Where are the lower prices?

A closed Starbucks, taken by Nathan Borror

Oil prices have begun to fall slightly around the country, but in many places food prices remain the same, and companies such as Mars (makers of M&Ms and Snickers) are raising their prices just before the Halloween season.

And it isn't just the candy companies; Bloomberg reports that food inflation is accelerating at a pace not seen since 1980, due to the rising prices in meat, dairy, and oils. The increase will leave us with the highest jump in prices since the early 1990's, and by the next year prices will still raise another 4 to 5 percent.

With gas prices dropping, shouldn't food prices be falling? MSNBC asked that very question this week, and found that lower prices were not necessarily in our future:

Food inflation is to stay — and will probably get worse for some things.

That's because retail prices for cereal, eggs, cheese and meat generally lag by several months or longer world prices for wheat, corn and soybeans — the raw ingredients of so much of our food. Some food items may come down modestly as commodities prices cool off; others might not budge a cent and some may actually increase.

Already struggling with growing production costs, the food industry is responding to rising costs in a number of creative ways. The Wall Street Journal reports:

• Cargill Inc., of Minneapolis, in July introduced to supermarkets cheaper cuts of meat with fancy-sounding names like Maranada steak (flank steak), Marbello steak (skirt steak) and Cordelico sirloin (flap meat).
• General Mills Inc. says that by reducing the number of spice and ingredient pouches in boxes of Hamburger Helper -- and by halving the number of pasta shapes used in the product line -- the company has trimmed manufacturing costs 10%. The company is also replacing pecans with less expensive walnuts in its Pillsbury Turtle cookies.
• Hershey Co. is substituting vegetable oil for a portion of the cocoa butter traditionally used in some of its chocolates.
• Heinz is also cutting back on packaging and using more rail delivery to cut transportation costs. On Thursday, Heinz said earnings in its fiscal 2009 first quarter rose 11% to $229 million. General Mills and Kellogg Co. also have benefited from aggressive cost-cutting: Their stocks have risen 27% and 9.3%, respectively, in the past two years.

In the restaurant industry high food prices coupled with mandated increased in employee benefits have caused problems. Michael Bauer of the San Fransisco Gate asked the question, "What makes prices too high to dine at a restaurant, and how do consumers let the owner know?" I think he summed it up well in saying:

A lot depends on the ambiance, the intangible feeling diners get when they sit down, portion size and, most importantly, the execution of the food. If the food tastes great most people are willing to pay a premium; if it's mediocre the restaurant begins to lose its fans.

How are the high food prices affecting your business and daily life? Leave a comment and let us know.

Further Reading:

The Business Sheet on food prices to skyrocket for months.
Food Product Design on the largest food price increase in 20 years upon consumers.
SF Gate on commodity prices bruising some hedgers.