How To Survive Rising Food Costs

The U.S.Department of Agriculture has confirmed what you likely already know: Food prices are on the rise. In January, the department forecast a price increase of 2.5% for 2011; last week, they upped that to between 3% and 4%.

We’re expected to see the bulk of that increase toward the second half of the year, but you — the consumers — know it’s already pretty evident: Major food manufacturers like Sara Lee (SLE) and ConAgra (CAG) are starting to increase prices on items such as frozen meals and deli meats. And other companies, like Kraft (KFT), may reduce the size of packaging to cut costs.

All this translates to a higher grocery bill for you.

What is driving these price hikes? I’m not just talking about the soaring gas prices we’ve been shaking our heads over. Beginning in July of last year, we also started to see a pretty sharp increase in corn prices, according to Darrel Good, an agricultural economist and professor at the University of Illinois.

“The price of corn has basically doubled since the end of June last year,” Good says. “There are three or four factors that are fundamental to rising prices, but first and foremost, crop problems resulted in a smaller-than-expected output.” We also saw a rapid expansion in demand due primarily to corn’s use in ethanol.

But corn’s not the only problem. There’s been an increased demand for soybeans. Meat prices, too, are headed up, because of large price increases for livestock cattle and hogs. Producers of livestock have been slowly losing money, so they’ve reduced supply. And as basic college economics taught us, when the supply is down, prices go up.

So the question is, how do you cope? I have four suggestions:

continue via DailyFinance