• by Karlene Lukovitz  @KLmarketdaily, July 6, 2009

While the spikes in input costs that drove food manufacturing costs and retail prices up sharply last year have subsided, food-price inflation remains a long-term risk, in the estimation of retail and food service industry consultancy Willard Bishop.

The marked jump in input costs seen in last year's first half deflated suddenly when the economic crisis "knocked the floor" out of many commodities prices; however, some up-tick has been seen again during the past three months, Bishop managing partner Jim Hertel pointed out during a recent Webinar sponsored by The Food Institute and Bishop.

While no one can say whether that uptick will continue in the short term, many of the fundamental dynamics underlying the cost/price uptrend pattern that was in place prior to the onset of the economic crisis have not changed, said Hertel, who presented findings from Bishop's 2009 "Future of Food Retailing" report along with Bishop business development partner Craig Rosenblum.

Those dynamics, originally laid out in April 2008 by Don Coxe of Bank of Montreal Capital Markets, include:

• increasing worldwide demand for calories and protein driven in particular by rising standards of living in China and India;

• upward pressure on prices resulting from up to one-third of the corn crop being used for ethanol to produce alternative energy sources; and

• climactic factors in key commodities-growing regions. (An ongoing drought in Australia has contributed to dwindling wheat surpluses, and the U.S. Midwest is "living on borrowed time" after a record run of 18 years of good corn-growing weather, Hertel noted.)

In addition, many economists believe that deficits will create general inflation.

All of which, combined with the reality that even minor disparities between demand and supply drive major commodities price volatility, leads Bishop to recommend that food marketers and retailers consider the real possibility that food-price inflation is "on pause," rather than "on rewind," Hertel concluded.