Gas Prices Drop, but Food Prices Remain High. Why?

By Bonnie Erbe, Thomas Jefferson Street blog.

I've been going into the grocery stores I frequent with high hopes recently, only to be disappointed. Gas prices are dropping—costing half what they were less than a year ago. And when food prices spiraled up earlier this year, food manufacturers explained that as gas prices rose, transportation costs rose with them.

So, I wondered, shouldn't food prices fall now? If you've been wondering why, too, I offer up a couple of possible explanations. First, from the Danville, Ill., Commercial News:

. . . the fuel price drop is almost one-sided. While gas moves downward by jumps, the price of diesel is taking a much conservative route. Recent prices in Danville averaged just under $2.90 per gallon earlier this week.

I understand about the difference between diesel and gas. Yes, diesel is staying persistently higher than gas fuel. But it's still down from highs that hovered close to $5 per gallon earlier this summer.

Another possible explanation: Fertilizer is petroleum-based. Crops this summer were planted when gas and diesel were much higher, as was fertilizer. So farmers still paid more for base costs this planting season, even though transportation costs to bring their products to market have dropped.

Here's one final thought, courtesy of the Minneapolis Star-Tribune:

The quest for cheap food has helped transform palm oil from an inexpensive cooking oil used mostly in developing nations to an all-but-invisible staple of the western diet. But with an ever larger portion of our food now coming from the farthest corners of the globe, the price we pay at the grocery store is more and more tied to events beyond our control.

That was made especially clear in 2008, when sharp increases in the price of palm oil and dietary staples such as wheat, rice, corn and soybeans seemed to herald a new era of higher food prices. In U.S. supermarkets, it meant the biggest rise in grocery bills in nearly two decades. Elsewhere, food riots broke out and the Haitian government fell as suddenly higher prices unleashed a desperate scramble for food.

In other words, our food supply chain has become so inextricably intertwined with the economies of nations halfway round the world that events in those places may have more of an impact on food costs than just the price of oil. Oh, well, a woman can hope.

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