Oil price falls, but food doesn’t follow

by Pan Demetrakakes
Executive Editor

Oil prices, which were blamed as a factor in rising food prices, are starting to come down. But don’t expect a corresponding decrease in most food prices anytime soon.

The price of oil, which reached a record of $147 a barrel this year, was implicated in rising food prices in two ways: by increasing the cost of transporting supplies and finished goods, and by sparking demand for ethanol, driving up the cost of corn. But oil prices have come down 53% from that high, while the inflation rate for retail food is 5.5%. That contrasts with the core inflation rate, which excludes food and energy costs—and which rose only 0.1% last month.

Analysts say retail food prices, especially for well-known brands, will have a tendency to stick, at least over the short term. It’s a matter of inertia: Food prices are slow to rise in response to increased costs, but once they do, they’re also slow to fall.

“Consumer prices don’t change near as fast [as commodities], because they are set by companies,” Chris Lafakis, an economist for Moody.com, told the Associated Press. “Commodity prices are set every day on an open market.”

Some food companies have managed good short-term results through price hikes that they’ve managed to make stick. Kraft Foods, for instance, posted an increase in sales of 21% and in earnings for 9.1% in the most recent quarter, even though its volume fell 1%, due to an average 7% price hike.

Food processing companies have various advantages in making price hikes stick. As consumers eat out less due to financial worries, they buy more retail food. Competing companies that collectively have a large majority market share for a given product can raise prices in concert with each other. And consumers often see brand name foods as an “affordable luxury” in hard times, especially when they’ve cut back in other areas.

TOP DEVELOPMENTS

Tyson changes meat labeling
Tyson will identify the United States as origin for a majority of its premium beef and pork products, thus meeting federal requirements for country-of-origin labeling (COOL). The company was previously going to offer most of its beef and pork cuts under the mixed country-of-origin label to avoid the cost of segregating livestock and meat in its plant. However, since 90% of its fresh retail beef and pork cuts meet the definition of U.S. labeling, it qualifies for the label as directed in the 2008 Farm Bill.

Report: Snacking becoming fourth meal
Snacking has become a fourth meal or even a meal replacement. According to Snacking in America 2008, a report from the NPD Group, 21% of all meals are snacks. And while evening snacking at home is declining, morning snacking has grown the strongest—snack foods replace more breakfasts than other meals. The report also states that the consumption of snack-oriented convenience foods is especially growing among children ages 6 to 12. Snack consumption has shown steady growth and may grow by 14% by 2017, according to the NPD Group study.

Canada bans BPA in baby bottles
Canada is banning the use of the chemical bisphenol A (BPA), which it declared a hazardous substance, in baby bottles. It is creating regulations to bar importing, advertising and selling polycarbonate baby bottles containing BPA, as well as limit the amount of the chemical being released into the environment. While regulatory agency Health Canada said it would work with the industry to limit BPA in infant formula tin linings, Dr. Rick Smith, executive director of the Canadian group Environmental Defence, says that the government should ban the use of BPA altogether.

NEW PACKAGES

Soup cartons in living color
The Knorr division of Unilever is offering a line of aseptic soups whose packaging graphics reinforce the healthiness of colorful vegetables. Red, Green, Orange and Yellow Soup, marketed in France, Spain and Canada, contain purées of vegetables and herbs in those respective colors: Green Soup, for instance, has peas, spinach and chives. The aseptic cartons, from SIG Combibloc, feature front-panel graphics and type almost entirely in each product’s color. Most of the cartons in the line are in the half-liter size trade-named combiblocCompact; in France, they are also available in the 1-liter combiblocStandard.

Oil and vinegar come in unique spray
A line of oils and balsamic vinegar is available in containers that dispense the product with a unique pumping action. Gourmè Mist, from Gourmè Foods Corp., Coral Springs, Fla., is a line comprising one canola and two olive oils, and three kinds of balsamic vinegar. The consumer charges the polyethylene terephthalate container by pumping down on the overcap eight to 10 times, then removing it and holding down a conventional-looking aerosol button. This delivers a single serving of product without the use of gas or chemical chargers. Gourmè Mist is being distributed at Jewel supermarkets in the Chicago area, and Acme markets in the Northeast.

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