Drought impact to reach food prices in 2013

Drought impact to reach food prices in 2013

The Economic Research Service (ERS) of the US Department of Agriculture (USDA) in its Food Price Outlook indicated food price inflation in 2013 in the USA likely will be higher than in the current year largely because of the delayed impact of the worst drought in decades across the Midwest of the USA.

Following the ERS, retail food prices, despite the severe drought in the Midwest, have been flat in 2012. The food-at-home Consumer Price Index (CPI) increased a total of 0.3% from January to November 2012.

Prices rose for beef and veal, poultry, fruit, and other foods in 2012; however, prices fell for pork, eggs, vegetables, and nonalcoholic beverages. For the remaining food categories, prices remained unchanged for the most part.

The drought has affected prices for corn and soybeans as well as other field crops, which should, in turn, drive up retail food prices. However, the transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of the drought is expected to be realised in 2013.

The ERS forecast food prices overall to rise between 3% and 4% in 2013 from the current year. That compared with a price rise in 2012 forecast at 2.25% to 2.75% compared with 2011. The change in food prices from the previous year was +3.7% in 2011 and +0.8% in 2010.

Inflation is expected to be strong

Looking ahead to 2013, inflation is expected by the ERS to remain strong for most animal-based food products due to higher feed prices. Furthermore, inflation should be above the historical average for food categories such as cereals and bakery products as well as other foods, the report says.

Prices of food served at home were forecast to rise 3% to 4% in 2013 compared with a forecast hike of 2.25% to 2.75% in 2012 (in both cases, the same as the all-food outlook). Meanwhile, prices of food served away from home were forecast to rise 2.5% to 3.5% in 2013 compared with a forecast rise of 2.5% to 3% in 2012.

Food price inflation in the past decade was the strongest in 2008, when food prices rose 5.5% from the previous year. Food price inflation in the past decade was the lowest in 2010 at 0.8%.
Source: USDA


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