Shoppers should brace for higher grocery bills, especially on basics such as milk and ground beef, as food prices are expected to rise this year.
Food inflation is expected to accelerate this year to as much as 3 percent after two years of more moderate or declining prices, according to the U.S. Department of Agriculture. Some economists are warning of even higher inflation given the volatile food market. That could add more than $20 to the average monthly food bill for a family of four.
Some Baltimore-area grocery stores already have begun to raise prices and cut back on sales. Giant Food, the region's largest grocer, hit customers the hardest with a 4.5 percent increase in prices since October, according to a Morgan Stanley survey that included Baltimore-area grocers. Food Lion raised prices by 4.2 percent in that time, while Walmart held the line with a 0.1 percent increase.
Richard Kowalewski, owner of Fellner Meats, a retail butcher shop in Northeast Market near Johns Hopkins Hospital in Baltimore, said he had to raise prices of most items by 20 percent in recent weeks. He said customers have complained, but there is little he can do.
"I don't like it because I hear customers, and I understand their pain, but if I don't raise prices, I won't be here," Kowalewski said. "You have to raise your prices or you go out of business."
In January, world food prices rose to their highest level since records began in 1990, according to the United Nations Food and Agriculture Organization and its index measuring the cost of a basket of basic food supplies.
Demand for food has risen with population growth, and as the economy improves while supply has shrunk, particularly as farmers are still working to rebuild supply after cutting production during the recession. For instance, U.S. cattle and hog supplies have reached their lowest levels in more than a half-century.
At the same time, commodity prices have skyrocketed. The price of wheat spiked 45 percent in December over the previous year, while the price of corn increased 37 percent. The price of soybeans also rose, by 19 percent.
Soybeans and corn are also used as alternative energy sources, cutting into the food supply. And a cold winter has hurt citrus and other crops.
"The underlying ingredients that go into food production are higher than they've been in a while," said Ephraim Leibtag, deputy director of research for the Department of Agriculture's Economic Research Service. "That, if sustained, will put pressure on the production cost of food."
Many of the price increases won't be noticed by consumers until later this year. "It could shock consumers when it happens," said Ron Paul of Technomic, a Chicago-based food consulting company.
Some food companies have begun to warn consumers. McDonald's, whose earnings boomed during the recession because of its low-cost food, said recently that it might have to raise the cost of a Big Mac and other menu items by more than 2 percent.
As food prices inched up in recent months, many grocery stores said they have been able to shield their customers by cutting costs and operating more efficiently. But some now acknowledge that it might become more difficult to do this and remain profitable.
"We think that our job is to operate our business as efficiently as possible so we don't have to pass on every price increase," said Jo Natale, spokeswoman for Wegmans food markets. "But this is a very precarious time because of the rising costs, and we don't have a crystal ball into what will happen in the future."
Karen Meleta, a spokeswoman for ShopRite supermarkets, said: "Sometimes you can ride out some of these cost increases and sometimes you can't. It's too early to tell if we can this time."
Safeway and Giant have heavily promoted price reduction plans in the past couple of years. Officials with both companies declined to discuss recent inflationary trends.
The Morgan Stanley report found that prices increased for milk, fruits and vegetables. Prices at discount clubs such as Costco and BJ's Wholesale Club weren't rising as fast as those at grocery stores.
While the forecast 2 percent to 3 percent increase in food prices this year is a normal rate of inflation, that estimate might be low, according to economists.
"There are some indications given what is happening in the commodity market and the cost to produce food in the last few months that these estimates may be on the low side," Leibtag said.
Any sticker shock would disproportionately affect lower-income families as well as those on fixed incomes and government assistance.
Advocacy group Maryland Hunger Solutions recently challenged people to live off $30 a week, the average amount an individual in Maryland gets in food stamps. The participants, including public officials, found themselves buying a lot of processed meats and canned goods and few fresh fruits and vegetables to stay within the challenge's budget.