USDA warns of food-price shock

By Reuters
Posted Feb. 24 at 2:23 p.m.

U.S. consumers could see food costs spiking to levels seen during the food crisis of 2008 on higher commodity and energy prices, the Agriculture Department said on Thursday.

Food prices are forecast to rise 3.5 percent this year — nearly double the overall inflation rate. The lion’s share of the increase is expected in the second half of 2011, when the recent uptick for commodities, such as corn and soybeans, makes its way through the food system. Just last month, USDA forecast an increase of 2.5 percent in 2011.

Food prices soared 4 percent in 2007 and 5.5 percent a year later — the biggest increase since 1990 — as world  stockpiles ran low. Volatile agriculture and energy prices could help food prices challenge those levels in 2011, said USDA economist Ephraim Leibtag at the department’s annual Outlook Forum.

“Given that it’s still earlier in the year, I’m prone to be conservative on the side of the forecast,” said Leibtag. “It’s a possibility. I wouldn’t be shocked but I’m not predicting it now.”

World Bank chief Robert Zoellick said last week global food prices have reached “dangerous levels” and warned they could complicate fragile political and social conditions in the Middle East and Central Asia.

Agriculture Secretary Tom Vilsack said the United States and other global producers are “better prepared to respond” to rising food prices after the run-up in 2007 and 2008. “We’re keeping an eye on this,” he said.

In its new forecast, USDA said food will rise party due to higher costs for meats, poultry and fish, which make up 12.5 percent of total food spending. Overall, costs for these items are forecast to rise 4 percent compared with 3 percent forecast last month.

Prices for fruits and vegetables, which account for 8.4 percent of food spending, also will rise 3.5 percent, rather than the 3 percent forecast in January. Cereals and bakery products were increased to up 4 percent from 2.5 percent, and sugar and sweets up 3 percent from 2.5 percent.

Despite the recent pullback for some commodities such as wheat, soybeans and corn remain near a 2-1/2 year high. Oil surged to 2-1/2 year highs near $120 a barrel on Thursday as the revolt in Libya choked exports but prices later eased as Saudi Arabia assured European refiners it could fill any supply shortfalls.

Energy is used for everything from producing, transporting and making packaging for food.

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