoup costs, have sold their herds and abandoned the business.

The current shortages--corn supplies are at 50-year lows--mark a reversal of an era of oversupply in the 1980s, when the government stockpiled mini-mountains of grain and other commodities. Booming demand from domestic and overseas customers, and the government’s decision to wind down support for agriculture in favor of a greater market orientation, have exacerbated the supply problem. Continued blasts of hot, dry weather in the Midwest have also contributed.

Farm prices usually have little to do with prices charged by stores. A loaf of bread contains a relatively small amount of wheat; high consumer prices for food usually reflect such costs as distribution, marketing and packaging. But the recent run-up in prices at the farm level has been atypically large and could portend fiercer inflation on the food front.

“The set of price increases we’re seeing now has been a while in coming,” said Brian Catron, an economist with the Labor Department’s Bureau of Labor Statistics in Washington.

Shoppers complained Friday about higher food bills.

“I just shop for bargains,” said Gail Ruben, shopping at Max Foods at the Harbor Town & Country Shopping Center in Garden Grove. “We try not to spend more than $70 a week on food.

“But I have noticed a change,” added Ruben, a teacher. “Three years ago, we could [make] do on $35 to $40.”

The 1.6% rise in farm-level food costs, the steepest since a 2% rise in January 1990, would have been even higher but for a 5.4% drop in vegetable prices last month, reflecting lower costs for lettuce, eggplant and beets.

John Harris, owner of Harris Ranch in Coalinga, noted that consumers have also been getting a break lately from record-low beef prices, which only now are heading out of a trough. And cereal manufacturers, despite the rising cost of grain, have recently engaged in a price war that has brought down the prices on some brands.

“Grain is up,” Harris said, “but I don’t think it’s that alarming.”

Overall, prices at the wholesale level rose modestly in June, the Labor Department said, offering new evidence that the vibrant U.S. economic expansion is not yet triggering dangerous inflationary pressures.

The department said the producer price index rose 0.2%, following a decline of 0.1% in May, as energy costs retreated from levels earlier this year.

Food prices were another story. “It probably won’t affect me with the regular staple items I buy,” said one harried attorney and mother outside Vons in Costa Mesa. “But “I just won’t be putting tomatoes in my salads as much this summer.”

Times correspondents Lesley Wright and Lori Haycox in Orange County contributed to this story.

* SUBDUED: Overall wholesale inflation is moderate in June. D2

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Changing Food Costs

Examples of price changes in selected foods from May to June:

FOOD: % CHANGE

* Butter: +48.9%

* Chicken: +7.1%

* Eggs: +6.8%

* Beef and veal: +5.6%

* Bacon: +2.1%

* White bread: +0.9%