The release of the Consumer Price Index (CPI) for October proves what too many Americans already have learned the hard way: input costs for food processors are way down but the prices they charge grocery shoppers continue to climb. Prices for virtually everything consumers buy - gasoline, airline tickets, clothing - dropped in October, except food prices.
According to a report, “Why Aren't Food Companies Reducing Prices?,“ released by the Renewable Fuels Association, the excuse for these prices hikes given by big food companies does not pass the smell test. Particularly when you consider that these price hikes are not necessary. Wegmans, a prominent East Coast grocery store chain, recently said no to rising prices charged by big food processors. By imposing price cuts throughout its stores, Wegmans estimates it will save their shoppers' families between $40 and $60 per month. If such savings could be realized by every American family, they could collectively save up to $7 billion a month.
“Big food and livestock processors, led by the Grocery Manufacturers Association, have spent many months and countless dollars trying to convince Americans that ethanol is the reason their food bills are higher,“ said RFA Vice President of Research Geoff Cooper, who also authored the study. “Despite their elaborate ruse, they cannot hide the facts. Prices for virtually all inputs in food production have fallen dramatically while US ethanol production has risen. Yet, despite the drop in price for corn, wheat, soybeans, oil, natural gas and other inputs, the retail price of food continues to rise. At a time when Americans are counting every penny, the last thing they want is food companies trying desperately to shift the blame while raking in higher profits.“
The report details the dramatic drop in prices, noting:
“But now, five months after the “commodity bubble“ began to deflate, food prices remain at levels much higher than normal. The price for corn - the would-be scapegoat of food price hikes - has fallen more than 50 percent since peaking in late June. Wheat prices have plunged 55 percent from their peak, while soybean prices are down nearly 50 percent. And oil prices have fallen dramatically from their highs, resulting in a 50 percent reduction in retail gasoline prices and a 40 percent drop in diesel prices. This has all occurred at the same time US ethanol production has continued to expand.“
These “sticky“ food prices are rationalized, according to big food executives, because of the lag time that exists between when input costs fall and the retail prices follow suit. Yet, as the report demonstrates, the same “lag time“ is not present when input costs go up. This “rockets and feathers“ approach to pricing is very similar to what Americans have seen all too often at the gasoline pump.
“It's time for some truth in advertising from big food companies about the real reasons for rising food prices,“ said Cooper.