Consumers get break on food prices

Published online on Saturday, Sep. 26, 2009

The global economy is once again putting pressure on the price of food served at your dining room table. But this time, it's good news: Food prices are falling.

A spike in the cost of food-ingredient commodities last year is finally subsiding for a variety of reasons, giving grocers the wiggle room to cut prices.

In cities in the western United States, the average cost of food bought for consumption at home dropped 3% in August when compared to a year ago, according to the Bureau of Labor Statistics' Consumer Price Index.

To understand why food prices have dropped, it helps to understand why they climbed in 2007 and peaked in July 2008.

The rising price of oil contributed, increasing the cost of manufacturing and shipping food, said Kenneth Albala, a history professor at University of the Pacific in Stockton who specializes in food.

The cost of the wheat, corn and other ingredients used in thousands of food products also rose. Many of those staples are traded as commodities on a global market, similar to the way crude oil is traded.

A thriving worldwide economy several years ago led to an increase in demand for all types of commodities, said Darin Newsom, a senior analyst at Omaha-based DTN, a firm that provides commodities market information.

Investors viewed commodities as a safe investment, he said. A weak dollar made the investment even more attractive for investors from other countries who got more value for their money. They poured money into commodities, driving up their prices, he said.

Corn in particular skyrocketed as the crop, frequently used in animal feed, was diverted to make ethanol, which tightened supplies, Albala said.

Then the recession hit.

Demand dropped. Investors fled commodities, and prices fell. Gas prices also dropped, and ethanol suddenly looked like less of a good investment, meaning corn prices dropped too, said Albala.

"It's one of the small pieces of good news over the last year: Having a recession really takes the pressure off prices," said Ephraim Leibtag, an economist with the U.S. Department of Agriculture's Economic Research Service.

Now it's trickling down to the store-shelf level.

The average cost of bacon in western U.S. cities has dropped 5.7% in August compared with a year ago. Red delicious apples fell 28%. And a gallon of whole milk has fallen 80 cents on average.

Oscar Cruz of Fresno welcomes the decline. He said price is a concern, especially since he often baby-sits for his three grandchildren and pays to feed them.

"It's really important," he said Friday outside of the Save Mart at Clinton and Blackstone avenues in Fresno.

"I'm the only person making an income in my household."

Grocery stores are responding to price-conscious customers, and they face competition from discounters like Wal-Mart and Target.

Vons recently began an advertising blitz for its new reduced prices on many products, splashing bright yellow tags across its stores.

The retailer has cut prices up to 30% on thousands of popular items, including yogurt, cat food and toothpaste, said Tom Keller, president of Vons, which is owned by Arcadia-based Safeway.

"The economy is tough, and it's the right thing to do," Keller said. "We don't want to lose our consumers."

Keller says internal efficiencies -- as small as not wasting paper clips -- have allowed the chain to cut prices.

Leibtag said the drop in commodities has given all grocers the freedom to cut prices that they didn't have last year.

Whole Foods, meanwhile, is continuing to battle the "Whole Paycheck" nickname and a perception of high prices based on what Fresno store team leader Shawn Marshall calls the "ooh and ah" items like specialty organic produce not found anywhere else.