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Drought to Trigger Higher Food Prices in 2013

by Chris Hinyub, published

The U.S. Department of Agriculture expects food prices to rise by 3 or 4 percent in 2013 due to drought conditions being reported in most of the country. The department made the announcement Wednesday as it added 76 Midwestern counties to its growing list of Primary Natural Disaster Areas.

Moderate to severe drought has gripped at least two-thirds of the contiguous United States, according to the USDA's Drought Monitor. Hot and dry weather has caused significant crop damage to many crops, including corn and soybeans, as well as pastures and rangeland from California to upstate New York, says a USDA statement.

Currently, 1,369 counties in 31 states have been designated disaster areas – 1,234 because of drought. Among other direct support, the USDA will offer low-interest emergency loans to producers who will likely experience significant crop losses.

With corn and soybean crop ratings at their lowest since 1988, the worst drought in a half-century threatens to hit pocketbooks when these crops are transformed into ethanol for the fuel industry and processed food for grocers. Because fifty-five percent of the nation's pastures and rangelands are rated poor or very poor and a large percentage of domestic corn and soy production is converted into animal feed, meat prices will likely see the biggest increase.

As feed prices go up, the USDA expects beef to become 4 percent to 5 percent more expensive in 2013. Dairy products will see the next highest price jump at 3.5 percent to 4.5 percent, while the agency forecasts poultry and egg prices to rise 3 percent to 4 percent. Pork prices are expected to increase by 2.5 percent to 3.5 percent next year. The drought will not likely affect the prices of fruits or vegetables, as these crops are irrigated.

"In 2013 as a result of this drought we are looking at above-normal food price inflation. ... Consumers are certainly going to feel it," USDA economist Richard Volpe said, according to an AP report.

Normal food price inflation hovers around 2.8 percent. The USDA says the only way that might change this year is where beef and poultry are concerned. Poultry will be the first meat product to increase in price because chickens and turkeys take only a few months to reach market size.

Though the agency has lowered its beef price projection for the rest of 2012 because ranchers are sending more cattle to market as they decrease herd size in response to withering pasture lands, don't expect any price breaks.

Volpe told NPR news that beef rose 10 percent last year because of high energy prices, adding that it could rise an additional 4.5 percent this year before increasing another 5 percent in 2013.

“Inventories are still low,” said Volpe. “They're only going to go lower as feed prices rise. So these high prices, this high inflation, it's here to stay.”

With the prospect of high food price inflation, food charities such as Feeding America are decrying the Farm Bill recently passed by the House Agriculture Committee. After the Senate approved a Farm Bill that would cut $4 billion from the Supplemental Assistance Nutrition Program (formerly food stamps), the House showed it was willing to compromise by cutting $16.5 billion from the program -- a fraction of the amount suggested under the Ryan House budget.

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