NEW YORK (MainStreet) — The drought in California and demand will keep food prices higher in 2015 with household staples such as meat and dairy expected to rise by 4%.
Consumers already felt the pinch in 2014 when the price of beef rose by 10% to 12%, compared to its usual increase of 2% to 3% each year, said Warren Graeff, the agriculture market manager for PNC, the Pittsburgh-based bank. The effects of the drought in the western Great Plains in 2012 and 2013 pushed demand to outstrip supply as ranchers saw their herds of cattle drop to 30- to 40-year lows and are still lingering, he said.
While pork prices did not rise as much as beef, a virus which infected hogs caused supply to shrink and pushed the price of pork up by 8% to 10% in 2014, Graeff said.
“Prices increased quite a bit as the supply of bacon, ham and sausage declined,” he said. “That hit consumers significantly and it led to them having to pay a lot more at the grocery store for animal protein.”
With the large increases in beef and pork prices, many people switched to buying chicken and fish, Graeff said. The price of chicken remained stable and rose by a historical average of 2% to 3% in 2014 and was not as “adversely affected” with a “plentiful supply,” he said. Fish and seafood prices increased by 3.5% to 5%, slightly higher than the normal increase of 2% to 3%.
The good news is that both pork and beef prices will only increase moderately by 4% to 5% in 2015, which is still “somewhat expensive, but the rate of increase is not as drastic,” Graeff said. As the herds of cattle increase, prices will moderate by 2016, he said.
“It’s going to take another year or year and a half before we see the swine and herd numbers increase to get enough supply to see some price decreases back into the food chain,” Graeff said.
Consumers can cope with price increases by purchasing some foods such as meat and vegetables ahead of time and freezing it. Purchasing meat and seafood directly from wholesalers can help consumers save up to 50%, said Mike Conrad, co-founder of Zaycon Foods, a Spokane, Wash. company which sells meat in bulk directly to consumers.
“Our customers can buy wholesale and eliminate the middle man, saving at least 35% compared to standard retail prices,” he said. “We sell in bulk directly from refrigerated trucks to your car.”
Fueling High Prices
As the price of crude oil has sunk to new lows, food prices are also directly impacted, Conrad said.
“We expect prices could drop slightly due to fuel prices coming down because the process of getting the meat from the farm to the processing plant and to the grocery store will cost less,” he said. “As the world gets bigger, we have to look at the supply and demand chain as a contributing factor to the forecast.”
Fuel costs are only one factor while weather also plays a tremendous role in the fluctuation of prices.
“Food prices change all the time, but typically it is all about supply and demand,” Conrad said. “The California drought was one of the worst in history and had a great impact on prices in 2014 and could continue to this year.”
Diners will likely see more and more “unique” and smaller cuts of meat on their plates in 2015 as the restaurant industry copes with the rising costs, said Anthony Meidenbauer, corporate executive chef and director of culinary operations for Block16 Hospitality, a Las Vegas restaurant group.
“The rising cost of meat has actually led to ‘off cuts’ of meat becoming a trend in the culinary industry,” he said. “As a result, chefs are experimenting with less expensive cuts such as the teres major in the shoulder. When things such as steak prices increase, if we can’t source a product from somewhere else at a better price, we then eventually have to increase the menu price.”
Even food such as nuts are impacted by the weather. Cooler weather and rain in November and December helped increase the crops of nuts being produced, since 90% of nuts are grown in California, said Sandy Braverman, president of Nuts.com, a Cranford, N.J. retail seller of nuts, dried fruits and organic food.
“The drought really compounded the price points and the expected yield was off,” he said. "The trees were under duress and that affect the yield and quality.”
The lack of rain resulted in smaller crops, which doubled pecan prices compared to five years ago. Peanuts and peanut butter prices have remained stable recently.
Food prices tend to be driven by grain prices, world demand and weather shocks , said Peter Zaleski, an economics professor for the Villanova Business School.
“In the past few years, the government policy regarding ethanol and a surging Chinese economy fueled U.S. food prices, particularly meat and dairy,” he said. “These impacts may be subsiding, but California is still in a state of severe drought.”
Consumers can mitigate the increasing costs by “shopping smarter and eating healthier as a means of keeping the food budget under control,” Zaleski said. “When non-perishables go on sale, the savvy consumer stocks up.”
--Written by Ellen Chang for MainStreet