If you've
visited the grocery store this year, you know that food prices have been going
up alarmingly in recent months--and, in many cases, the price increases
actually started years ago. Bacon prices
(average $5.55 a pound) have risen 53% over the last four years, joining
margarine ($2.11/lb, up 30%), ground beef ($4.13/lb, up 35%), oranges
($1.21/lb, up 35%), coffee ($5.00/lb; up 31%) and peanut butter ($2.71/lb, up
30%) as food commodities that have seen their prices rise by roughly a third
over the past 48 months.
Some
specialty items have gone up even more.
If you had invested in a warehouse of fresh pine nuts four years ago,
you'd be able to retire comfortably today.
The
question we should be asking ourselves--especially those of us who expect to
rely on fixed income in retirement, is: is this trend going to continue? Are food prices headed ever higher? And if so, should we be adjusting our budgets
for double-digit annual inflation at the dinner table?
As it
happens, we are living in a perfect storm, where supply shortages have been
caused by forces over which farmers and ranchers have very little control. The biggest culprit is the multi-year drought
in much of the western U.S. California
is in the midst of its longest--and worst--drought on record. 2013 was California's driest year on record,
and a freak heat wave during this year's rainy season has put 2014 on track to
break that dismal mark. Farmers in the
most productive agricultural land on Earth--California's central valley--have
cut back on the number of acres planted as the snow pack in the Sierra Nevada
mountains remains at roughly 15% of normal.
This matters to food consumers everywhere. California produces a huge percentage of the
nation's celery (95%), avocados (90%), cauliflower (89%), lemons (83%), spinach
(83%), carrots (66%), broccoli (94%), strawberries (88%), bell peppers (50%)
and tomatoes (30%).
The same
drought pattern also extends deep into Texas, New Mexico, Oklahoma, Kansas and
Nebraska, which have forced many of the nation's most productive beef cattle
and feed growers to pare back herds and acreage. At the same time, Florida's citrus growers
are facing a deadly new disease called "citrus greening" that has
devastated orange groves--and for which there appears to be no cure. A relatively new hog virus called Porcine
Epidemic Diarrhea Virus has significantly cut into pork production. And coffee prices have exploded ever since a
fast-spreading fungus infection has begun spreading across farms from Mexico
all the way to Peru. Hardest hit are the
so-called "arabica" coffee plants, which produce the beans used in
espressos and gourmet specialty coffee blends.
Normally,
you hear commentators talk about commodity cycles, where higher prices in one
year give farmers an incentive to plant more acreage, which means they produce
more in hopes of taking advantage of those high prices. The excess supply drives prices back down
toward normalcy. If prices are low,
farmers cut back on acreage, and the lower production causes prices to rise
back toward more normal levels. Some
analysts are trying hard to explain why these time-honored mechanisms seem to
have failed us over the past four years.
The answer
is simple: the current situation is out of the control of farmers. Because of the unpredictable dynamics caused
by Mother Nature, and the sudden advent of new crop diseases, food prices might
stay high for at least a few more years--and they will be harder to predict as
a retirement budget item.
