Arizona consumers who have been hammered at the gas pump by soaring prices can expect to get slammed at the grocery store in the near future by a sharp rise in the cost of food. Higher wholesale prices for vegetables and various grocery staples, coupled with a jump in fuel and energy costs, are expected to push food costs up as much as 6 percent this year at metro Phoenix stores.
That would rival a 5.5 percent jump in 2008, which was the largest gain in almost 20 years. Such a surge in prices would end two years of declining and flat food prices. Blame winter crop damage, higher commodity costs and global grain shortages. Coupled with the rising gas prices, the situation creates another tough economic challenge for consumers, many of whom aren't getting pay raises, are living on fixed incomes or, worse yet, are unemployed or underemployed.
In addition, the cost increases mark the first major rise in food prices since Phoenix voters approved a 2 percent sales tax on food last year.
Margaret Koziba of Phoenix already has noticed higher produce prices and expects costs to escalate for other products with the hike in fuel prices. "Everything is going up," she said.
While Arizona Farm Bureau has yet to complete its annual first-quarter survey of statewide grocery prices, spokeswoman Julie Murphree reported that preliminary information shows higher prices for many products. "It's basically across the board," she said.
The U.S. Department of Agriculture predicts retail food prices will rise 3.5 percent in the U.S. this year. But a sharp jump in wholesale food prices reported last week by the U.S. Bureau of Labor Statistics could portend a much larger increase in retail prices than expected. The government reported wholesale food prices rose 3.9 percent from January through February, marking the largest monthly increase in more than 36 years.
Tim McCabe, president of the Arizona Food Marketing Alliance, believes prices could increase between 5 percent and 6 percent this year. The Arizona Food Marketing Alliance is a trade group that represents the state's grocery chains and other food retailers. "It's a perfect storm," he said. "All of the commodity prices are up at once, you have the impact of the freezing weather in the South and now you have rising fuel prices."
The increases come when overall food prices are still relatively low, however. In January, the Arizona Farm Bureau reported a basket of 16 grocery staples cost $45.44, more than 20 percent below an all-time high of $57.46 reached in the third quarter of 2008.
Consumers also could catch a break in Arizona because of the highly competitive local grocery market. In the past, Arizona food prices have risen more slowly than those nationally because local grocers have been compelled to keep prices low to remain competitive. Ann Reed, vice president of Fry's Food Stores in Phoenix, said the chain is under constant pressure to keep its prices low to hold onto its position as the market leader. "It's very competitive," she said.
McCabe said that Arizona grocers frequently eat some of the wholesale price increases to keep prices competitive. But he added that with prices rising so quickly, it may be hard not to pass them on. "When you have all these prices going up, the consumer is going to take a hit," he said.
The rising prices are tied to a number of factors. Winter freezes in Florida, Texas and other Southern states damaged crops and sent produce prices through the roof. Several major orange-juice producers have announced price hikes as a result of the unseasonably cold winter. Prices of corn, wheat and soybeans have increased sharply in the past year. Higher commodity costs have increased the price of animal feed, which in turn has boosted prices for eggs, ground beef and milk.
Grain prices have been pushed up by increased global demand and shortages due to crop problems in the Black Sea region, Canada and Australia. Russia has banned grain exports since devastating fires and drought wiped out crops. The ban could be extended until the end of the year.
Ephraim Leibtag, a senior research economist with USDA's Economic Research Service, said prices for some food ingredients are up 40 percent to 60 percent over last year. Those increases are going to "ripple out to the public," he said. More recently, a spike in fuel prices has driven up both food production and transportation costs.
In Arizona, gasoline prices are up roughly 40 percent since September and 13 percent in the past month. Those prices are being felt now by consumers at the pump and will be seen at the grocery store in a few months as higher transportation and production costs get passed down to shoppers.