|The Future of Food Prices: What Will Food Cost in 2015?|
By Ryan Goldberg MAR 01, 2011 9:40 PM
A look at the increases you can expect at the grocery store, according to a former ConAgra economist.
|A LOAF OF BREAD
You’d have trouble finding a more popular kitchen-cabinet staple than a loaf of bread. As many consumers have noticed, the price for this basic good has already moved up, and not insignificantly, by 7% in 2010. But the cost of wheat has doubled in less than a year, so the price of a standard loaf of whole wheat bread is set to rise even further.
Lapp expects the cost of all cereal and baked goods to increase by 3-5% annually. That means that the average retail price for a loaf of bread should come in around $2.16 in 2015.
Like the meat industry, the dairy industry is at the mercy of the price of corn for much of its feed costs. So the next few years will be a one-two punch for American consumers of dairy: Higher feed costs will move up the price of milk, cheese, and butter, and rising demand from developing countries may push up the global price for milk, requiring Americans to shell out more at the local store.
Lapp estimates an annual average increase of 3-5% across the dairy category. Currently, a gallon of milk retails for an average price of $3.30. That can be expected to rise to close to $4 in four years. It may not seem like a lot, but a bowl of cereal and milk might become noticeably pricier.
The meat industry has already started to pass its higher costs onto the consumer. In 2010, the price of ground beef went up about 7%, according to the CPI. “We’ve begun to see the dynamics of that market affecting prices now,” says Lapp.
Because of higher feed costs, meat producers have lowered per capita supplies of all proteins, he adds. But export demand from developing countries is strong. Not surprisingly, the USDA forecasts record prices for protein items like beef and poultry; the price of live cattle already stands at record prices.
Ground lean beef currently averages $3.59 per pound, and Lapp expects the largest increase in consumer prices to come from meat and poultry, at 5-8% annually. If he's right, beef won’t be a bargain in 2015, when the same pound may cost close to $5. It could be enough to turn many Americans into vegetarians.
The poultry industry has so far adjusted the least to higher feed costs, Lapp says, which means a major correction is likely. Producers are expected to bring supply and demand to a point where they can break even, and perhaps turn a profit. In other words, consumers are probably in for the greatest sticker shock when they arrive at the poultry section.
American consumers won’t have much influence in affecting poultry prices, either. “It’s a global market,” Lapp explains, and so as the newly well-to-do in countries like China, Brazil, and India acquire a taste for meat, Americans will have to pay more. Strong export demand is “the risk that stands out to add more fuel to the fire,” Lapp says.
A pound of boneless chicken breast averages $3.21 per pound this month, but with an annual increase at the top end of Lapp’s range, it could check in at $4.37 per pound in 2015.
In New York City, where we recently saw chicken breast on sale for $6.99, the projected annual increase could mean a 2015 price of $9.50 per pound.
It’s enough to spell trouble for everything from our own kitchens to the fast-food menus of places like Kentucky Fried Chicken (YUM) and McDonald's (MCD), and high-end restaurants.
|FRUITS AND VEGETABLES
Fruits and vegetables will be the one area where prices shouldn’t rise that noticeably. Naturally, grain prices don’t figure in their costs, and so factors like labor, weather, and the price of oil determine the prices of produce. That said, the likelihood of severe weather events because of global warming and consistently elevated crude prices won’t do consumers any favors in the produce aisle.
Lapp expects a 2-5% annual increase for items that don’t rely as much on grains -- everything from produce to frozen dinners and canned products. Take the most basic of these. Broccoli these days sells for $1.91 per pound, and with an increase of 3% it will fetch a quarter more than that in 2015. As for bananas, the most popular fruit in the world, the cost shouldn’t go much higher than $0.70 per pound, about a dime more than its current price tag.
Besides meat products, the fats and oils category has seen the largest year-over-year increase (3.8%), as reported by the CPI. Vegetable oils originate from many different inputs, but soybeans make up the standard blend. And the price of soybeans have lifted off since last September, rising nearly one-third.
In addition, vegetable oils aren’t just used for cooking; they’re also hidden as small components in processed foods. So the rise in soybean prices will manifest across many different products. Lapp says an annual increase north of 5% wouldn’t surprise him.
So for margarine, a standard byproduct of fats and oils, expect a stick of the non-butter to cost around $1.50 in four years.
In 2015, your burger and a beer special might not be such a bargain any more. The burger will almost certainly cost a lot more. And the beer?
The process of making beer involves brewing and fermenting mainly cereal grains, namely barley, wheat, corn, and rice. The prices of these grains have all skyrocketed, not the least because of bad weather in Europe. In addition, the past few years have seen worldwide shortages of hops, the necessary ingredient in brewing beer.
Just as $3 gasoline has become the new norm, in four years you would be hard-pressed to find a six-pack of domestic beer for less than $6. Right now, the retail price for your average six-pack nationwide sells for $5.34; by 2015, that could go as high as $6.25.
In New York City, a six-pack of Budweiser (BUD) was recently on sale for $7.49 at a major, regional grocer. Shoppers may need to pony up an estimated $8.76 for the same beer in 2015.
For consumers, this specter of higher prices across the board is enough to make anyone sober up.