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wfp-todd-fitchette-arizona-broccoli-8.jpg Todd Fitchette
Broccoli prices at the grower level softened mid-summer, but could quickly rebound, according to a Rabobank report. Excessive heat and ash from wildland fires is said to be affecting quality of produce crops in the Salinas Valley. Tighter supplies of marketable produce could push up grower prices and spark further inflation at the consumer level.

Pandemic spurs inflation in consumer food prices

Consumers see higher food prices at the store during COVID pandemic

If 2020 has taught Americans anything, it is that "normal" isn't anymore. Some farmers saw markets dry up as COVID-19 closed restaurants; planting decisions made with the best of information at the time turned out to be bad; and grocery stores became more popular than ever.

A Rabobank report reveals some of what was seen in the past six months as data suggest recovery may come more quickly than expected, barring another pandemic.

Vegetable planting in the Salinas Valley followed the late-season plow-down of crops in Yuma and Imperial counties after COVID-19 restrictions forced restaurants to close and cease food deliveries into school lunch programs. The shockwaves this sent through produce markets altered planting decisions that by mid-summer continued to ripple through markets, according to Roland Fumasi, senior analyst with Rabobank in Visalia, Calif.

With more people continuing to shop at grocery stores and much less produce still moving through food service sectors, Fumasi says U.S. retail vegetable sales are up double digits, year-over-year, since April. Retail demand continues to hold strong with peppers, potatoes, cucumbers, tomatoes, and corn, according to the report.

Amidst this bullish news, broccoli crown prices fell double digits by mid-August, compared to last year at the same time. Fumasi credits strong broccoli prices in 2019 with the relative change, though he suspects those soft prices may be short-lived as wildfire ash and high heat later in the month may have impacted quality, leaving growers with higher-quality produce in an enviable position with their buyers.

A similar story was seen in cauliflower as high heat affected yields, creating a shorter supply that could see prices similarly rebound.

Multiple factors

Extreme heat, ash from wildland conflagrations across California and a shorter supply of produce brought on by labor shortages and COVID-19 restrictions placed on existing farm worker crews, each played their part in moving prices in both directions.

Market uncertainties at the outset of the COVID-19 pandemic altered planting decisions as the transition of produce plantings from the low desert region of southern California and Arizona returned to Salinas.

Because some growers shorted their acreage at that time, Fumasi said by the time produce was being harvested in June and July, prices were moving up as a reflection of the shorter supply. As food service channels began to refill with product as states began to relax COVID restrictions, the new demand helped bolster prices, he said.

Grocery stores

Still, the "new normal" for much of 2020 has been increased traffic at the grocery store, he continued. Because of this, inflation at the grocery store averaged 4 percent by mid-summer, with produce prices up as much as 5 percent at the retail level.

Fumasi said the inflationary pressures were also bolstered by fewer price incentives at the retail level. Higher-than-normal summer traffic in grocery stores kept stores from enticing consumers through price reductions.

As restaurants closed permanently and others attempted to remain in business through take-out orders, Fumasi said some consumers benefitted by their reduced restaurant spending. Fumasi calls these "insulated consumers." These are buyers who had relatively good job security during the pandemic, were not spending money at restaurants or on travel, and accordingly had more disposable income to spend at the grocery store.

Mid-year report

Rabobank's report suggests a faster-than-expected recovery in the food service sector as year-over-year numbers are starting to reflect a climb from the catastrophic sales losses.

While food service sales in April were down over 52 percent from the previous year, by July those sales figures improved to a drop of just 17.5 percent when compared to the same month in 2019. From January 2019 through about February of this year, monthly food service sales were on a slow upward trend that saw sales climb from $60 billion to $65 billion during the time frame. By April of this year those sales tanked to $30 billion, but have since rebounded to above $50 billion, according to the report.

Food price inflation reflects some interesting trends. As inflation of food bought away from home tracked above 3 percent from April 2019 through the present, food bought at the grocery store hovered around 1 percent until the pandemic hit. It then climbed to almost 6 percent, while the national consumer price index saw inflation drop to near zero in April, before rebounding to about 1 percent in July.

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