Published on 02/24/99

Farm Costs Have Little Effect on Food Price Forecast

Food prices aren't expected to rise much this year. And given the low U.S. inflation rate, that shouldn't surprise anyone, says a University of Georgia economist.

"Food prices are much more tied to the general economy than to farm prices," said Bill Thomas, an Extension Service agricultural economist with the UGA College of Agricultural and Environmental Sciences.

Price expectations

Overall food prices are expected to rise only 2 percent to 2.5 percent during 1999. Thomas said the modest rise has little to do with the prices farmers get for their crops.

"Mostly, that's due to factors associated with the general economy," he said. "Most of the price is for packaging, labor, transportation and things like that."

Pork, for example

Stocking pork in a grocer
PORK RETAIL PRICES dropped just 4.7 percent in 1998, in spite of a disasterous price year for hog farmers. UGA economist Bill Thomas expects retail prices to continue falling, but only by 2 percent to 4 percent, in 1999.

A good example, he said, is the price of pork. Farmers had a disastrous year in 1998. An oversupply of hogs sent prices plummeting from around 45 cents per pound to a low near 5 cents before climbing back to 25 to 30 cents.

Despite the huge drop in farm prices, though, pork prices dropped just 4.7 percent, according to the Consumer Price Index through 1998.

Pork prices are expected to continue edging downward in 1999, Thomas said, but only by 2 percent to 4 percent. "You don't see that much of a drop," he said, "because a lot more goes into the price than just the meat itself."

Food prices not all food cost

Thomas said that's true of food prices in general. "We pay a big part of our food prices for the convenience of them," he said. As shoppers and diners opt for more convenience, prices have less and less to do with the farm commodity itself.

As you might expect, then, the price of food away from home is expected to rise more (2.5-3 percent to 1.5-2 percent) than at-home foods. Foods eaten at home more closely reflect farm prices.

Weather affected fresh produce prices

The biggest price increase in 1999, Thomas said, is expected in fresh fruits at 5 percent to 7 percent. Fresh vegetables, on the other hand, are expected to drop 1 percent to 3 percent. Both price changes, he said, are due to the weather's effect on supplies.

"1998 was a terrible year," he said. "Resulting losses in fresh vegetable supplies drove prices up. Anticipating a more normal year expected in 1999, the forecast is for those prices to come back down. With fresh fruit, though, you have more carry-over effect from last year's bad weather. With supplies expected to remain somewhat low, prices should increase again."

Dan Rahn is a news editor with the University of Georgia College of Agricultural and Environmental Sciences.