What Higher Food Costs May Do to Your Grocery, Dining Bills
NEW YORK -- While the surge in cost of eggs has stabilized and pork has become cheaper, consumers shouldn't expect a reprieve in the cost of beef.
Food prices have escalated gradually during the past 20 years and haven usually fallen in step with the rate of inflation at 2 to 3 percent, said Warren Graeff, the agriculture market manager for PNC, the Pittsburgh-based bank. The production of eggs were besieged in May by an avian flu, the first U.S outbreak, while beef producers will still face the effects of the drought in the western Great Plains in 2012 and 2013. These disruptions in supply affect producers, distributors and restaurant owners immediately, but consumers don't feel the effect for several months.
When the avian influenza spread across farms in many states, the supply of eggs was cut drastically by 10 to 12 percent to contain the disease, Graeff said. The shortage affected a wide range of businesses from family-owned restaurants that sell breakfast to companies that use egg whites to make mayonnaise, salad dressing and cake mixes. The adverse effect pushed prices to unprecedented uptick levels -- costing another 60 cents to $1 a dozen.
Prices have started to stabilize while demand tapered off and retailers started cutting prices for eggs, Graeff said. Although migratory waterfowl, which spread avian flu are in between their migratory season, poultry producers are already concerned about whether the containment was successful and could repeat itself when the birds start flying again in September.
"The industry is waiting anxiously what happens this fall and if the influenza is spreading more broadly in the population of the waterfowl and cross contaminating into the domestic flock, which could impact broilers and turkeys," he said.
Many restaurants are bearing the higher cost of eggs and have refrained from raising prices. The uptick in prices has taught Tom Fleming, chef of Crossroads Diner in Dallas, to be a "better operator" since a large portion of his business is dishing out breakfast items. The diner goes through 600 to 800 dozen eggs a week, so any price increase affects the business's bottom line.
Fleming has refused to raise prices so far due to "moral issues," even though the price of eggs doubled during the past six weeks. Although the prices have stabilized recently, they are still 35 percent higher than normal, which equates to paying 35 cents more per dozen for the past four to six weeks.
"There is a ripple effect on the food chain," he said. "Supply is short, and demand has not subsided."
While the surge in prices has flattened out, the future volatility of the price of eggs is unknown, Fleming said, echoing the sentiment of other retailers.
Jerry Clemmer, director of residential dining at University of Richmond in Virginia, has had to make adjustments of his own. Instead of serving summer school students scrambled eggs in the buffet line, he offers them the option to choose fresh omelets for breakfast, which cuts down on the supply of eggs consumed. Instead of offering egg foo young on the menu when classes start this fall, Clemmer will substitute in Philly cheese steak sandwiches.
"We're used to becoming more efficient and we are getting prepared," he said. "We have to watch prices and our waste but not overreact and be prudent."
The iconic Waldorf Astoria New York, which touts itself as the original home of Eggs Benedict, said the egg shortage hasn't affected any of its restaurants, including Peacock Alley, which serves its infamous Sunday brunch.
%VIRTUAL-pullquote-We have chosen to absorb the increased cost instead of raising our prices.%"We have chosen to absorb the increased cost instead of raising our prices," said David Garcelon, director of culinary at the Waldorf Astoria New York. "We also are working with our suppliers to make sure our egg supply is not interrupted."
Fastfood chain Whataburger reacted quickly to the shortage and drastically cut the hours it would serve breakfast entrees with eggs on May 31 to only four hours on the weekdays and six hours on the weekend. By July 19, the San Antonio-based company in 10 states reversed its decision back to its original schedule of selling the items from 11 p.m. until 11 a.m. and said it had increased its supply of eggs. Whataburger declined a request by TheStreet to comment on the company's decision.
Another Broken Egg Cafe, a chain based in Miramar, Florida, with 48 locations in 13 states, hasn't been affected, because its supply of eggs comes from local farmers who didn't have to cease production unlike larger manufacturers, said Jason Knoll, the company's director of operations. Prices have remained the same, because "there is an end, and the storm will be weathered," he said.
Restaurants have avoided increasing prices due to the egg shortage, which could be the result of watching how pork prices recovered quickly last year after a virus which infected hogs caused supply to shrink and pushed the price of pork up by 8 to 10 percent in 2014, said Peter Zaleski, an economics professor at Villanova Business School.
"We are not seeing much overreaction in the egg market," he said. "Restaurants are eating the loss so far. If the wholesale price increase is temporary, restaurant patrons won't even notice the change."
Supplying eggs to consumers hasn't been an issue for NestFresh, the Denver-based company that sells cage free and organic eggs from its network of local, family-owned farms to major grocery stores such as H-E-B, Vons, Albertsons, Harris Teeter, Walmart and Whole Foods.
NetFresh hasn't struggled with the increase in demand and is battling the specialty egg shortage problem by building 25 to 30 laying hen barns on 15 different farms in at least eight different states, said marketing manager Brandy Gamoning. The company's recent expansion put 600,000 new birds "into production" and 400,000 birds are scheduled to do the same within the next year, she said.
"The flocks there will be a combination of cage-free, free-rage, non-GMO, organic and pasture raised birds," she said. "The initial family farms for the expansion project are located in California, Colorado, Illinois, Pennsylvania, Texas, Iowa and Wisconsin."
Not a 'Budget Buster'
Since eggs are a smaller budget item than meat and poultry, the price increase wouldn't affect consumers' budgets as much, said Zaleski.
"Doubling the price of eggs means that a single egg that used to cost a dime would cost 20 cents -- not a budget buster for the typical household and still a great deal when you consider the nutritional value," he said.
Although ranchers are adjusting to the drought and the breeding herds have begun to "stabilize," beef prices remain higher than the average by 5.5 to 6 percent this year after increasing 12 percent in 2014, said Graeff. Chicken prices haven't been affected, and consumers can expect the 3 to 4 percent decline in pork prices to remain.
Since corn and soybeans will produce a plentiful supply, the cost of feeding livestock will be lowered, making pork, beef and poultry more profitable for farmers, which will increase the supply and prove to be "favorable" for consumers, he said.
Farmers and experts are keeping a watchful eye on the long-term effects of the California drought and how it will impact the produce -- with a close eye on citrus and almond crops, said Graeff.
"Right now things are pretty boring with respect to grocery food prices and that's good news," said Zaleski.