You Want How Much for That Bagel?

December 9, 2008

WASHINGTON (Dec 9, 2008)—The Washington Post ran a front-page piece in April penned by a fellow of the German Marshall Fund—a well-heeled and outspoken farm critic—about a DC-area bagel shop that was forced to raise prices because of wheat costs.

Like many news stories from the time period, the article—which is posted on the German Marshall Fund Web site—placed blame solely at the feet of farmers for the fact that patrons of Bethesda Bagels had to shell out $1.10 for a 95-cent bagel.

Farm Policy Facts has previously chronicled the work of the article’s author, and we were interested in knowing more about how Bethesda Bagels’ clientele are faring now that wheat prices have plummeted by more than 60% to the $5-a-bushel range.

Stephen Fleishman, the bagel shop’s proprietor, was quoted in April as saying he felt “helpless” about upping the price of signature item, describing the situation as a “nightmare.”  Certainly bagels are cheaper now that this “nightmare” is over.

Wrong.  More than seven months later, a bagel still costs $1.10 even though Fleishman says his flour prices have gone down from a per-bag high of $63 to around $35.  And Fleishman has no plans to lower bagel prices in the future.

That’s not unexpected. Most food manufacturers are quick to pass along higher commodity prices to shoppers but almost never pass along the savings of lower commodity prices.  It’s a phenomenon known as “sticky prices.”

In all fairness to the bagel shop owner, he’s been stuck with some sticky prices as well. As a small business owner who buys some pre-packaged products, such as fruit juices, he’s paying more for the products he’s buying from food companies. He also offers a product that is labor-intensive, which can account for the majority of a food product’s cost.

So it looks like the German Marshall Fund author was correct when he predicted in April, “the days of a bagel for less than a buck may not return to Bethesda anytime soon.”

But Fleishman says he hasn’t gotten any customer complaints of sticker shock and still has “lines to the door.”  He also admitted that he had plans to raise the price of his bagels even before wheat prices climbed earlier last year.

This admission is little consolation to farmers who were scapegoated as fueling the food price spikes.  Back in the spring, when fuel, fertilizer and other input costs were skyrocketing, growers worked their fields in hopes of a good harvest and a fair price. Today, world wheat production is expected to hit record levels and prices have tanked.

Lawmakers—some of whom probably start the day with a Bethesda Bagel—are growing increasingly frustrated with the situation.  One farm leader, Sen. Charles Grassley (R-IA), has even written a letter to large food manufacturers asking for either lower food prices or an apology for unfairly blaming ethanol and grain producers for higher retail food prices.

Maybe Grassley should send copies of his letter to The Washington Post and the German Marshall Fund, too.