Chalk this one up to the butterfly effect: Rising food prices due to historic droughts across the country in 2012 may change the way some Americans eat in 2013, for the better.
By the end of November 2012, an astonishing 45% of the lower 48 states were experiencing severe to extreme drought conditions. The dry spell, the worst since the 1950s, affected 80% of all farmland and resulted in the smallest corn crop in six years.
As a result, higher prices for cornfed meat and dairy products are already in evidence. And by the middle of this year, most large grocery chains and fast food places will either absorb the cost or be forced to charge higher prices for the corn-based products that form the basis of the American food chain, from soda to all manner of processed foods.
Analysts forecast about a 5% rise in food costs this year, or $500 for the average family of four. For most grocery stores, which operate on razor-thin margins already, this increase in prices means less traffic, emptier grocery bags, and lower profits overall. We’ve already seen the phenomenon of shrinking packages of everything from peanut butter to ice cream due to higher food costs and retailers being unwilling to raise prices.
But where there are losers, there are also winners. The rise in food costs disproportionately affects food categories that are generally cheaper and less healthy, and that we arguably spend too much on already. Currently the top two categories of grocery spending are processed foods and sweets, and meats. If only a few percentage points of spending shifts over to fruits and veggies as a result of price increases, we’ll all be consuming a little less of more nutrient-dense foods.
This phenomenon affects business as well. Even as drought is slowing growth in the grocery sector, Whole Foods Market, the organic chain, is expected to far outperform the competition. This may seem counterintuitive, since Whole Foods’ high prices have already earned them the nickname “Whole Paycheck.” But that’s exactly the point: Whole Foods’ loyal customers are already conditioned to pay higher prices in exchange for quality. They may simply trade down from Niman Ranch pork to Rancho Gordo beans.
[Image: Flickr user Kaytee Riek]