Balky consumers expected to help brake food price inflation in '81
Consumer resistance, already building, is likely to put the brakes on drastic food price increases in 1981, say agricultural economists. And it may well happen without the kind of boycotts that occured in 1974.
Dale Butz, commodities division director of the Illinois Farm Bureau, predicts that, at the least, consumers will "cut back on food purchase, change their buying patterns, and be more attentive to food prices." He also warns that President-elect Ronald Reagan "is going to face extreme consumer pressure for price controls to hold down inflation."
Mr. Butz and other farm, economists gathered for the Illinois Farm Bureau's annual convention here in Chicago agreed that, "by rights," farmers should get a hefty share of the 12-to-15 percent increase in food prices forecast by the US Department of Agriculture (USDA).
But they warned farmers not to plan on such an increase. Instead, the Farm Bureau's director of market analysis, Jim Gill, forecast that a large chunk of the 1981 food price increase -- which he says will be 10 percent at most -- will be swallowed by transportation, processing, and marketing costs rather than going to the growers.
Illinois Farm Bureau information director William Allen is one of those who sees buyer resistance holding down prices. A recent national survey, he says, indicated that "slightly more than half the population feels constrained in buying food . . . with 54 percent saying they have cut back on purchases of certain food items. . . . What they mean is, 'We do not buy as much, or the quality, of food that we'd like to buy.'"
Farm economists point out that of the $269 million that Americans are speinding in 1980 for food produced in this country, just $87 billion is going to farmers.
Limiting how much more will be spent for food in 1981, Mr. Gill says, is the fact that "consumer incomes cannot support a big rise in prices now." He expects the coming year to bring "decreased consumer purchasing power" and predicts "consumers will be bombarded by negative economic news," which will dampen the buying urge. The first such blow, he says, comes Jan. 1 -- increased social security deductions "which will immediately reduce consumer spending power."
Low commodity prices already are exerting a drag on farm productivity, according to Farm Bureau economists. They expect corn and soybean prices to dip still lower in the months ahead. Downward pressure is coming not only from an expected drop in consumer demand, but from other factors: a backlog of grain at Gulf Coast ports caused by the government release of grain reserves, just when US grain was being harvested; uncertainty over the size of the coming Brazilian grain harvest; and uncertainty over the Polish situation, which could trigger an expanded embargo cutting off all grain shipments to Eastern Europe if the Soviets invade Poland.
Commodities dealers setting prices for corn, wheat, soybeans, or pork bellies over the months agead weigh all these variables minute by minute in Chicago's trading pits --flash of sunshine over the Russian steppes or rise, as they did slightly this week, with news of too-heavy rain in Brazil.
The Illinois Farm Bureau is trying hard to get consumers to understand that that the economy as a whole stuffers when farmers do not earn enough return on their investment to stay in business.