Cheap Food, Where Art Thou?
American consumers are beginning to get a taste of what those abroad have long felt — expensive grocery prices. Who or what is to blame? Obviously, there has to be ONE simple explanation for the rapid rise in food prices. Right?
The latest foil seems to be ethanol and biodiesel. After all, if we weren’t using so much corn or soybeans to fill up our cars and trucks, it follows that corn and soybeans would be cheaper, wouldn’t it?
That’s what the Grocery Manufacturers Association lobbyists seem to be currently saying in Washington. And, it appears that some politicians are beginning to swallow the line.
An interesting aside as noted in Brownfield Ag News, FoodPriceTruth.org said, “While the Grocery Manufacturers Association is spreading the high price blame to biofuels, members of the association are beginning to reap abnormally high profits. Sara Lee has reported third quarter earnings of $242 million, up 61.2% over the same period last year, Dean Foods had second quarter earnings of $48.9 million, up 71.6% over the comparable period last year and, during the last year Campbell Soup profits grew 121%.”
In testimony before the Senate Agriculture Committee last month, Iowa State ag economist Bruce Babcock predicted corn prices to stay above $3.50 to $4.00 a bushel for the next five years. Following the common refrain, Babcock linked these commodity prices with the increasing demand for ethanol. He said that farmers can now expect a natural demand between 25% and 30% of their corn crops to the demand for ethanol.
That being said, Babcock failed to note the rising costs of transportation, fertilizer, herbicides and the falling U.S. dollar (as well as increased profitability of U.S. food producers and providers) for the rise in prices.
In that same hearing, cattle rancher and restaurant owner Jim Jenkins, who is also chairman of the Nebraska Ethanol Board, said that with the previous $2.00 corn, there was considerable over fattening of cattle. He added that restaurant owners had long complained to him about having to trim excess fat from beef.
Proving economists are, indeed, two-handed, in a recent report issued by three Purdue economists; Philip C. Abbott, Christopher Hurt and Wallace E. Tyner for the Farm Foundation, three main forces driving higher food prices were cited as:
- Global changes in production and consumption of key commodities,
- The depreciation of the U.S. dollar, and
- Growth in the production of biofuels
Among a complex set of reasons for rising prices, the three economists also cited a rapid economic growth in developing countries creating a change from cereal-based food consumption to animal- based protein, the slowing of worldwide agricultural production, the possible increase in commodity trading speculation, and the shifting value of the dollar vis-a-vis the price of oil.
The Purdue economists forecast that worldwide supply will eventually increase as prices rise while, at the same time, demand will decrease as a result of these same rising prices. They also foresee, however, a challenge for policy makers in finding options that effectively deal with these short-term price swings without adversely creating new long-term problems.
In short — the reason for food price rises is as long as the number of economists in the world. The old Truman adage about “wanting to meet a one-handed economist” is as relevant today as it was in 1950.
For those wanting to get a first hand view of the “Food vs. Fuel” controversy, you’ll want to be sure to hear Jon Doggett, Vice President of Public Policy for the National Corn Growers Association, during the Friday, Nov. 7 General Session at the Fall Convention. It promises to be a very lively session for Convention goers.