Brazil, China Partly to Blame for Higher Ice Cream Prices

In a July 30, 2011 photo, three-year-old Kye Waishes, of Houston tries to beat the heat melting his ice cream cone at the Delaware State Fair in Harrington, Del.  Saturday was the final day of the fair. (AP Photo/ The News Journal, Gary Emeigh) NO SALES

In a July 30, 2011 photo, three-year-old Kye Waishes, of Houston tries to beat the heat melting his ice cream cone at the Delaware State Fair in Harrington, Del. Saturday was the final day of the fair. (AP Photo/ The News Journal, Gary Emeigh) NO SALES  (2011 The News Journal)

Customers to Jim Capannari's ice cream shop in suburban Chicago are paying more for their frozen treats this year—but their spike is much less, comparably, than the one he’s suffering in the cost of raw materials.

"The bottom line is you want to stay in business," said Capannari, who went so far as to hang a sign explaining and apologizing when he hiked the price of cones up a dime, to $3.25.

There's no question the price increases for ice cream's raw materials have been steep: Milk prices have gone up an average 38 percent in the past year, according to the U.S. Department of Agriculture, while sugar prices are up almost 20 percent and the cost of high-fructose corn syrup rose just over 22 percent.

Yet the U.S. Bureau of Labor Statistics says the average price of a half-gallon of ice cream has increased just 7 percent in that time.

The factors behind the price increases for ice cream's base ingredients are much the same as those for food in general: Global demand, a weak dollar that makes American products more affordable overseas and the high cost of the mostly corn feed that most dairy cattle eat, according Penn State University economist Jim Dunn, an expert on the dairy business.

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In this case, he said, economic growth has turned the Chinese into major consumers of dairy products, but they don't trust their own country's powdered milk after tainted milk killed a number of babies and sickened thousands more. The relatively weak dollar makes American powdered milk a bargain in China and, as a result, the cost of a hundred pounds of milk a standard wholesale measure hit $22.10 last month.

"That is the highest price that we've ever seen," Dunn said.

Similarly, sugar prices have been increasing over several years of high demand and big producers like Brazil coming up short.

"That was one of those things that I never knew I would have to get into, commodities markets," joked Capannari, who said his start in the business a decade ago coincided with a roughly 400 percent increase in the cost of vanilla, something that caught him way off guard at the time.

Since then, he's gotten used to that sort of thing.

And he's gotten used to absorbing most, if not all, of the hit in his store and catering and wholesale businesses. He normally opens his store in Mount Prospect on St. Patrick's Day with one set of prices and keeps them there until he closes in October. This year, though, hasn’t been normal.

Ice cream buyers like Lana Bradley of Champaign, Ill., say he's right to be wary of price-conscious customers. She shopped Thursday at a Schnucks grocery store in Champaign with a list full of sale items on a clipboard. Her ice cream, a seasonal flavor she really likes, wasn't among them, but she said the price almost $5 a half gallon was about as much as she'd pay.

"It is quite good," the retired grandmother said, nodding toward the carton in her cart. "(But) I probably wouldn't buy it if it went up any higher than it is now."

High-end ice creams, however, have carved out a niche for themselves during the recession and now-stalled recovery, said Larry Finkel, the food and beverage research director for the market research company Packaged Facts in New York. The products represent a form of affordable luxury, a treat that stands in for more expensive indulgences, such as travel or electronic toys.

"I think of Graeter's ice cream," Finkel said, referring to the 141-year-old Cincinnati company that only recently started selling nationally. "They use premium ingredients and they charge a good healthy amount of money for a pint of ice cream and it becomes a good healthy kind of planned indulgence."

But even companies that charge a premium for their pints say they aren't making much money. Jeni's Splendid Ice Creams runs just shy of $10 a pint, but CEO John Lowe said much of that goes toward the ingredients.

"Grass grazed cows," Lowe said, explaining where some come from. "We direct ship in from Uganda these amazing vanilla beans."

The cost, he said, adds up. But the Columbus, Ohio-based company won't bet customers will pay more.

"We have worked hard not to raise prices and in the last year have not done so," he said, explaining that Jeni's has tried to save money elsewhere, on transportation in particular. "But the increase in commodities and fuel does impact the bottom line. We joke that we work in not a not-for-profit, but a low profit."

Back at the Schnucks grocery in Champaign, most shoppers in the ice cream aisle said they look for sales these days and buy based on price. Most said they'd probably give up ice cream if the cost went up too much.

But not all.

"Usually every week, we usually get some vanilla or something like some mint-chocolate chip," said Randy Rowe, 53, of Champaign. He paused to think about whether he'd skip ice cream. "Probably not."

Based on reporting by The Associated Press.

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