Published on 02/05/96

Little Change Forecast in '96 Food Prices

While farmers wait to learn what and how much they can plant under whatever programs Washington finally adopts, some consumers worry. How will the drawn-out farm bill battle affect their grocery bills?

"We don't see the delayed farm bill as having a significant effect on grocery prices in 1996," said Bill Thomas, an economist with the University of Georgia Extension Service.

"In the short run, I see world markets having much more effect on prices than domestic farm policy," he said.

Thomas expects many grocery prices to rise 2 percent to 4 percent in 1996. "That's about the same rate as inflation," he said, "so consumers shouldn't see much of a net change."

Potential price hikes vary by commodity, he said, with several interesting twists.

Fresh fruits and vegetables should remain plentiful, but their prices will increase the most -- 6 percent to 8 percent.

Fresh produce isn't supported by government programs, so the higher retail prices this year are due mostly to export demand. World markets demand large quantities of U.S. produce, since the quality is very high.

"U.S. growers export about 25 percent of their fruit and vegetable crops," Thomas said. "World demand that strong means U.S. consumers will have to pay more to get the same high-quality produce."

The North American Free Trade Agreement had some effect on produce markets. Thomas said the United States imports many of the same items it exports, but during different times of the year.

During the winter we may import produce from Mexico, he said. But southern U.S. farmers provide produce for U.S. and world markets over a long growing season.

Prices of other commodities may change less, he said. As consumers, we know the price of staples -- the items we buy every week. So we're more aware of changes of those items and wonder why the price fluctuates every week.

Some people don't pay attention to fairly minor fluctuations, thinking, if they need milk or ground beef, they need it at almost any price.

A government support program can affect prices of items not directly covered by the program, Thomas said. For instance, grain prices kept artificially stable have kept beef and pork prices more stable.

Farmers feed corn and other grains to livestock that eventually are sold at grocery stores. As feed-grain prices rise or fall, so do meat prices.

As consumers buy more prepared foods to make meals easier and quicker, they may not realize that for many items, only about 10 cents of every dollar of cost is actually for food.

"The rest is preparation, labor, packaging, safety inspections, transportation and other related costs," Thomas said.

Basic foods may contain even less food cost than that. A regular loaf of plain bread, Thomas said, may contain only three to four cents' worth of wheat per dollar of retail cost.

"So even if grain prices increase fairly dramatically this year," he said, "retail prices of such items won't increase much."

Still, Thomas said U.S. consumers spend less of their budget on food than those of any other country: 7.8 percent on average, compared to almost 20 percent in Japan, which has roughly the same overall economic picture. Former Soviet countries spend around 30 percent, and in India shoppers must fork out 68 percent of their household dollars for food.

"Even though our percentage is lower, we still spend more actual dollars on food," he said. A family in India may spend the equivalent of $500 a year on food, while an American family may spend that much in a month.

The American system of food delivery and availability, Thomas said, is geared almost totally to satisfying consumer demand.

"Transportation or weather affects short-term prices more than almost anything," he said. "Those changes are usually temporary and the price stabilizes quickly."