Despite alarm that rising grain prices could trigger big hikes in food prices, retail price inflation in the fresh produce department is expected to be only moderate in 2011.

After coming through a period of deflation in 2009, retail fresh produce prices could stand a little inflation in 2011, said Dick Spezzano, president of Monrovia, Calif.-based Spezzano Consulting Services.

“A reasonable amount of inflation is a good thing — two or three percent per year,” said Spezzano. “The customer doesn’t get shell shocked, and your other expense can go up proportionately and it maintains you at a level basis,” he said.

Moderate inflation is acceptable but high inflation is damaging to retailers, said Steve Lutz, executive vice president of The Perishables Group, West Dundee, Ill.

“On one hand it is not necessarily bad to generate growth but if you start seeing widespread price increase that run across the entire department you can quickly get into a consumer that starts avoiding purchases, trading down and looking for substitutes and really price-focused,” Lutz said. “That’s not good.”

Consumers may change the store format they shop at or move from a premium bulk product to bagged produce, Lutz said.

Spezzano said he doesn’t believe the moderate inflation expected in 2011 will have any negative effect on units sold or sales in the fresh produce department.

However, conventional supermarkets may continue to be pressured by club stores, supercenters and fresh-oriented retailers.

Grain crops

Corn prices in early November were 44% higher compared with year-ago levels, and soybeans and wheat prices were up more than 20%, Analysts expect higher grain prices to result in an uptick in prices for beef and cereal goods at retail.

Higher prices for grains will eventually effect potatoes, onions and vegetables grown for processing, Lucier said.

“As the price of corn, wheat and other crops go up, there is more incentive to plant those particular crops,” said Gary Lucier, economist with the U.S. Department of Agriculture Economic Research Service.

Lucier said upward price pressure on fresh vegetables isn’t likely to be as strong because most fresh crops are grown in areas where grains are not normally produced.