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Foodie economics
Local restaurateurs lament the high cost of making meals these days, and food experts aren't predicting a rosy future for dining out

Date: 05/29/2008

Cheap and plentiful food is almost a birthright for most Americans. Thanks to an open global market, U.S. citizens can get almost anything they want to eat, whenever they get a hankering for it.

Avocados from Chile, cheese from France, bananas from Panama-

Dough for dough:
Sam Raban, owner of Sam's Giant Manhattan Pizza, has seen 50-pound bags of flour jump from $11 to almost $40 in a matter of months.
-they're all available on the Central Coast. The selection hasn't changed for years, but the price has. Individuals browsing supermarket aisles for tomorrow night's dinner may raise their eyebrows at the climbing cost of milk and such, but they're not the only ones suffering from price hikes.

Restaurateurs buy large quantities of food on a weekly basis. The price of almost every commodity has gone up in recent days, but restaurant owners are reluctant to pass higher prices on to customers who are already tightening budgets and could easily just decide to stay home.

Sam Raban, owner of Sam's Giant Manhattan Pizza in Pismo Beach and Santa Maria, simply refuses to raise his prices, even though, in his words, "every single item costs more."

He cites competition as the main motivator in keeping his costs to consumers from rising. Instead, he takes items off the menu if they're not selling, looks for bargains on a few ingredients--canned mushrooms, for instance--and just accepts that his profit margin will be less.

Other local restaurants are also cutting back. Rebecca Jacobs, co-owner of the Wine Cottage Bistro in Orcutt, said that they've stopped serving lunch. They've also added a new menu with lower prices to complement their usual dishes. The new menu features smaller and less expensive entrees that range from $7 to $15 dollars. The bistro's normal menu ranges from $19 to $26.

"We don't adjust our prices even though we've had to pay more," Jacobs said. "We know how it is out there."

While Jacobs and Raban are struggling to make a profit without increasing prices, the Consumer Price Index does show that restaurant owners overall have started to adjust what they're selling their meals for. The food-away-from-home index, which measures how much restaurant food costs consumers, went up .3 percent from March to April and is four percent higher than it was in April of last year.

That means that prices at restaurants across the nation have gone up, but not as much as prices for food people are buying for themselves. The food-at-home index, covering goods bought at a supermarket, jumped 1.3 percent between March and April and is up 5.9 percent from last year.

Some of the most expensive items are meat: beef, pork, and poultry. The price of eggs has gone up 30 percent since 2007 and dairy is up 11 percent. Fresh fruit prices have gone up 5.9 percent since last year.

Cereal and bakery products may not be the most expensive

Before it's cooked:
This is a peek behind the scenes at Wine Cottage Bistro in Orcutt. Co-owner Rebecca Jacobs said the restaurant has started offering a menu with smaller, less-expensive entrees.
commodities on the market, but their prices are rising the fastest, with a one percent or higher monthly increase for the last four months in a row. That difference is more striking in bulk. A 50-pound bag of flour that cost Raban about $11 a few months ago now sets him back almost $40, he said.

Raban buys commodities from various distributors, as does Jacobs. One of Jacobs' suppliers is Jordano's Inc., a 93-year-old Santa Barbara-based family business that distributes food and beverages throughout San Luis Obispo, Santa Barbara, and Ventura counties. It gets food directly from growers and suppliers and then sells it to restaurants like Wine Cottage Bistro. Pete Jordano, CEO of the company, said that every grower and supplier is charging him more, and he's had to pass that cost on to restaurants.

"We have to in order to stay in business," he said.

Though distributors have been charging more, Jordano said that he's concerned that the restaurants buying his products aren't charging their customers enough.

"I advise any restaurant to look at your menu prices and then raise them," he said.

According to the USDA Economic Research Service division, the price of groceries is expected to rise 5 to 6 percent in 2008, while the price of food eaten in restaurants will rise 3.5 to 4.5 percent. If food prices continue to increase, eateries may have to start adjusting more quickly.

The global market that's been so vital and positive for local supermarkets is starting to have the opposite effect, and it can all be traced back to the price of grains. It's a matter of simple economics.

"A small increase in demand can make the price rise dramatically," said Dr. Wayne Howard, head of the Agribusiness Department at Cal Poly in San Luis Obispo.

All over the globe, there's an increased demand for rice, wheat, corn, and other grains. That demand--for a variety of reasons--makes prices go up, and costs trickle down to other commodities that rely on grain, such as meat and dairy.

Howard said that a main factor contributing to the increased demand is the growing affluence of large countries like China and India, where both population and wealth are booming.

"Other countries would like to eat as well as we do," Howard said.

That means other countries want meat. Cattle--before they're filet mignon and brisket--eat grain. Lots and lots of grain. According to a report from the United States Department of Agriculture, titled Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices, the worldwide demand for meat products is putting a strain on grain production.

The report says that it takes 2.6 pounds of feed to produce one

Second from the bottom:
Local restaurateurs have had to pay for fuel for deliveries, an added cost that eats into their profits.
pound of chicken, 6.5 pounds of grain per one pound of pork, and seven pounds of feed per pound of beef. With world market prices for grains at a historic high of more than 60 percent above the level they were at two years ago, that's some pricey steak.

A lot of grain is also going toward ethanol production, Howard said. Between 2002 and 2007, the amount of U.S.-grown corn used to produce ethanol rose by 53 million metric tons.

According to the USDA, some of the resulting ethanol is being bought by the European Union, a large consumer of diesel biofuel. It's also being used in conventional fuel as an additive that makes the petroleum burn cleaner.

"There is a feeding frenzy of interest in biofuels," Howard said.

The United States is the largest producer of corn in the world, and with much of the supply heading for ethanol production, there aren't as many kernels to go around anymore.

And there's another factor affecting food costs around the world: drought. A lack of rain has lowered Australia's grain exports, and Canada had a hot and dry growing season. Argentina, Russia, Northern Europe, and northwest Africa have all experienced droughts in major grain growing regions in the last two years. Though the United States doesn't import much grain from these countries, the overall drop in world production drives up the demand for grain grown in the United States.

But there is a light at the end of the tunnel, at least for grain production. Howard said that he believes that in a few years, the grain market will stabilize.

With grain prices at all-time highs, more farmers will start to grow it themselves, and eventually enough people will be growing it to keep up with supply, so the price will go down. Still, Howard theorized that it will likely eventually settle at a higher rate than it was before the current shortage.

Something that's a bit less predictable is the price of gasoline--just one more consideration in the ultimate cost of food and of doing business. Rising fuel costs have hit producers at every level, from powering tractors to delivering products--every aspect of the agricultural industry has had to cope with the added costs.

Delivery charges have become standard for Raban. About a year ago, the pizza shop owner started getting charged for every delivery, with costs ranging from $3 to $8. Jacobs started seeing delivery charges tacked onto her orders around the same time.

Jordano's runs more than 200 trucks in the tri-counties area. The company has started to charge for deliveries.

"Obviously fuel costs are at an all-time high, and it really affects our way of business," Jordano said.

Climbing gas prices are hitting restaurants from another direction, too. Raban said that he used to have regular customers at his Pismo Beach location, diners who came from Bakersfield every weekend and stopped at his shop. He hasn't seen them in months now.

"Business has gone down. People don't want to spend as much," he said. "I can't do anything except hope that gas prices go down."

Consumers can wait for the market to even out, but the USDA sees a number of uncertainties and concerns in the foreseeable future. According to the USDA report on the global food market, if the economy of developing countries continues to improve, they'll put even more pressure on international food supplies. More stability and success eventually translates into more mouths to feed.

The USDA also predicts that in about 10 years, growth in biofuels will begin to slow, and the main long-term trend in increased global demand for grain and other products will be driven by population increase. Oh, and prices probably won't drop back down to what they were just two years ago.

The days of truly cheap food could be over. In some countries, the population is rioting over rice, but in Santa Maria and elsewhere, residents can at least look forward to having enough to eat. That, at least, is still a reality for most Americans.

"Don't panic," Howard said. "We've got food."

Sports Editor Sarah Thien takes grain prices with a grain of salt. E-mail comments to

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