Food Prices Take Off Again

By Julie Connelly

The summer drought leaves grocery bills soaring and consumers moaning

Last spring, when the Consumer Price Index was leaping from peak to peak like a bee-stung mountain goat, economists, among others, looked to food prices for a little consolation. People at check-out counters may find it hard to believe, but the cost of food was then going up more slowly than the Consumer Price Index. In the first half of the year, when inflation briefly topped 18%, food prices grew at an annual rate of only 7%.

It was too good to last, and it did not. In July the tab at the supermarket checkout counter rose 1.6%, and wholesale food prices in August shot up 4.4%, the highest monthly jump in seven years. Moreover, prices are expected to keep right on going up for at least the next six months. Says Rodney Kite, director of agricultural forecasting at Evans Economics in Washington: "Food will be in the forefront of inflation the rest of this year. By December a pound of hamburger or chicken will cost 15% more than it did in June. Pork chops will be 20% higher." Otto Eckstein, president of Data Resources Inc., an economic-forecasting firm, says that by next spring prices of farm products will be up 24% from last spring.

The explosion in food prices is caused primarily by the summer's drought in the South and parts of the Midwest. In many sections of the country, the average temperatures ranged six to eight degrees above normal, and rainfall was less than half the usual amount. Says Agriculture Department Economist J. Dawson Ahalt: "If you're a farmer in Arkansas or eastern Nebraska, this drought has knocked hell out of you, really cut your yields by half in some instances."

This year's autumn corn harvest is down 16% from 1979's large crop, and the lower yield has already pushed prices above the $3-per-bu. level, vs. $2.45 for the same period last year. Ranchers, also suffering from the drought and fearing a hike in the price of their prime feedstuff, sent more of their cattle to slaughter earlier in the summer in order to save on feeding them. Initially, this depressed beef prices, but the long-term effect will be to deplete the herds, reduce supply and make meat more expensive later. The production of soybeans, another animal fodder, is off 19% this year, although prices paid to the farmer have jumped 24%; this will mean higher prices for beef, as well as for salad and cooking oils. The heat also killed 5.3 million chickens. Wheat is the one bit of good news on the farm. This year's harvest is expected to be 10% above last year's, at 2.4 billion bu.

Irate shoppers are balking more strongly than before at the high prices and seeking out money-saving shortcuts. Sales of so-called generic products, which come in plain packages and often cost 25% or so less than national brand products, continue to boom. Within the past six months, the Star Market Co., based in Cambridge. Mass., claims to have introduced unbranded products to the U.S., has had a 10% increase in sales on 85 of them. Its parent, Chicago's Jewel Companies Inc., now has 170 such items in its stores, and the company claims that almost all customers buy some of them. Favorites: paper products and dog food. Savings can be substantial. A 32-oz. bottle of no-brand ketchup normally costs 89-c-, as compared with about $1.30 for nationally advertised brands. Doris Brown, a Chicago house wife with two children, says, "Whenever I can, I buy generic items--bathroom tissue and soda for the kids."

Other consumers are turning to no-frills food warehouses, where BYOB means Bring Your Own Bags. Safeway's Canoga Park store in Los Angeles until June 1980 was a struggling supermarket, but now it has become a popular food barn. There are no sweepstakes or eye-catching displays to attract customers. The store, moreover, charges 25-c- if people pay for groceries with a check, and grocery bags cost 3-c- each. Large yellow arrows on the aisle floors direct customers to Maxwell House coffee at $2.99 per lb., ground beef at $1.29 per Ib. and a 5-Ib. box of Tide at $2.58. All are substantially cheaper than at competing markets. On nights and weekends, when the store is most crowded, the atmosphere is akin to the running of the bulls down the streets of Pamplona. Bobbi Rice, 31, drives four miles to shop at the Safeway Food Barn, although two other supermarkets are nearer to her home. Says she: "We eat a lot of produce, and that is quite a bit less expensive here. Lettuce and tomatoes, for instance, are about 50% less than at other stores."

The Giant Food chain in the Washington area last week opened its first warehouse store in Clinton, Md. The prices are low, but the atmosphere is somber. The new warehouse carries less than half as many items as the chain's regular stores, and goods are put out on shelves while still in their shipping cartons. Individual items no longer carry the cost stamped on the top; prices are carried in the striped code that is read at the computerized checkouts. As a result, operating expenses are low, permitting the store to keep down its prices.

Retail-sales analysts predict that the spartan stores will continue expanding, as consumers look for new ways to beat inflation. Says Walter Loeb, food and retail analyst with New York's Morgan Stanley: "We have seen waves of warehouse stores before. A & P unsuccessfully tried it a few years ago. But now they are doing better and selling fresh produce, some dairy products and meat."

Some consumers grumble that the food warehouses are inconveniently located and the quality of produce is low. Others complain that products available on one shopping day will not be there the next time. But many customers say that their savings compensate for such minor irritants as longer lines at check out counters and finding the goods still in their shipping cartons. Says Eleanor Conforti, a Western Electric employee in New Jersey: "I don't object to buying from boxes. What's the difference-- food is food." And increasingly, that food is very expensive.

--By Julie Connelly.

Reported by William Blaylock/Washington and Sue Raffety/New York

With reporting by William Blaylock/Washington, Sue Raffety/New York

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