Food costs soar as demand grows for agricultural goods - East Valley Tribune: Nation / World

Food costs soar as demand grows for agricultural goods

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Posted: Saturday, June 16, 2007 5:44 am | Updated: 7:52 pm, Fri Oct 7, 2011.

WASHINGTON - The nation’s unquenchable thirst for gasoline — and finding an alternative to what’s been called our addiction to oil — has produced an unintended consequence: The cost of the foods that fuel our bodies has jumped.

Beef prices are up. So are the costs of milk, cereal, eggs, chicken and pork.

And corn is getting the blame. President Bush’s call for the nation to cure its addiction to oil stoked a growing demand for ethanol, which is mostly made from corn. Greater demand for corn has inflated prices from a historically stable $2 per bushel to about $4.

That means cattle ranchers have to pay more for animal feed that contains corn. Those costs are reflected in cattle prices, which have gone from about $82.50 per 100 pounds a year ago to $91.15 today.

The corn price increases flow like gravy down the food chain, to grocery stores and restaurant menus.

The cost of rounded cubed steak at D.C.-area grocery chain Harris Teeters is up from $4.59 last year to $5.29 this year, according to TheGroceryGame. com, which tracks prices. The Palm restaurant chain recently raised prices as much as $2 for a New York strip. And so on.

“Anybody that knows anything about the marketing of corn knows that when you raise the price of corn you are going to create problems in all of the markets that use corn,” said Ronald Cotterill, director of the Food Marketing Policy Center at the University of Connecticut.

Though the increases may seem hard to swallow, Americans have been relatively fortunate on food prices, spending only about 10 percent of disposable personal income on food. That expense was more than 20 percent in 1951, the U.S. Department of Agriculture said.

But now some economists and analysts say the corn price increase could combine with other factors — poor weather and soaring energy costs — to unsettle the food industry, since corn products are used not just to feed animals but also in corn syrup, the sweetener of choice for such items as soft drinks and cookies.


Hershey, the chocolate maker, recently lowered earnings projections because of higher milk costs. So did Dean Foods, a major milk processor. General Mills and Kellogg’s have bumped up cereal prices.

Marriott International, which typically sees price increases of 2 percent to 3 percent a year for its purchases of protein items, now expects that to at least reach 6 percent next year and perhaps go as high as 8 percent. The company buys 10 million tons of beef a year.

“It’s a risk we are really paying attention to now,” said Brad Nelson, Marriott’s corporate chef, though the firm is not increasing its restaurant prices.

The heightened demand for corn has decreased the supply of other grains, including soybeans, because farmers are shifting fields to make room for corn. Soybeans are a key ingredient in trans-fat-free cooking oils now in high demand as cities and counties ban fatty oils in restaurants and bakeries. New York was the first city to do so, and other municipalities have followed. Now Sysco, a Houston food company that is a major supplier of trans-fatfree oils, says it is seeing pricing pressure on the product.

To be sure, the higher grain prices are not the only factor causing increases in food prices. In the case of milk, Chris Galen, a spokesman for the National Milk Producers Federation, said prices are up partly because of an increased demand for exports to Asia because of the rapid economic expansion there. Also, Americans are eating cheese with zeal. About 45 percent of the nation’s milk is used for cheese.

Even though other factors help increase food prices, the industry seems to be particularly concerned about ethanol. A number of key players — ranging from H.J. Heinz to PepsiCo to the United Egg Association — have responded to the recent energy debate by sending a long letter to Senate Majority Leader Harry Reid, D-Nev.

“Rapid development of the corn-based ethanol industry is already having adverse impacts on food supplies and prices, a major concern for many consumers,” the letter said. “In addition, the continued aggressive expansion of corn ethanol production diminishes the availability of soybeans and other crops that provide healthier oils.”

Price comparison

Comparison of prices in April 2007 vs. April 2006 across food sectors:

Corn: 42.56 percent increase (price per bushel Friday vs. one year ago)

All food and beverages: 3.6 percent increase

Beef: 4.7 percent increase

Eggs: 18.6 percent increase

Cupcakes, cakes, cookies: 3.7 percent increase

Carbonated drinks: 5 percent increase

Poultry: 4.6 percent increase

Milk: 3.2 percent increase

SOURCE: Bloomberg, Bureau of Labor Statistics

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