Rising Food Costs & What It Means

The Grocery Manufacturing Association (GMA) just released a major new study of food inflation.

Bottom Line -- Expect food prices to rise 41% from 2008 through 2012. Meat, milk and eggs, which have high commodity input costs, will escalate 79-86%.

The study reports that these increases are based on growing worldwide grain demand that emerged in 2002 and remained the major driver until 2006. At that point, U.S. ethanol production became a driver.

This new study is based on a projected five-year corn price of $5.25/bushel, which is already out of date. July corn futures closed above $7.40/bushel yesterday.

You can't escape the sense that continually escalating food prices will be the new norm for years to come.

The Rise of the Rest, Fareed Zakaria's column in the May 12, 2008 Newsweek, provides stunning support for the idea that global commodity food prices are on a relentless upward track.

There are a few clues as to how US consumers are reacting to the food cost increases. For example, WalMart reportedly saw a shift in the way Christmas gift cards were redeemed in the first quarter. Redemptions shifted toward groceries versus other categories.

All of this leads to some fundamental questions for every marketer:

1. Does your current marketing plan anticipate this type of inflation? Your five year plan?

2. What will be the combined impact of rampant food, fuel, health care inflation on customers? What are the new spending trade offs?

3. What does this mean for young families? For fixed income families? What does this mean for your best customers?

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