WISCREPORT.COM – Higher gas prices, dry weather in parts of the United States, strong consumer demand and higher feed prices are behind a five percent increase in Wisconsin retail food prices in the second quarter of the year, according to the Wisconsin Farm Bureau Federation’s Market Basket survey.

The informal survey of stores in 26 Wisconsin communities shows the total cost of 20 basic grocery items in the second quarter of the year was $50.33, or $2.48 higher compared to the first quarter of 2007. Of the 20 items surveyed, all but two foods increased in average price compared to first quarter of the year. Compared to a year ago, the 20-item market basket is $3.97 more.

The Farm Bureau said higher energy prices are having the biggest effect on food prices, increasing the cost of everything from food processing, packaging and transportation. Strong demand for dairy products and a persistent drought in the Southeast are also contributing to higher dairy and vegetable prices.

“It’s rare that you have so many of these factors coming together at once to affect food prices,” said Tom Thieding, Executive Director of Public Relations for the Farm Bureau. “With all of these factors combined, we are seeing some of largest increases in food prices since we started collecting data 15 years ago.”

For example, the Farm Bureau said tighter milk production in the U.S. combined with strong domestic and worldwide demand for dairy products has resulted in the second highest price paid to Wisconsin dairy farmers. This has resulted in a 31 cent increase in a gallon of milk to $3.03, a 13 cent increase in a pound of cheese to $3.35, and a 22 cent increase in butter at $3.21 a pound in the second quarter of the year.

“We tend to forget that dairy farmers received lower prices over the last two years compared to 2004, when farm milk prices were at their peak, and they continue to pay more for everything it takes to run their family farms,” said Thieding.

“Keep in mind Americans spend about 10 percent of their disposable income on food, far less than any other population in the world,” Thieding said. “Also remember that the farmer only receives 19 cents out of every food dollar that is spent, so the bulk of the cost of food comes after the materials leave the farm.”

The Farm Bureau survey showed that the cost of tomatoes increased 12 cents a pound to $1.63, and a ten pound bag of Wisconsin potatoes increased 9 cents to $3.12.

“Because of poor weather in vegetable and fruit growing areas of the country, consumers will likely find greater availability and better prices from fresh produce coming from Wisconsin farms,” said Thieding.

All meat items in the survey increased in price in the second quarter. Sirloin tip roast was up 25 cents a pound at $3.79; ground sirloin was up 11 cents a pound at $3.34; sliced bacon was up 40 cents a pound to $3.87; pork chops were 24 cents a pound more at $3.21; and whole chicken was 32 cents a pound more.

A dozen eggs were down 4 cents after increasing by 5 cents in the first quarter. Red delicious apples dropped 4 cents a pound.

Debunking the myth that expanded ethanol production is the main cause of higher food prices, a study done by John Urbanchuk of LECG, LLC, proves that rising energy prices had a more significant impact on food prices than did corn. The study showed that a 33 percent increase in crude oil prices - the equivalent of $1.00 per gallon over current levels of retail gasoline prices – would increase retail food prices measured two to three times the impact than corn prices would have.

"Blaming ethanol production solely on higher prices is a flat-out ridiculous charge when so many other factors, mainly higher fuel prices, are driving higher food costs,” said Thieding. “Higher feed prices are changing the bottom line for livestock farmers and influencing their decisions on expansion.”

Factors Behind Food Price Increases:

Energy: Higher energy prices are having the biggest across-the-board impact on food prices. A $1.00 increase in a gallon of gas results in almost a one percent increase in food prices, affecting farm production, food processing and even food packaging.

Weather: An Easter freeze and subsequent heavy rains have taken their toll on this year’s hard winter wheat crop. A freeze in California in January caused $1.4 billion in agricultural losses, with severe damage to a number of crops, such as oranges, avocados and broccoli. A persistent drought in the Southeast is resulting in tighter supplies and higher prices for fresh fruits and vegetables.

Demand: Strength in economies around the globe has led to increased demand for all types of food. That has helped boost prices. For example, strong demand for dairy products in Latin America and India is contributing to tighter world supplies of milk.

Production: Milk production declined in April and remains tight, mainly because of a national herd reduction program, and from increased grain costs. A drought in Australia increased the demand of non-fat dry milk, adding to the demand for milk produced in the U.S.

Ethanol: Increases in some food items can be linked more directly with an increase in ethanol production, even though U.S. farmers have planted 19 percent more corn than last year. Higher feed costs have led to increased egg and poultry prices.