February 24, 2011 / 4:30 PM / 9 years ago

Commodity, energy to drive food prices higher-USDA

* US food prices to rise 3.5 pct in 2011 - USDA

* Higher commodity, energy prices drive the increase

* Food price rise would be twice U.S. inflation rate

By Christopher Doering

WASHINGTON, Feb 24 (Reuters) - U.S. consumers should brace for rising food costs this year as higher commodity and energy prices make their way to products lining grocery store shelves, the Agriculture Department said on Thursday.

Food prices are forecast to rise a sharp 3.5 percent this year — nearly double the overall inflation rate. The lion’s share of the increase is expected in the second half of 2011. Just last month, USDA forecast an increase of 2.5 percent in 2011.

“We’re keeping an eye on this but I would suggest that as a result of what we went through in 2007 and 2008 we are better prepared to respond as a country and as a globe,” Agriculture Secretary Tom Vilsack said at USDA’s annual Outlook Forum.

Global food inflation, the result of growing demand for food and tight commodity supplies following catastrophic storms and droughts in leading agriculture producers such as Russia and Australia, is a growing worry for world leaders.

World Bank chief Robert Zoellick said last week global food prices have reached “dangerous levels,” and warned they could complicate fragile political and social conditions in the Middle East and Central Asia.

It would mark a stark similarity to 2008 when soaring food prices sparked food riots and led to political instability in some parts of the world, including Haiti and Egypt. The threat of violence and coups continue as it becomes increasingly difficult for even more people to buy food.

In its new forecast, USDA said food will rise party due to higher costs for meats, poultry and fish, which make up 12.5 percent of total food spending. Overall, costs for these items are forecast to rise 4 percent.

Prices for fruits and vegetables, which account for 8.4 percent of food spending, also will rise 3.5 percent. Dairy is forecast up 5 percent and sugar and sweets up 3 percent.

Despite the recent pullback for some commodities such as wheat and soybeans, corn remains near a 2-1/2 year high. Oil surged more than 7.5 percent to its highest since August 2008 on Thursday on concern that uprisings in Libya could spread to other major oil producers in the Middle East.

Energy is used for everything from producing, transporting and making packaging for food.

Big companies have had to adjust to higher raw material costs. Kellogg Co (K.N), the world’s largest breakfast cereal company, and consumer goods giant Unilever (ULVR.L) UNc.AS have boosted prices on many of their products to offset rising costs for ingredients such as grains and sugar.

Grocers are doing what they can to keep prices low, as they do not want to turn off shoppers already feeling pressure from higher gasoline costs and the generally bleak economy.

Wal-Mart Stores Inc (WMT.N), which is the largest U.S. grocer, said on Tuesday it would work with suppliers to keep costs down as much as possible, and only pass along price increases when necessary. Wegmans Food Markets has said it will freeze prices on 40 products through 2011.

Additional reporting by Jessica Wohl in Chicago; Editing by Lisa Shumaker

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