Food Inflation Kept Hidden in Tinier Bags

Daily News Article — Posted on March 30, 2011

(by Stephanie Clifford and Catherine Rampell, NYTimes.com) – …As an expected increase in the cost of raw materials looms for late summer, consumers are beginning to encounter shrinking food packages.

With unemployment still high, companies in recent months have tried to camouflage price increases by selling their products in tiny and tinier packages. So far, the changes are most visible at the grocery store, where shoppers are paying the same amount, but getting less.

For Lisa Stauber, stretching her budget to feed her nine children in Houston often requires careful monitoring at the store. Recently, when she cooked her usual three boxes of pasta for a big family dinner, she was surprised by a smaller yield, and she began to suspect something was up.

“Whole wheat pasta had gone from 16 ounces to 13.25 ounces,” she said. “I bought three boxes and it wasn’t enough – that was a little embarrassing. I bought the same amount I always buy, I just didn’t realize it, because who reads the sizes all the time?”

Ms. Stauber…said she began inspecting her other purchases, aisle by aisle. Many canned vegetables dropped to 13 or 14 ounces from 16; boxes of baby wipes went to 72 from 80; and sugar was stacked in 4-pound, not 5-pound, bags, she said.

Five or so years ago, Ms. Stauber bought 16-ounce cans of corn. Then they were 15.5 ounces, then 14.5 ounces, and the size is still dropping. “The first time I’ve ever seen an 11-ounce can of corn at the store was about three weeks ago, and I was just floored,” she said. “It’s sneaky, because they figure people won’t know.”

In every economic downturn in the last few decades, companies have reduced the size of some products, disguising price increases and avoiding comparisons on same-size packages, before and after an increase. Each time, the marketing campaigns are coy; this time, the smaller versions are “greener” (packages good for the environment) or more “portable” (little carry bags for the takeout lifestyle) or “healthier” (fewer calories).

Where companies cannot change sizes – as in clothing or appliances – they have warned that prices will be going up, as the costs of cotton, energy, grain and other raw materials are rising.

“Consumers are generally more sensitive to changes in prices than to changes in quantity,” John T. Gourville, a marketing professor at Harvard Business School, said. “And companies try to do it in such a way that you don’t notice, maybe keeping the height and width the same, but changing the depth so the silhouette of the package on the shelf looks the same. Or sometimes they add more air to the chips bag or a scoop in the bottom of the peanut butter jar so it looks the same size.”

Thomas J. Alexander, a finance professor at Northwood University, said that businesses had little choice these days when faced with increases in the costs of their raw goods. “Companies only have pricing power when wages are also increasing, and we’re not seeing that right now because of the high unemployment,” he said.

Most companies reduce products quietly, hoping consumers are not reading labels too closely.

But the downsizing keeps occurring. A can of Chicken of the Sea albacore tuna is now packed at 5 ounces, instead of the 6-ounce version still on some shelves, and in some cases, the 5-ounce can costs more than the larger one. Bags of Doritos, Tostitos and Fritos now hold 20 percent fewer chips than in 2009, though a spokesman said those extra chips were just a “limited time” offer.

Trying to keep customers from feeling cheated, some companies are introducing new containers that, they say, have terrific advantages – and just happen to contain less product.

Kraft is introducing “Fresh Stacks” packages for its Nabisco Premium saltines and Honey Maid graham crackers. Each has about 15 percent fewer crackers than the standard boxes, but the price has not changed. Kraft says that because the Fresh Stacks include more sleeves of crackers, they are more portable and “the packaging format offers the benefit of added freshness,” said Basil T. Maglaris, a Kraft spokesman, in an e-mail.

And Procter & Gamble is expanding its “Future Friendly” products, which it promotes as using at least 15 percent less energy, water or packaging than the standard ones.

“They are more environmentally friendly, that’s true – but they’re also smaller,” said Paula Rosenblum, managing partner for retail systems research at Focus.com, an online specialist network. “They announce it as great new packaging, and in fact what it is is smaller packaging, smaller amounts of the product,” she said.

Or marketers design a new shape and size altogether, complicating any effort to comparison shop. The unwrapped Reese’s Minis, which were introduced in February, are smaller than the foil-wrapped Miniatures. They are also more expensive – $0.57 an ounce at FreshDirect, versus $0.37 an ounce for the individually wrapped.

At H. J. Heinz, prices on ketchup, condiments, sauces and Ore-Ida products have already gone up, and the company is selling smaller-than-usual versions of condiments, like 5-ounce bottles of items like Heinz 57 Sauce sold at places like Dollar General. …..

While companies have long adjusted package sizes to appeal to changing tastes, from supersizes to 100-calorie packs, the recession drove a lot of corporations to think small. The standard size for Edy’s ice cream went from 2 liters to 1.5 in 2008. And Tropicana shifted to a 59-ounce carton rather than a 64-ounce one last year, after the cost of oranges rose.

With prices for energy and for raw materials like corn, cotton and sugar creeping up and expected to surge later this year, companies are barely bothering to cover up the shrinking packs.

“Typically, the product manufacturers are doing this slightly ahead of the perceived inflationary issues,” Ms. Rosenblum said. “Lately, it hasn’t been subtle – I mean, they’ve been shrinking by noticeable amounts.”

That can work to a company’s benefit. In the culture of thinness, smaller may be a selling point. It lets retailers honestly claim, for example, that a snack package contains fewer calories – without having to change the ingredients….

“For indulgences like ice cream, chocolate and potato chips, consumers may say ‘I don’t mind getting a little bit less because I shouldn’t be consuming so much anyway,’ ” said Professor Gourville. “That’s a harder argument to make with something like diapers or orange juice.”

But even while companies blame the recession for smaller packages, they rarely increase sizes in good times, he said.

He traced the shrinking package trends to the late 1980s, when companies like Chock full o’ Nuts downsized the one-pound tin of ground coffee to 13 ounces. That shocked consumers, for whom a pound of coffee had been as standard a purchase unit as a dozen eggs or a six-pack of beer, he said.

Once the economy rebounds, he said, a new “jumbo” size product typically emerges, at an even higher cost per ounce. Then the gradual shrinking process of all package sizes begins anew, he said.

“It’s a continuous cycle, where at some point the smallest package offered becomes so small that perhaps they’re phased out and replaced by the medium-size package, which has been shrunk down,” he said.

Background

WHY COTTON PRICES ARE RISING: (from cleveland.com)

Cotton inventories had been low because of weak demand during the recession. [Last] summer, new cotton crops were also depleted because of flooding in Pakistan and bad weather in China and India, all major cotton producers.

But demand from China, in particular, was rising. And as the economic recovery in the United States began, apparel makers and retailers placed orders for more inventory, spurring even more demand. As prices rose, speculators entered the market, driving prices even higher.

FROM A COMMENTARY ON CORN AND ETHANOL: (from wsj.com)

In 2001, only 7% of U.S. corn went for ethanol... By 2010, the ethanol share was 39.4%... Four of every 10 rows of corn now go to produce fuel for American cars or trucks, not food or feed.
This trend is the deliberate result of policies designed to subsidize ethanol. ...
This carve out of nearly half of the U.S. corn crop to fuel is increasing even as global food supply is struggling to meet rising demand.
U.S. farmers account for about 39% of global corn production and about 16% of that crop is exported, so U.S. corn stocks can influence the world price. ...
Demand from developing nations like China is also playing a role in rising prices, and in our view so is the loose monetary policy of the U.S. Federal Reserve that has increased the price of nearly all commodities traded in dollars.
But reduced corn food supply undoubtedly matters.
About 40% of U.S. corn production is used to produce feed for animals. As corn prices rise, beef, poultry and other prices rise, too. ...
This damage coincides with a growing consensus that ethanol achieves none of its alleged policy goals.
Ethanol supporters claim the biofuel reduces U.S. dependence on foreign oil and provides a cleaner source of energy. But Cornell University scientist David Pimentel calculates that if the entire U.S. corn crop were devoted to ethanol production, it would satisfy only 4% of U.S. oil consumption.
The Environmental Protection Agency has found that ethanol production has a minimal to negative impact on the environment. Even Al Gore, once an ethanol evangelist, now says his support had more to do with Presidential politics in Iowa and admits the fuel provides little or no environmental gain.
Not that this has changed the politics of ethanol. When consumers didn't buy enough gas last year to meet previous ethanol mandates, the Obama Administration lifted the cap on how much ethanol may be mixed into gasoline to 15% from 10%. Presto! More ethanol "demand."
On [Jan. 21, 2011] the EPA greatly expanded the number of cars approved to use the 15% blend [of ethanol-gas].
Last month, Congressmen whose constituents benefit from this largesse tucked into the tax bill an extension of the $5 billion tax credit for blending ethanol into gasoline.
At a time when the world will need more corn and grains, it makes no sense to devote scarce farmland to make a fuel that exists only because of taxpayer subsidies and mandates.
If food supplies tighten and prices keep rising, such a policy will soon become immoral.