Last year, globally, food prices increased 25%, according to many experts. Reports of domestic food cost increases have since dominated the news. The USDA responded by raising their projection for food cost increases for 2011. But what’s more disconcerting is the USDAs retrospective assessment of food cost increases for 2010. The Grocery Game databases of actual prices in over two hundred markets nationwide seem to depict an entirely different picture of last year’s increases.

A little background…

2010 was fraught with a number of crises in wheat, corn, soy, beef, coffee and more. Corn stockpiles have since dropped to a 1974 level, the lowest in 37 years. Now, freezes in the US and South America have all but destroyed much of our produce. Unrest in the middle-east centered upon multiple issues, including food shortages, further complicates food cost projections. In response, the USDA just last week changed their 2011 projection. The Consumer Price Index (CPI) for all food is now forecast to increase 3 to 4 percent in 2011, vs. the USDAs previous projection of 2-3%.

To put that into perspective, we look at 2010…

The USDA Economic Research Service, in a retrospective assessment, reports that the Consumer Price Index (CPI)* for “food at home” increased 0.3 percent last year. This means that the USDA is projecting an increase in costs for groceries for 2011 of at least ten times the increase we experienced in 2010! 

But wait a minute…

Only 0.3% CPI food cost increase for 2010? Really? I’m skeptical. The Grocery Game shows that regular prices on some foods increased by as much as 15% in high cost of living areas of the US. Some sale prices were up by 25% in those same markets. Lower cost of living markets were up by as much as 10% on regular prices, and up by 14% on sale prices.** Forget about the CPI’s inflation factor, as you don’t need a calculator to figure out that’s a whole lot higher than what USDA says it was! And if the USDA is that far from reality, I’m concerned that their projection for 2011 may be optimistic as well.

Here’s something else to give you gray hair…

For years, the grocery industry had struggled to stay afloat, and repositioned themselves against Walmart’s takeover of market share. Once everyone thought they had their footing, numerous “alternative” smaller version rollouts such as Aldi, Dollar General, and countless others have begun to aggressively compete. To stay competitive, rather than pass on all of the increases to the consumer, the grocery industry has cut costs on payroll, real estate, energy, shrink, and more. Once the grocery industry is left with no more costs to cut (and they may be there already), they will have to begin to pass more of the increase in cost of food on to the consumers. Did the USDA factor THAT into their projection for 2011?

In the end, we really don’t know if the USDA’s projection for 2011 is accurate. I don’t think anyone really knows. We do believe we will see an increase, but since we’re not sure the USDA was accurate about what really happened in 2010, we can only hope that the 2011 increase is not higher than the USDA says it will be.

*Consumer Price Index (CPI) reflects true cost increases with respect to inflation

**The difference in cost increases in areas of high and low cost of living is reflective of how retail (including supermarkets) will only increase pricing in particular markets according to how much the market will bear.