Severe Midwest Drought Affecting US Food Prices
by: Pat Hernandez, July 28, 2012 10:07:00 am
The severe drought in the Midwest is destroying much of the nation's corn crop, and that's leading to a projected 3-to-5 percent increase in food prices.
Ephraim Leibtag is with the U.S. Department of Agriculture. He says the corn crop is taking a big hit.
"This drought looks like it's gonna be one of the worst in at least 25 if not 50 years, in terms of the impact from the weather. The question then becomes, what it does to crops, and then ultimately what it does to food and food prices."
He says farmers are trying to adjust, but they're not doing it alone.
"The good news for the farming side of things, is there are some safeguards in place, and certainly the Department of Agriculture has programs to work with farmers. Ultimately when we talk about food prices, the question will be at the end of the day, how the crop looks and how much is salvageable, and what the prices are for those products."
Scott Nordon is with Posados, an upscale restaurant group with locations in Texas, Oklahoma and Louisiana.
"The situation with the drought and the climate right now, it's got a pretty major impact, and it's gonna have an impact on restaurateurs overall. We're being warned from a commodities standpoint that anything made that's harvested in the Midwest or in these drought areas, is gonna be impacted. Things like corn, shortening that's made from soybean, grain that feeds cattle, all those prices have started, and are gonna start escalating."
He says the more established restaurant groups are able to forecast and react to the turbulence, but it may stick around for awhile.
"We use a number of different matrix to do that. Some of it just some guess and assumptions, but we think that this is sort of here to stay for the next 16 to 18 months going forward."
Hernandez: "How do you try to weather or stay afloat?"
Nordon: "A great question. We're trying to work with some of our vendors and suppliers to do some forward buying and some contracting. I think really, what it's forcing a lot of restaurant companies to do is, take a look at other cost areas within their budgets, and try and make good sound business decisions that don't impact the customer."
During the 70s and 80s food prices were more volatile because there wasn't the technology, the acreage to grow, and the global market was not as interconnected. All agree that, like gasoline prices, consumers should expect to pay a little more for the food that's eaten in or out of the house.