Graphic shows shopping bag full of groceries and a shopping cart

Eating away at income

BALTIMORE — 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 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 grocery stores already have begun to raise prices and cut back on sales. Giant Food has hit customers with a 4.5 percent increase in prices since October, according to a Morgan Stanley survey. Food Lion raised prices by 4.2 percent in that time, while Walmart held the line with a 0.1 percent increase.

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 also are 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 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 $35 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.

The situation worsened when they shopped at a mom-and-pop corner grocery. Many poor neighborhoods don't have large grocery store chains. At Baltimore's Lee's Food Market, the shoppers found higher prices and a smaller selection than at larger retailers.

"If food prices do go up, that means less food that they can buy with their benefits," said Cathy Demeroto, director of Maryland Hunger Solutions. "They're already struggling to get an adequate, nutritious diet, and when the price of food goes up, it increases the difficulty."

Rob Santoni Jr., whose family owns Santoni's Super Market in Baltimore, said the grocer is always juggling rising food costs on different items. Recently, he chose not to stock grapes because prices were so high they figured no one would buy them.

The grocer is bracing for higher prices this year, but Santoni said many consumers will adjust by buying more generic labels and cutting back on their purchases. As beef prices rise, they may switch to lower-priced chicken, he said. And the grocer plans to do its part to help by making packages of meat smaller, for instance, so that customers can still afford it.

Still, not surprisingly, shoppers dread higher prices.

Venetia Halkias, a dental technician who lives in Baltimore, said she uses coupons and shops for sales at different grocery stores to save money.

"We have a family of five, and four of them are men," Halkias said. "It can get expensive to feed everybody."

Lewis Johnson, a retiree who lives on a fixed income, said any increase in his grocery bill could easily throw off his budget. He travels across town to Santoni's because the prices are cheaper.

"I'll have to cut back if it gets too bad," Lewis said. "If I can't afford it, I can't buy it."

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