Rising Agricultural Commodity Costs Continue to Elevate Food Prices

 |  Includes: GMCR, HSY, MCD, MDLZ, PG, SBUX, SJM
by: Zvi Bar
Starbucks Corp. (NASDAQ:SBUX) has announced that it is raising prices on bagged coffee for sale at its U.S. locations an average of 17% due to rising coffee costs. The company stated that the in-store increase goes into effect July 12.
Starbucks is not the only company feeling pressure to raise prices due to rising agricultural commodity prices. The J. M. Smucker Company (NYSE:SJM) also announced this week that it is raising prices 11% on packaged coffee, including Folgers, Millstone and packaged Dunkin’ Donuts sold at supermarkets. Smucker bought Folgers from Proctor & Gamble Co. (NYSE:PG) in 2008, and also raised coffee prices 10% in February and twice in 2010 (over a 30% increase since then). Kraft, maker of Maxwell House, raised its brand's price similarly over the last year.
Starbucks’ new price range for a 16-ounce bag of coffee at its U.S. stores is $11.95 to $14.95. The coffee giant raised prices last year on some drinks due to rising milk and coffee bean prices. This comes after Starbucks instituted a 12% increase on bagged coffee sold at U.S. supermarkets in March, and after earlier discontinuing a joint venture with Kraft Foods Inc. (KFT) to package its coffee. Starbucks also has since entered a new venture with Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR), which also announced a price increase earlier this month.
Coffee has not been the only commodity to go up in price over the last year, and it is likely that other food products will also undergo price increases. Hershey’s (NYSE:HSY) also announced a 9.7% price increase in March on instant consumable, multi-pack, packaged candy and grocery lines to offset part of the significant increases in input costs, such as sugar in candy and gasoline in transportation.
McDonald’s (NYSE:MCD), the world’s largest restaurant chain, also announced increases in March to U.S. menu prices by 1% to help offset higher commodity costs, and food expenses anticipated to increase more this year. There appears no end in sight for rising food costs at the supermarket or at restaurants, and stronger name brands that have pricing power should survive across the board food price inflation.

Disclosure: I am long KFT.