The Rising Cost of Food

[TAPrice]

This fascinating New York Times article looks at rising cost of palm oil.

Rising prices for cooking oil are forcing residents of Asia’s largest slum, in Mumbai, India, to ration every drop. Bakeries in the United States are fretting over higher shortening costs. And here in Malaysia, brand-new factories built to convert vegetable oil into diesel sit idle, their owners unable to afford the raw material.

A PRECIOUS COMMODITY In Mumbai, Rajkanya Kawle, 11, held palm oil for her family’s dinner. The 250 milliliters of oil cost 16 rupees, about 41 cents. More Photos »

This is the other oil shock. From India to Indiana, shortages and soaring prices for palm oil, soybean oil and many other types of vegetable oils are the latest, most striking example of a developing global problem: costly food.

The food price index of the Food and Agriculture Organization of the United Nations, based on export prices for 60 internationally traded foodstuffs, climbed 37 percent last year. That was on top of a 14 percent increase in 2006, and the trend has accelerated this winter.

It's a complicated issue. The article says the rising cost is driven by higher transportation costs, increasing use of biofuel, economic mobility in developing nations leading to increased demand and global warming affecting agricultural areas.

With so many factors, it's hard to see an answer to the problem. Have food price increased dramatically where you live? I have to assume that rising costs have yet to hit American consumers hard, or we would see some talk among politicians about it.

This article is the first part of a series.

[Toliver]

It's already hit consumers hard. Milk prices (and most dairy products) were some of the first food items to reflect the increase in the price of fuel oil. I've noticed a lot of grocery items have increased in price and also that restaurant prices have gone up, too (I don't eat out that often but I go enough to notice the increases).

Fuel prices are slowly becoming a factor in the current US political arena. I'm just surprised it's taken them this long to notice that this problem is rippling through the economy as is evident by its impact on our dining tables.

[gfron1]

On the wholesale end I can tell you that many of my distributors have increased prices up to 10%. Most are in the 4% ballpark. I, like many of my peers, have absorbed price increases over the past two years, but that is ending. We simply can't afford to keep doing it.

[TAPrice]

I've had a general sense that groceries have increased, but it's hard for the consumer to track these things (ok, it's not hard, but few of us analyze our expenditures the way a business does). It seems like people are quick to recognize increases on certain key items, like milk, but that may be because these items fluctuate more.

I just find it odd that, if the price increses are starting to be felt, that we haven't seen a political response. I mean, gas prices edge up and suddenly congress holds hearings. I suspect that many manufacturers, restaurants and retailers, like Rob, have been eating the costs and shielding consumer from the full cost.

Is there a political solution? Is there a structural solutions? Or are higher prices just something we'll have to live with?

Edited January 22, 2008 by TAPrice (log)

[gfron1]

My sense is that the problem is too diffused to address. You can look at dairy, oil, grain for fuel, or you can look at the overall impact of the decreasing value of the US$, the impact of last year's fires in Cyprus (impacts my store anyway), the increasing consumption in China and India (where I no longer can get inexpensive grains). Its a BIG problem - what politician is ready to deal with this?

[Felice]

I received a newsletter this morning from Dr Andrew Weil which mentioned a study by the University of Washington presented in the December, 2007, issue of the Journal of the American Dietetic Association. The study revealed that the prices of fresh fruits and vegetables have risen almost 20 percent in the past two years in the US and Europe.

How can it be that a carrot could cost more than processed junk food? No wonder Americans have such a weight problem.

According to the newsletter, the only way to rectify the situation is to change the US Farm bill and stop subsidising cheap foods like corn, wheat and rice which are then made into highly processed cheap food and subsidise fruits and vegetables instead.

[TAPrice]

This Dow Jones wire story warns of the dangers of price controls on food.

Last month, China said it would require producers of pork, eggs and other farm goods to seek government permission before raising prices. When producers do seek permission, it is denied, market participants say. Thailand is taking similar steps on instant noodles and cooking oil, while Russia is trying to cap prices on certain types of bread, eggs and milk.

Elsewhere, Mexico is trying to control the price of tortillas, and Venezuela is capping prices on staples including milk and sugar. Malaysia is setting up a National Price Council to monitor food costs and is planning stockpiles of major foods, as well as a 24-hour hot line for consumers to vent about spiraling food costs.

....

Economists warn that price controls encourage hoarding and can lead to supply shortfalls, fueling unrest. Faced with persistent food shortages, the government of Venezuela last week warned it could "expropriate" any food company necessary to ensure the nation's "food security and sovereignty."

Perhaps the biggest disadvantage of price controls, however, is that they short-circuit potential changes in behavior by producers and consumers that might damp the underlying causes of inflation. If price controls are kept in place too long, economists say, odds increase for a precipitous and destabilizing jump in prices later on.

This article attributes the rising costs primarily to demand for biofuel and improving diets in large developing countries like China and India.

Interestingly, it points to price controls on oil in certain countries as one reason for the cost of fuel, another factor often cited for rising food costs.