Food Prices

By Wendy Gordon

I'm not a budget-driven shopper. For years, I've bought what's healthy, organic, and good-looking, and that's added up to a remarkably similar cost each week. I don't buy processed foods, so the latest psychedelically-tinted breakfast cereal doesn't affect my budget. This year, however, I noticed my grocery bill skyrocket, to the tune of a hundred dollars more per week. Soon national headlines echoed my perception: for the first time in a generation, world food prices are dramatically on the rise. The principal grain commodities of corn, wheat, rice, soybeans and barley rose slowly in 2001 and spiked in 2005. Since then, food commodity prices have risen 98%. USDA economist Ronald Trostle estimates that world food prices have increased 60% in the past two years.

Problems with food supply comprise part of the picture. World population increases while nonfarm activities consume arable farmland. In some areas, farmers are paid subsidies to leave their land fallow. Global warming creates worldwide agricultural challenges, from erratic weather patterns to burgeoning pest populations. In countries such as Australia, global warming may be responsible for severe droughts and stressed water resources. However, the causes of the food price spike are economic and political rather than climactic.

For a long time, the United States and Western Europe have dominated the "developed" world. Recently, other populous nations, most notably China and India, are gaining economic power and demanding more high-protein foods. In 1985, the average Chinese consumer ate forty-four pounds of meat per year; now he eats over a hundred. Consequently, animal feed claims more of the grain supply.

America's ethanol program requires additional grain as well. Encouraged by the government, American farmers currently devote one-third of the corn crop to biofuels. According to the World Bank, the corn needed to fill up an SUV would feed a person for a year. Demand and subsidies compel farmers to plant corn rather than other grains such as wheat and soybeans. Some countries convert a variety of crops to fuel: soybeans in Brazil, cassava and sweet potatoes in China. Such circumstances produce a circular predicament: higher grain prices make meat more expensive; higher demand for meat makes grain more expensive, ad infinitum.

Higher oil prices accentuate the rise in commodity prices by increasing agricultural costs, from petroleum-based fertilizers and pesticides to packaging and shipping. As the commodity prices surge, farmers plant more of the highly priced crops to maximize their returns, leading to shortages in other crops. Supplies of malting barley, peas, lentils and sunflowers are also tight.

The declining value of the dollar spurs demand for both food and oil in countries where the currency is stronger.

Currently, wheat stockpiles in the US are at their lowest point since World War II, with less seed available for planting. High grain prices, unsurprisingly, lead to high bread prices. Here in the Northwest, the cost of a loaf of bread has risen by at least a third, and one of my favorite local bakers fears that he will run out of whole grain wheat before the end of the year. High grain prices raise the prices of other goods, from dairy products (feed for cows) to processed foods (often containing corn or soy products such as corn syrup, hydrolyzed protein, or lecithin) to beer (shortages of malt barley). Higher prices are clearly affecting many agribusiness corporations; Kraft Foods announced a 40% rise in dairy prices, Tyson Foods is raising chicken prices and Hershey bars cost 6% more than last year.

The recent Midwest floods destroyed million of acres of corn crops and drove livestock from their barns. This will only intensify rising food costs.

While cause for serious concern, this food price spike is not quite the crisis it is made out to be.

Firstly, a higher-protein diet in the developing world is a good thing. We are entering an era of greater equity in the worldwide division of resources, and Americans are going to have to adjust to it. Higher prices help Third World farmers, keeping them on their land and out of urban slums. Some would say the more self-sufficient a country is in food production, the less subject it is to the vagaries of international markets.

Secondly, Americans have become accustomed to spending a miniscule fraction of their income on food, in comparison to what much of the world spends. Food prices are rising at their highest rate in fifteen years, but haven't reached the rate of double-digit inflation of the 1970s.

Since the current price spike is in basic commodities, everybody is going to feel it, no matter what they eat. However, basic budgeting skills can still mitigate the pinch. Processed foods command premium prices, an effect that accelerates the further you go up the food chain. Flour costs more than it used to, but the proportional costs of packaged cereal are much higher, as you pay for packaging costs as well as corn and soy additives. Grains still cost less than grain-fed animal products, and meat from grass-fed animals may be nutritionally superior. Buying locally cuts out priceraising middlemen, and helps local farmers deal with increased costs.

Groceries are likely to take a bigger bite out of our budgets for some time to come. Watch the co-op website, in-store displays, and newsletter for tasty and economical recipes.