Higher Cost of Raw Products May Push Food Prices Higher

Analysis shows that consumers may see higher food prices in 2009.

Despite the U.S. economy's slowdown, many consumers continue to be driven in their food purchases by factors other than price, moving toward one extreme or the other, according to Rabobank Food & Agribusiness Research vice president Stephen Rannekleiv.

He said this means that while some consumers are price sensitive and are buying more cheaply priced food products, others are willing to pay higher prices for convenient or organic foods or other products that they perceive to have value worth the price. However, he said this may change in the coming months.

To date, consumers have been protected from much of the effects of rising commodity prices by commodity hedging contracts that food processors have had in place, which locked in commodity prices before they began their rapid ascent, Rannekleiv said. However, as those contracts draw to a close and new ones are signed, processors will have to begin paying more for raw materials, he said. Those costs eventually will be passed through to retailers and, ultimately, to consumers "and drive food inflation into 2009 and beyond" even if some commodity prices decrease or stabilize, he said.

Moving forward, this trend of rising food prices could make more consumers price sensitive, which could force retailers to re-evaluate their operating strategies, Rannekleiv said. Certain strategies, such as emphasizing expensive gourmet, organic and other value-added foods, may decrease in success, he said, and other strategies, such as focusing on private labels, "may gather momentum."

Source: Feedstuffs

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