Why Food Prices Are Climbing

With herds down, the consumer's beef mil rise

Although food takes a declining share of U.S. family budgets these days, and the Government's consumer price index has been revised to reflect that trend (TIME, March 13), food-price increases are still the most visible and annoying variety of inflation to millions of consumers. Shoppers' beefs will soon get even louder. Last week the Government reported that the February Wholesale Price Index for finished goods, which foreshadows retail prices, jumped at an annual rate of 14%, nearly double the January rise and the biggest monthly leap since November 1974. Food, which did more than anything else to push January consumer-price increases back to a 10% annual rate, propelled the February wholesale surge, climbing 2.9%, the biggest monthly boost in more than three years.

White House economists, perhaps too optimistically, expect a food-cost rise of about 6% this year, on top of last year's 8% increase. Beef will lead the parade. Over the past two or three years, high feed costs and drought made cattle raising unprofitable. Beef supplies piled up and prices fell, so ranchers cut back their herds even more.

Since 1975, the nation's herd has shrunk from 132 million to 116 million head, a seven-year low. Cattlemen are now holding their breeders back from markets to rebuild their stock. As a result, beef is becoming scarcer, and this summer the price of hamburger-quality meat is expected to go up by 15% to 20%. Steak cuts may climb 5% to 6%.

Prices for many other foods will also rise. Because of tariffs and fees imposed by the Government, a 5-lb. bag of sugar that cost 95-c- last September now sells for $1.19, and will probably go higher. The myriad products that use the nation's favorite sweetener will inch up with it. Increased costs for transportation, labor and energy have driven cereal products up 6% in recent months. The price of rice has been puffed up by poor crops around the world; a 10-lb. bag that sold for $2.03 wholesale in October now costs more than $3. Torrential rains and floods in California's Salinas Valley, the nation's salad belt, ruined many of the crops already in the ground, and will delay planting of others for up to 60 days. Result: prices of lettuce, broccoli, cauliflower, asparagus and similar produce are certain to move up. Fishermen will raise the price of tuna.

While retail prices climb, farmers complain that the money they collect continues to fall behind rising production costs. Some farmers have been threatening to restrict production severely unless the Government increases crop-support payments, but their much publicized "strike" so far shows no sign of success.

Farmers protest that they are not responsible for food inflation. Since the early 1950s, they have received only 40-c- to 45-c- of every dollar that the shopper spends for food. Last year farmers collected $56.5 billion for their products, but it cost an additional $59 billion for labor--packinghouse workers, store clerks, waiters, et al.--to get those products from the farm to the table at home or in restaurants. Operating expenses for food retailers have been rising particularly fast. One major chain, Supermarkets General (Pathmark), expects labor, energy and tax outlays to swell about 10% each. Yet supermarket managers complain that competition is so keen they cannot raise prices fast enough to ease the pinch on profit margins.

The largest boost in prices comes from the middlemen: the processors and distributors. Aggressive advertising and sales drives add dollars to the bill at the checkout counter. The rising costs of transportation and energy are another source of food inflation. Last year $16 billion was spent just to package food. It is not so much the cost of food itself that is driving prices up, but the consumers' apparently insatiable demand for convenience and variety--and the food companies' zeal to satisfy those appetites.

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