October 21, 2008

Don't expect lower food prices anytime soon

Here's the opening line from a Wall Street Journal article: Grain and soybean prices have fallen by about 50% since their summer highs. But don't expect grocery prices to drop anytime soon.

Other than starting a sentence with "But", they got that right.

It notes that food companies are quick to raise prices and slow to lower them. No surprise there. In fact, the article reported that food company stocks have out performed the broader stock market -- profits for General Mills, for example, will jump to $4.18 a share next year from $3.81 this year. Kelloggs will go from $3.02 to $3.32, while Nestle's earnings will jump 11 percent. That's pretty good considering the economic situation in this country and abroad.

The paper unfortunately gave ink to the one of the Grocery Gang's chief "sky is falling" spokesman -- and didn't bother to mention the word "oil" or "gas" in relation to increased costs that these food companies have (and are) facing.

Oil and energy were mentioned here, in an article about "sticky" prices - about how food prices go up but don't often come down. In other words don't expect the price of your fruit crunchies to get smaller - although the package may.

FoodPriceTruth (click here for the report) and Consumer Reports (click here) have highlighted another way food companies pad their margin: Make products smaller (and sometimes increase the size of packaging to fool us). FoodPriceTruth has a great chart showing the increasing profits of some big food companies.

Isn't it a bit disingenuous for these organizations to blame ethanol and corn growers for higher input costs at the same time their profits are going up?

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