From: Reuters
Published May 29, 2008 09:02 PM

Food prices to rise 9 percent a year: analyst

By Charles Abbott

WASHINGTON (Reuters) - U.S. food prices will rise a stiff 9 percent a year through 2012, the largest increase since 1979 and the result of record-high crop prices, the head of an economic consulting company said on Thursday.

The projections by Bill Lapp of Advanced Economic Solutions are higher than the latest U.S. Agriculture Department forecast of 5 percent for this year. USDA and Lapp have increased their estimates by 1.5 percentage points since February.

During a telephone news conference, Lapp said he was completing a new analysis of food and commodity prices. He foresaw average corn prices of $5.25 a bushel through 2012, with wheat around $6.50 and soybeans near $11.

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"When I do that analysis and look at the relationship between that and food prices, I get a 2008-12 average annual rate of increase in the consumer price index for food of 9.0 percent," he said.

Lapp was chief economist for ConAgra Foods Inc, one of the largest U.S. foodmakers, before opening his consulting firm which is based in Omaha, Nebraska.

A 9 percent increase would be the largest since 11 percent in 1979. Lapp spoke during a teleconference sponsored by the Environmental Working Group.

Americans spend more than $1 trillion a year on groceries, snacks, carry-out food and meals at restaurants.

Food prices rose by 4 percent during 2007, says USDA, ending a long stretch when food price inflation stayed below the overall U.S. inflation rate. Lapp puts the 2007 increase at 4.9 percent. He initially forecast an increase of 7.5 percent this year and through 2012.

Ephraim Leibtag, the USDA economist who tracks food prices, said separately that grocery prices traditionally reflect a small fraction of upswings in grain prices. "The question ... is how much and how quick" grocery prices are adjusted due to higher prices for raw materials, he said.

A 50 percent increase in corn prices was likely to result in a 1 percent increase in food prices, he said in February.

Lapp said crop prices will plateau at higher levels than prevailed through 2006, due to factors that include global economic growth, geopolitical uncertainties, the weak U.S. dollar, China's larger role in the world economy and the use of food to produce fuel.

With sustained higher crop prices, the food industry will raise prices in coming years to maintain profit margins, Lapp has argued for the past few months.

During the teleconference, Lapp and Keith Collins, the former USDA chief economist, said corn, wheat and soybean supplies would remain tight for the next few years and market prices would be high.

"There is virtually no cushion" to offset a poor harvest, said Collins, who is now a consultant.

USDA has predicted that prices of cereals and bakery products will zoom by 8 percent this year, and that eggs and fats and oils also will go up in price. Increases are expected in 2009 for meat, poultry and fish.

(Editing by Jim Marshall)

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