If you have been to the grocery lately, you probably had sticker shock when you went through the cashier line. Despite the fact that we have been told that consumer prices have been holding steady, grocery prices have been insidiously rising. Why, you ask? Here are some very good reasons.
- The cost of fuel weighs heavily on the price of groceries. Fuel is a major ingredient in fertilizers and pesticides. Tractors and implements run on fuel. Transportation costs are high in perishables.
- Ethanol production consumes a large part of our tillable acreage. This makes the remaining acreage more scarce for food production.
- Emerging markets, such as China and India, flush with US Dollars are able to buy American farm products. While this is good for US farmers, it means US consumers are stuck with a higher grocery bill.
What this means to the US consumer is that, like it or not, grocery prices are now closely linked to fuel prices and the world economy. Right now fuel prices are high and show little signs of abatement. The higher prices of fuel can be expected to show up in your grocery bill when this year’s crop impacts grocery prices. If the world economy shows any improvement US consumers can expect to compete with emerging markets to buy US and other countries farm goods. In short — Brace yourself for even higher prices.
Who does this impact the most? Farmers are already gearing up for real profits. They are buying new farm equipment and more land. The situation is very promising for America’s farm community. Unfortunately the big loser in this situation is the American consumer, particularly the low income consumer. For the low income consumer a large increase in the cost of groceries and fuel means that there is little left for anything else. Its hard to find substitutes for food and a means to get to work.
Here, in our area of Georgia, we are already seeing farmers as good prospects for land, something we haven’t seen since the early seventies. Even small acreage tracts are being bought as a hedge against higher grocery prices, and small farming is once again seen as a viable prospect.
In our opinion, it is highly likely that prices for groceries, particularly staples, are going to see still higher prices and its hard to see any end in sight.