With food prices rising, time to scare up supply is running out

A little-noticed warehouse glut in the last six months has tightened U.S. food supply chains for the holiday shopping season, leaving retailers scrambling to find produce, meat and dairy as the carcass and frozen food industries face rising costs.

The problem, say analysts, retailers and food industry insiders, is the increasing risk that producers will voluntarily let their seasonal products become too pricey and a demand to turn what’s left over into fresh supplies.

“We’re ready for the worst,” said Tim Asanek, who works for the frozen-food industry trade group the International Frozen Food Institute. “We had our forecasts prepared and nothing has transpired to cause us to change those forecasts. But the risk is … something may happen that causes us to re-calculate.”

Last year, meat markets, particularly the beef segment, saw record output, leading packers to rush up prices. This year, that same scenario is occurring with the fresh-meat market, Asanek said.

“I think it’s going to get more and more difficult for us, especially in the agricultural business, to manage prices. We’re going to have higher consumer input costs across most sectors, whether the commodity or the product,” said Chris Poynter, director of business development at fresh-produce wholesaler American Grapes & Produce, based in Wilmington, Del.

Food production consumes 70 percent of our nation’s landmass, but produced only 3 percent of its greenhouse gas emissions, according to the U.S. Department of Agriculture. The production and distribution of food in the United States is less than 2 percent of world greenhouse gas emissions.

The chief strain on U.S. meat prices is the impact of slow growth in China’s food production. China has been one of the world’s largest growing markets for meats, and the country is working to boost production of what it imports, according to the Federal Reserve Bank of Chicago. However, China has also been processing more of its own feed and decreasing its reliance on imports for such inputs.

Rising meat prices are also pushing some producers to quit production in the United States, according to Asanek. It’s not a drastic move — only 8 percent of the nation’s food comes from plants with shutdowns, according to USDA — but it is a move that could cause the nation’s supplies to run short during the height of the shipping season around Thanksgiving and Christmas.

And wholesale prices of such products as chicken, beef and pork are already hurting retailers. Grocers such as Walmart and Safeway are already passing through increases to their customers and some wholesalers are offering discounts to lure more consumers, said Chris Arnold, a spokesman for Walmart.

The supply challenge comes at a time when retailers are trying to keep prices as low as possible during a struggling economy.

The supply and demand in the grocery business is so dominant that retailers often try to rush products into their stores because the day they need to have them in can’t come soon enough.

But the experience of several U.S. grocers, including Wegmans in Rochester, N.Y., and Weis Markets in Providence, R.I., shows that food purveyors have been able to pass along their costs and stay in business, according to an online survey by Frank DiSpirito, the former chairman of DiSpirito Financial Group and the author of “I’ll Have What She’s Having: Shareholders, Partners, and Food Stocks.”

“In a tough economy it’s not uncommon for grocers to sacrifice profits in order to hold customer loyalty or strengthen their brands,” DiSpirito said. “They’re trying to hold prices down, and this is a double-edged sword. It lets stores compete better. But it means they’re much more vulnerable to the whims of the supply chain.”

To read more about this story, see The Washington Post’s story.

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