Why your food is costing more money

Tom Curry National affairs writer • Profile • E-mail

WASHINGTON - If you’re fuming about how high gasoline prices have gotten, why not relax with a nice meal?

Perhaps a few beers and a turkey sandwich? Maybe a chicken Caesar salad?

Well, it's not just the price of gasoline that's going up. That beer, turkey and chicken are also costing more too.

As President Bush noted in his comments on the economy Friday, “Prices are up at the gas pump and in the supermarket.”

Food prices increased at a compound annual rate of 4.7 percent for the three months ending in February, according to data released Friday by the Bureau of Labor Statistics.

That increase was far less than the 7.6 percent jump in energy prices for the same period, but it occurred in a financial environment in which investors have been fleeing declining dollar-denominated assets such as U.S. stocks and bonds. Instead, they've been investing in commodities, such as wheat, corn, and soybeans — and it's driving up their prices.

World financial markets may seem remote from you; far away from from that turkey sandwich in your hands.

But chew this over before you swallow: seventy percent of the cost of raising that turkey in your sandwich was the food it ate. And turkeys eat corn and soybean meal.

Tough times for turkey producers
Turkey producers have been especially hard hit by a recent surge in corn and soybean prices.

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But don’t say they didn’t warn you.

Exactly one year ago National Turkey Federation president Ted Seger told the House Agriculture Committee that the federal ethanol mandate would drive up corn and soybean prices and hurt consumers who eat turkey.

There have long been tax breaks to encourage production of ethanol, and last year President Bush signed a law mandating a substantial increase in the use of renewable fuels, principally ethanol, over the next 15 years.

At the Annual Meat Conference this week, a gathering of retail meat industry, economist Tom Elam reported his estimate that the ethanol mandate would result this year in each chicken raised by an American farmer costing 53 cents more to raise than it would have cost without the mandate. As for turkeys, well, it'll cost the farmer $3.40 more to raise each one.

As Federal Reserve Chairman Ben Bernanke explained to the Senate Banking Committee last month, “a significant portion of the corn crop is being diverted to ethanol, which raises corn prices.”

And he added, there are “knock-on effects. For example, some soybean acreage has been moved to corn production, which probably has some effect on soybean prices. So there is some price effect on foodstuffs coming through the conversion to energy use.”

Defenders of the ethanol mandate
But senators and governors from the ethanol-producing states defend the tax incentives and mandates that have led farmers to divert more land to corn, and more corn to ethanol.

Minnesota Gov. Tim Pawlenty, a Republican, said, “What we have now (corn-based ethanol) is going to be viewed as early stage, and what’s coming is going to be much better. And what’s coming is cellulosic ethanol, where you’re going to be able to take not food and make it into fuel, but other sorts of products — it may be corn stalks, switchgrass, woody pulp material, or other things that are not connected to the food chain.”

Pawlenty estimates cellulosic ethanol is “probably three to seven years away” on a widely-available market basis.

“The concern about food-based ethanol is one that we’re mindful of,” he added.

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Pawlenty’s fellow Minnesotan, Sen. Amy Klobuchar, a Democrat, said Thursday that ethanol is “clearly a piece of it (the food price increase) because there’s more demand for corn and soybeans. But that’s why in the farm bill we do start with some good incentives to expand into cellulosic. There’s an acknowledgment even from the best corn growers that there’s only so much corn, and that we’re going to have to start expanding into corn stover as well as switchgrass.”

Sen. Ben Nelson, D- Neb., said, “I think this (food price inflation) is a short-term phenomenon,” because farmers will bring more land into production, causing supply to increase and prices to fall.

He also cited the costs of oil and transportation as contributors to higher food prices. “It’s just not right and it’s unfair to say it’s all about corn-based ethanol,” Nelson said.

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