Why Are Food Prices Rising?

Question: Why Are Food Prices Rising?

Answer: Food prices rise in response to high gas prices. That's because transportation is a large cost of food you buy at the store. When you notice prices at the pump rising, expect to see the same thing happen in about six weeks at the grocery store. High gas prices are, themselves, usually caused by high oil prices. Here again, it usually takes about six weeks for increases in oil futures to translate to the pump.

Food Price Forecast for 2013

Food prices are expected to rise three to four percent this year, according to the U.S. Department of Agriculture. That's because of the terrible Midwest drought in 2012 that withered crops in the field. As a result, prices for corn, soybeans and other grains rose. Since it usually takes several months for these commodities prices to translate to the food you buy, most of the drought's effect will occur in 2013.

Higher feed prices will directly affect the cost of meat and any other animal-based product. Also hardest hit will be cereals, baked goods and other grain-based food. (Source: USDA, Food Price Outlook 2013).

2012 Food Prices

The drought didn't affect food prices overall in 2012, which only increased .5%. There were exceptions, including beef, veal, poultry and fruit. However, prices actually fell for pork, eggs, and vegetables. The USDA expected prices to rise between 2.5-3.5%. It based this on $100/barrel oil prices resulting from potential military action against Iran and seasonal high demand caused by vacation driving. The USDA also was concerned about reduced soybean production in South America and ongoing consequences from shortages that occurred the year before.

Reasons for Food Price Inflation in 2011

In 2011, prices rose 4.8%, which some experts said eventually led to the riots known as the Arab Spring. According to the World Bank, wheat prices in 2011 more than doubled, and corn, sugar and cooking oil prices also soared. High wheat prices were caused by massive wildfires in Russia in 2010. In response, commodity speculators drove prices even higher to take advantage of this trend. Drought conditions throughout the southern U.S. reduced both the number and output of egg-laying hens, raising the price of poultry and eggs. Seafood prices were down, in part, because of decreased fishing capability due to Japan's earthquake. (Source: USDA, Food Price Outlook 2012)

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