Fuel costs, drought influence price increase

Hardly a day passes that Terry Francl does not hear someone grouse that rising demand for ethanol is fueling a run-up in grocery prices.

Francl, an economist for the Washington, D.C.-based American Farm Bureau Federation, admits high prices that farmers who feed livestock are paying for corn is playing a role in driving up the price of milk, meat and other foods, but said it's a very small factor. Ethanol, a form of alcohol that is blended with gasoline to power automobiles and light trucks, is often made from corn. Corn is the primary food of many farm animals.

"There's little evidence that any food category has been affected by higher corn prices in any significant manner," Francl said. "Milk prices have increased fairly rapidly recently, but even if corn prices were half of what they are now, milk prices would still have gone up just as fast."

Francl said a number of factors, including abnormally hot temperatures in parts of the United States and other countries this summer, has caused cows to produce less milk. Low milk prices in 2005 and 2006 forced many American dairy farmers to go out of business. As the supply has decreased, world demand for milk products has increased.

In addition, higher prices for fuel used to transport milk, and the energy used to process and package dairy products, have all combined to drive up prices.

In the Shoals, some brands of milk are selling for more than $5 per gallon. In late 2006, store brands of milk sold for less than $3 per gallon.

Melvin Stevenson, who works in the dairy department at Big Star Supermarket in Florence, said he has never seen milk prices increase so rapidly.

"I feel kind of bad when we raise our milk prices, but the milk companies keep raising the price we have to pay, and we have no choice but to raise our prices, too," Stevenson said.

But milk is not alone in driving up grocery bills.

Ephraim Leibtag, a U.S. Department of Agriculture economist in Washington, D.C., said grocery prices nationwide have risen about 4 percent this year. "That's a little above the historical average of the last 15 to 20 years. Grocery prices normally increase about 2 to 2 1/2 percent per year."

Leibtag said prices for dairy products, meat and breads have risen the most in recent months.

An informal survey by the Farm Bureau Federation found that milk had the biggest increase during the second quarter of 2007, up 34 cents per gallon during the first three months of the year. Whole fryer chicken prices rose an average of 17 cents per pound, apple prices increased 15 cents per pound and a loaf of bread cost 9 cents per loaf more.

"Consumers have no doubt noticed their food dollar stretched a little tighter lately," said Farm Bureau Federation economist Jim Sartwelle. "As energy prices have increased, it has become more expensive to process, package and transport items for retail sale. In addition, soaring demand for U.S. dairy and meat products has reduced quantities at home, resulting in price increases at the grocery store."

Ann Grigsby, of Florence, said she has noticed the price increases at both Big Star and Wal-Mart when she shops for groceries.

"It seems like its pretty much across the board. It seems like everything is a little bit higher," Grigsby said.

Jeff Helms, director of communications for the Montgomery-based Alabama Farmers Federation, said fuel prices play a big role in rising food costs.

With many foods now being grown in distant states or even other countries, increases in transportation costs result in higher prices at the grocery store. Weather woes in other regions of the United States or in other counties also play a role in the price of groceries in Alabama, Helms said.

"We're living in a global economy. A lot of things that affect our food prices are things not happening in our own backyard," Helms said.

As China's economy has improved, many Chinese have added dairy products to their diet, he said. In the past, dairy products were rarely consumed in China. The new market for dairy foods has tightened the world supply and driven up retail prices.

Francl said droughts in parts of the United States, Australia, New Zealand, Europe and Canada have caused a decline in world corn, wheat and beef production. Excess rain in the wheat growing regions of the United States this year hampered the harvest and reduced the yield, which drove up prices.

"Wheat prices are double what they were a year ago," Francl said.

When wheat prices increased, so did the price of bread and other products made from the grain, Francl said.

Consumers should not blame farmers for the higher prices at the grocery store, Francl said. Only about 20 cents of every dollar Americans spend on food go to the farmer who produced the product. The other 80 cents pay for transportation, packaging, marketing and profits for wholesalers and retailers.

Helms said farmers have also felt the pinch of higher energy prices, with the cost of fuel for their tractors and other machines, the fertilizer they use to grow their crops and chemicals needed to protect them and even the cost of seed have risen this year.

Teresa McDonald, Colbert County coordinator for the Alabama Cooperative Extension System, said consumers can help dull the pain of higher food prices by purchasing locally grown produce.

"When you buy from local farmers, you avoid having to pay cost of transporting the produce from California, Florida or even another country," she said. "You also help the local economy and the produce is fresher than when it's been shipped across the country."

By freezing or canning produce grown in the Shoals, consumers can eat local farm products throughout the year, she said.

Angel Dunlap, a regional agent for the extension system, said growing a small garden in the backyard is another way to avoid paying high prices for food. Even growing a couple of tomato plants can help reduce food costs, she said. "Almost everyone has room in their yard to grow a tomato plant or two."

Dunlap recommends comparing grocery store advertisements to find the best prices and using coupons to help reduce grocery bills. She said some grocers will honor their competitors advertisements.

Dunlap said shoppers should never go into a grocery store when they are hungry.

"Being hungry when shopping for groceries can lead to impulse buying," she said. "Eat a snack like some fruit, a bag of chips or some crackers before going to the grocery store. Also, never go grocery shopping without making a list of the things you need. Going to the store without a grocery list can also lead to impulse buying and cause you to spend more for your groceries."

Dennis Sherer can be reached at 740-5746 or dennis.sherer@timesdaily.com.