Surging Food Prices Essay

916 words - 4 pages

Escalating prices for food are driving up the cost of groceries in the U.S., effecting consumers and companies. “Federal forecasters estimate retail food prices will rise as much as 3.5% this year, the biggest annual increase in three years, as drought in parts of the U.S. and other producing regions drives up prices for many agricultural goods” (Dreibus). For instance, “Drought in Brazil, the world's largest producer [in] coffee, sugar and oranges, has increased coffee prices, while dry weather in Southeast Asia has boosted prices for cooking oils such as palm oil” (Dreibus). Also, “In the U.S., much of the rise in the food cost comes from higher meat and dairy prices, due in part to tight ...view middle of the document...

Overall, this principle fully explains the demand changes of the consumers due to the change in food prices.
The second principle is the changes in supply. Since the droughts in different areas of the world lowered the producer’s resources, the producers had no choice but to raise up the price to keep their profits going. For instance, the drought in California, the biggest producer in agricultural products in the U.S., impeded the production of crops and livestock causing their prices to rise (Dreibus). Also, Brazil’s dry weather has increase the price of coffee (Dreibus). This happens because of the producer trying to reach and stay in equilibrium. According to McConnell, equilibrium price goes up when supply decreases, which shifts it to the left, while demand stays constant (77). The demand stays constant because food is a necessity and people will always demand them. This is the reason why prices rise when the producer’s resources has been lowered.
The last principle is competition. “The price increases pose a challenge for food makers, restaurants and retailers, which must decide how much of the costs they can pass along and still retain customers at a time of intense competition and thin profit margins” (Dreibus). Competition is what drives these companies to keep low prices. For instance, White Castle Management Co. plans to absorb the increases, 12% in beef in February and a future 27% more in beef in the coming August, as long as it can to keep menu prices the same (Dreibus). Also, “during previous inflationary periods, food makers switched to less-expensive ingredients or reduced package sizes to maintain their profit margins; retailers and restaurants...

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