Prices increase less at grocery stores than restaurants

September 21, 2005

Prices increase less at grocery stores than restaurants

WEST LAFAYETTE, Ind. - Despite rising fuel costs, consumers this year are seeing smaller increases in food prices at grocery stores, said a Purdue University agricultural economist.

Grocery store prices rose 1.4 percent from July 2004 to July 2005. This was a much smaller increase compared to last year's rise of 4.8 percent, a near record high, partly because of an abundant supply of food products that were in short supply last year. Factors leading to a larger increase in 2004 included hurricanes that affected fruit and vegetable growers in the southern parts of the country, and import restrictions on beef due to cases of bovine spongiform encephalopathy (BSE) found in Canadian cattle. These factors did not play as big a role so far in 2005.

"The hurricane season is still early," said Corinne Alexander, an assistant professor in agricultural economics. "Last year's price increases of fruits and vegetables were largely because the southern region was hit by three hurricanes. Unusual weather always has an effect on fruits and vegetables, so we'll have to wait and see how this year's hurricane season affects food prices. Hurricane Katrina will impact several foods including bananas and coffee, for which ports in the New Orleans area account for a large share of imports. Katrina had a major impact on the Mississippi poultry industry and the Gulf seafood industry, which may lead to higher chicken and seafood prices."

Restaurant prices continued their typical price increase of about 3 percent, surpassing the increase in grocery store prices. Energy prices during the last 12 months have also had some effect on the food markets. Pre-Katrina gasoline prices were up 20 percent, natural gas was up 10 percent, and electricity was up 6 percent. With Katrina's impact on energy prices, grocery retailers and restaurants will face higher energy costs that they may pass on to consumers in 2006.

Looking to 2006, factors other than this year's hurricane season may play a role in food demand and prices. The popularity of "low-carb" or high protein diets is declining. Along with this, the United States has reopened the border to Canadian cattle imports, and beef prices are expected to decline. Changes to the Dietary Guidelines for Americans and the U.S. Department of Agriculture Food Guide System, including recommendations for increased consumption of whole grains and decreased consumption of sugars, may change the type of food people purchase, Alexander said.

Finally, starting in 2006 nutrition labels will also report the content of trans fats, which are said to lower the levels of high-density lipoprotein, or "good cholesterol." Food companies will likely reformulate their products to reduce levels of trans fats, Alexander said.

Writer: Jennifer Culy, (765) 494-8402, jculy@purdue.edu

Source: Corinne Alexander, (765) 494-4249, cealexan@purdue.edu

Ag Communications: (765) 494-2722;
Beth Forbes, forbes@purdue.edu
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