MILDER PRICE INCREASES FORECAST

MATTHEW ENIS

WASHINGTON -- Consumers can expect some relief from higher prices for certain fresh foods next year, according to data released last week by the U.S. Department of Agriculture's Economic Research Service.

Retail egg prices will decline slightly during 2005; beef, pork, poultry and dairy prices will undergo more modest price increases than in 2004, USDA's ERS said in its final Consumer Price Index report of 2004.

Due in part to the popularity of low carb, high-protein diets, demand for eggs spiked in 2003 and 2004, with prices rising 13.8% in 2003 and about 5.5% to 6.5% this year. Demand is expected to fall slightly. The ERS expects consumption to plateau in 2005 at 256.1 eggs per capita, down from 256.7 a year earlier, with consumer prices declining 1% to 2%.

The rapid growth of beef and veal prices is expected to slow down considerably in the new year. The ERS predicted 1.5% to 2.5% increases for 2005, significantly lower than the back-to-back 9% and 10% spikes seen in 2003 and 2004. Yet in a separate report, the ERS described beef supplies as "very tight," and said when ranchers retain heifers for breeding in late 2005 and early 2006, supplies will grow tighter, "resulting in another run toward record prices."

Similarly, the growth of dairy prices is expected to moderate, but the agency said it expects weak production increases and some continued volatility. The ERS predicted dairy prices will have risen between 7% and 8% in 2004, but the pace will slow down to just 2.5% to 3.5% in 2005. The National Milk Producers Federation, a coalition of dairy farmers, this month announced it will pay farmers to slaughter 52,000 dairy cows to maintain the price of milk by eliminating less than 1% of the nation's supply. During the first year of the program in 2003, some 35,000 cows were slaughtered in a similar effort to stabilize milk prices. Because of herd thinning and other factors, milk prices spiked to record highs in 2004, coming off 25-year lows.

By contrast, consumers will likely pay more for fresh produce. Retail prices for fresh fruits and vegetables are expected to increase faster in 2005, growing 3% to 4%, vs. the 2% to 3% price increases in 2004. In separate reports, the ERS has said it expects the volume of vegetable production in the United States to keep pace with population growth for the next decade, but that it also anticipates the per capita consumption of fruits and vegetables to jump between 24% and 27% by 2020.

Although imports, particularly from Mexico and South America, will help cover any resulting gaps in domestic production, price inflation at the farm and packer level is expected to increase roughly 1.6% per year, in part due to rising transportation costs.

Projected Food Price Changes for 2004, 2005

% Change 2004%; % Change 2005

Fresh vegetables: 3.0-4.0; 3.5-4.5

Fats and oils: 6.0-7.0; 3.0-4.0

Fish and seafood: 2.5-3.5; 3.0-4.0

Dairy products: 7.0-8.0; 2.5-3.5

Fresh fruits: 2.0-3.0; 2.5-3.5

Pork: 4.5-5.5; 2.0-3.0

Beef and veal: 10.0-11.; 01.5-2.5

Poultry: 7.0-8.0; 1.0-2.0

Eggs: 5.5-6.5; (2.0)-(1.0)

Source: USDA ERS Consumer Price Index forecast