Pricier beef 'here to stay' as food costs seen higher: USDA

WASHINGTON Tue Mar 25, 2014 8:24pm IST

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WASHINGTON (Reuters) - U.S. food prices are expected to rise more rapidly this year after a very tame 2013, led by gains in beef, poultry and egg prices, the U.S. Department of Agriculture said on Tuesday.

The food price inflation outlook assumes normal weather, the USDA said, adding that the California drought poses a risk of bigger increases in many food categories, and that high supermarket prices for beef are "here to stay."

Various measures, including overall food, food-at-home and food-away-from-home prices, are expected to rise by 2.5 to 3.5 percent in 2014. The consumer price index for all food prices rose by 1.4 percent in 2013.

The ongoing drought in California could have "large and lasting effects on fruit, vegetable, dairy and egg prices" although that impact has not been seen so far, USDA said.

California is the No. 1 U.S. farm state, producing roughly half the nation's fruits and vegetables. The Golden State faces a water crisis after its driest year on record in 2013. Large amounts of farmland are likely to go unplanted this year.

In other categories, USDA said farm egg prices have been exceedingly volatile recently, rising by 20 percent in February after falling by 28 percent in January.

Farm cattle and wholesale beef prices rose in February, by 1.1 percent and 2.4 percent respectively.

"While not unusually large, these changes indicate that the record-high supermarket beef prices across the country are here to stay for the coming months," the agency said.

The category that includes many processed, shelf-stable foods is expected to rise by 2 to 3 percent in 2014 after being flat in 2013.

Those items, produced by companies such as Kraft Foods Group, and ConAgra Foods Inc., account for 12 percent of U.S. consumer food spending.

USDA said retailer profit margins, which have contracted since the severe 2012 drought, could expand this year, which would contribute to inflation.

Retail prices for cheese, ice cream, and other processed dairy foods also could be on the rise before long, a lagged result of contraction in the U.S. dairy herd, USDA said.

Since 1990, U.S. grocery store prices have risen by an average of 2.8 percent per year, according to USDA. Average supermarket prices fell between February and December 2013, by 0.2 percent.

(Reporting by Ros Krasny; Editing by Susan Heavey)

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