Dear Darin,
Hey, dude. You wrote me back in late 2008 asking me about food prices and I never got back to you because I have this Lucha Libre food blog thing going. Sorry, man. But I didn’t forget, and I really wanted to respond about what might happen to food prices next, and how the hell we got here.
Anyway, I’m finally getting back to you. Hope you dont mind if I write you and a couple hundred friends at the same time. 
So yeah. Gas prices are finally down. Here in the Upper Midwest, gas is roughly half of what it cost this summer. What’s it like where you are? I know you were getting stomped last fall. (Aside to other Food Fighters, Darin was using the word "apocalypse" frequently in emails to El Dragón. I’m hoping he’ll blog here at Fair Food Fight about his experiences — he has some incredible stories to tell about his neck of the American woods).
So what is up with the grocery bill, huh? Why haven’t food prices gone down if gas has? Good question, and it’s not just your imagination: Food prices spiked 7% in 2008 according to the American Farm Bureau Federation, and there’s no sign of prices coming down soon. Cereal and bakery products are still up 12% over last year, even though wheat as a commodity is down 40% in price.
The main thing to remember is that food prices do lag, especially compared to the bipolar price you see at the pump. Food manufacturers write contracts and, therefore, lock into a price with their farmers that is honored over months. Plus, there are many other factors — labor contracts, shipping costs, packaging, etc. But, last year, when commodity prices spiked on corn (and, consequently wheat, and other grains), it had a huge impact on the price of certain grocery items for several financial quarters to follow. That’s where we are right now.
That said, shoppers may get some relief in 2009, because prices simply cannot stay floating at this impossible height without wages rising, too (cue laughtrack). In fact, we’re probably about to see some big grocery goliaths go at it in a pretty serious price war — and soon. According to CNN, both Supervalu and Safeway are ready to drop prices semi-permanently ("every day low prices" as opposed to coupons), whether food manufacturers drop their prices or not. Retailers got thrashed in the last three months of 2008, after all, and need to keep their customer bases. From CNN:
[Supervalu Chief Executive Jeff] Noddle said during an earnings conference call with analysts he expected food manufacturers to continue their reticence to lower prices through the first half of the year, and may have to cut back on marketing dollars spent to make up for lost sales.
"I look at the first six months as being the battleground," Noddle said.
That’s a bold, desperate move – retailers cutting prices unilaterally – and says volumes about the HIGH economic tensions at play.
But, dude, if the tensions between retailer and manufacturer are high, they’re nothing compared to the war going on between manufacturer and farmer. Did you hear about this, Darin? Last year, there was an unprecedented and very public media war conducted between King Corn and Big Factory Food that was absolutely amazing to watch. I mean, when you see the CEO of the National Corn Growers Association writing a personally written screed attacking the Grocery Manufacturers Association (GMA) for saying that ethanol was to blame for rising consumer food prices, grab the popcorn and turn off the cell. And when you have the GMA hiring a publicity firm to smear Ethanol and King Corn for food price increases, well, hoo doggy, we got us a real wrestling match now. NCGA took some more swings at Kraft and General Mills (in the form of website driven action alerts!), and then Big Beef waded into the fray in order to throw a couple haymakers on behalf of King Corn. It was sweet!(Don’t worry. They kissed and made up at the end of the year with the loudest Big Factory Food loudmouth basically saying to Ethanol and King Corn, "Aw, come on, baby, I didn’t mean nothing by it.")
Point being, food prices are a mess. They remain a mess. No one really knows what’s going on, least of all the goliaths growing, making, and selling our food. Consequently, food prices will continue to be a mess in 2009.
Someone’s making some money off these higher prices but it’s hard to figure who. Retailers and manufacturers run on a very slim margin — typically 1-3%. And it ain’t the corn farmers, believe it or not: Farmers only take home 19% of your grocery purchase, Americans (take home was 30% back in the 1970s, according to the Farm Bureau).
In this case, Darin, King Corn is probably right. It’s the price of gas more than anything (we’re all looking at you now, Big Oil) that will dictate food prices and what happens next in 2009.
Have you noticed gas prices creeping upward again?
Hope all’s well on your end of the apocalypse, buddy.
~~El Dragón
