Food Prices Inch Higher in 3rd Quarter

Retail prices for food at the supermarket rose 4% in the third quarter of 2004, according to the latest American Farm Bureau Federation marketbasket survey. The informal survey on the total cost of 16 basic grocery items showed an increase of $1.53 from the 2004 second quarter survey.

The $40.38 average paid by volunteer shoppers for the 16 items is $3.92 higher than the 2003 third quarter survey average of $36.46. While the survey average has increased from a year ago, food remains affordable overall. Americans spend just 10% of their disposable income on food annually, the lowest average of any country in the world.

Of the 16 items surveyed, 11 increased and five decreased in average price compared to the 2004 second quarter survey.

Continuing an upward trend in price that began during the first quarter, bacon showed the largest increase, up 38 cents per pound to $3.52, followed by Russet potatoes, which increased 36 cents per 5-pound bag to $2.06. Sirloin tip roast and whole fryers each rose 21 cents per pound, to $3.74 and $1.28, respectively.

"Retail demand for all types of protein continues to rise and is the main factor behind higher average prices for bacon, pork chops, sirloin tip roast, ground chuck and whole fryers during this quarter," says AFBF Senior Economist Terry Francl. "Consumers are almost insatiable in their demand for pork products as they seek out alternatives to higher priced beef cuts. This in turn drives up the price of popular pork products such as bacon and chops."

Francl says U.S. oat production has dropped in recent years, leading to higher average retail prices for toasted oat cereal.

"Consumers are sometimes surprised to learn that the price of raw farm goods accounts for very little of final retail food prices, but the corn, vegetable oil and flour price increases are consistent with higher prices farmers received for corn, soybeans, and wheat this spring and early summer," Francl says. "Since then, farm-level prices have dropped significantly in the face of record production of corn and soybeans, so any price increase retailers have based on commodity prices will likely be reflected in lower prices for related products in the future."

According to the most recent Agriculture Department statistics, America's farmers and ranchers receive just 19 cents out of every dollar spent for food. Using that across-the-board percentage, the farmer's share of this quarter's marketbasket average total would be about $7.67.