Americans, Europeans and pretty much the rest of the world who dug deeper into their pockets for groceries last year will face sticker shock again this year when shopping for food.
"There's going to be real food inflation in this country," C. Larry Pope, president and chief executive of U.S. beef processor Smithfield Foods Inc., said at the U.S. Agriculture Department's annual outlook conference.
While the ethanol boom can be expected to bring higher incomes to farmers and reduce government outlays for farm programs, it also will contribute to higher crop and livestock prices. That is a given. How much more can the average consumer stand? I'm not sure, but we must remain vigilant. Start with examining closely all packages in supermarkets. Why? Over the flip.
For instance I have noticed that some cereal packets that come in 800 grams has been repacked weighing 750 grams with a price increase of nearly 10%. Ditto with a packet of 1.5 kg of plain flour, it is now 1.25 and has gone up 7%. Prices have gone up on every single item for the last fifteen months. Milk, bread and all dairy products have gone way up, we're told, because of China and India's insatiable demand for Western food products. I would acknowledge that claim up to a point but would also lay part of the blame on the meteoric rise of the bio-fuels. Thanks to a combination of high oil prices and even more generous government subsidies, corn-based ethanol has become the rage. There were 110 ethanol refineries in operation in the United States at the end of 2006, according to the Renewable Fuels Association. Many were being expanded, and another 73 were under construction. When these projects are completed, by the end of 2008, the United States' ethanol production capacity will reach an estimated 11.4 billion gallons per year. In his latest State of the Union address George W. Bush called on the country to produce 35 billion gallons of renewable fuel a year by 2017, nearly five times the level currently mandated.
The push for ethanol and other biofuels has spawned an industry that depends on billions of dollars of taxpayer subsidies, and not only in the United States. In 2005, global ethanol production was 9.66 billion gallons, of which Brazil produced 45.2 percent (from sugar cane) and the United States 44.5 percent (from corn). Global production of biodiesel (most of it in Europe), made from oilseeds, was almost one billion gallons. That is not small potatoes.
USDA Chief Economist Joseph Glauber forecast that consumer food prices would rise 3.0 to 4.0 percent this year after a similar 4.0 percent hike in 2007.
He added that "overall retail food prices for 2008 to 2010 are expected to rise faster than the general inflation rate."
The spike in grains prices stems partly from the growing biofuels industry, especially manufacturers of corn-based ethanol.
There is an obvious correlation between the surge of the bio-fuels and the rapid rise of foodstuffs. Whatever this means to all of us, it is going to be a belt tightening exercise.
The Bureau of Labor Statistics said in its July inflation report that egg prices are 33.7 percent higher than they were in July 2006. Over the same period, according to the department's consumer price index, whole milk was up 21.1 percent; fresh chicken 8.4 percent; navel oranges 13.6 percent; apples 8.7 percent. Dried beans were up 11.5 percent, and white bread just missed double-digit growth, rising by 8.8 percent.
In the months to come I will write mostly about how to cut corners with food bills, how to start a small vegetable garden from scratch, and post simple-to-follow recipes for people who do not have the time to cook.