August 2008 Issue

What Goes Up Doesn’t Always Come Down:
The Rising Cost of Food
By Christen C. Cooper, MS, RD
Today’s Dietitian
Vol. 10 No. 8 P. 38

As gravity dictates, what goes up must come down. But if predictions are correct, food prices may defy the laws and continue to climb into the foreseeable future.

Car fuel and people fuel. Never have the two been more intertwined, nor have they been at greater odds. As the price of gasoline continues to soar, trips to the grocery store and the purchases we make there are seriously denting our wallets.

The retail price of nearly all foods has risen over the past several years and most markedly in recent months. The USDA reports that food prices rose 4% overall in 2007, outpacing inflation and surpassing the 10-year average increase of 2.6%. According to the Bureau of Labor Statistics, food prices increased at a 4.7% compound annual rate from December 2007 to February 2008.

Americans are feeling the crunch not only because we have enjoyed stable food prices for nearly two decades but also because the greatest source of sticker shock lies at the base of the food pyramid: grains. The Consumer Price Index (CPI) indicates that the price of bread, cereals, and bakery products rose 8.9% in the past year. Because grain is a major component of animal feed, milk and egg prices also jumped 11.8% and 30.5%, respectively, in the past year, according to the USDA.

This new price level—the highest since 1990—is probably here to stay and may increase further before stabilizing. The USDA believes that the CPI for all food is likely to increase between 4.5% and 5.5% in 2008.

Reactions in the United States
Americans are reacting to higher prices in different ways, but it seems that most are purchasing less food, searching for cheaper products, or at least rethinking unnecessary items.

The Wall Street Journal reported in May that a rising number of middle-class Americans are stockpiling higher ticket items such as meat in basement freezers and filling their pantries with bulk containers of shelf-stable foods in anticipation of price hikes. The newspaper also featured a story on the rationing of rice and soybean oil at Costco and Sam’s Club stores in Arkansas, where consumers rushed to stock up.

In March, ABC News reported on the success of “salvage grocers,” stores that sell damaged or expired foods that other grocery stores have rejected at deep discounts. Amelia’s Grocery Outlet, a chain supermarket in southeastern Pennsylvania, sells spaghetti at $0.69 instead of the normal retail price of $1.30 and orange juice for $2 instead of $3.50. The news report said the company attracts customers by advertising that the store can cut grocery bills in half.

For many Americans already tight on cash, the pocketbook pinch is leading them to food pantries, soup kitchens, and government food assistance programs to meet their nutritional needs. America’s Second Harvest, the nation’s network of food banks, surveyed 180 food banks in cities across the United States in April and May. All but two saw increases in clients ranging from 15% to 40% over the last year.

City Harvest, a nonprofit organization that provides transportation for donated food to numerous soup kitchens and food pantries in New York City, says it has seen a drop in the number of baked good donations because these items are now more valuable to donors. The organization also reports noticeably higher participation rates, seeing an influx of “working families, people we haven’t seen before.” Just across the river, a food pantry in affluent Westchester County, N.Y., has also observed growing numbers of people, especially working immigrant families.

According to the latest USDA reports, Americans spend an average of 10% of their income on food. However, those in the lowest income bracket spend about 5% more of their income on food than those in the highest bracket. This growing hardship is reflected by the rising demand for government nutrition services at a time when issuing agencies fear possible budget cuts.1

As Jennifer Weber, MPH, RD, national nutrition policy manager for the American Dietetic Association, discussed in a recent article, rising food costs are placing a strain on cash-strapped government nutrition programs. According to the article, 60% of schools that receive National School Lunch Program funding report that meal reimbursements fail to cover meal costs. Thus, as food costs increase, schools are hard-pressed to maintain nutritional standards while producing meals within budget.

The Food Stamp Program faces similar struggles. The minimum Food Stamp benefit of $10 has not been adjusted for inflation in 30 years, and growing food prices widen the gap between what clients need and what they can afford. The Women, Infants, and Children Program, which recently revamped nutritional packages to contain more fruits, vegetables, and whole grains, has been forced to replace peanut butter with beans and to cut allotments of eggs and dairy in some states to control costs.1 Expanded funding is necessary for improving these programs and serving their growing target populations.

Reactions Abroad
While food supplies have shrunk in the United States, people are starving in the developing world. News reports on food shortages have become commonplace during the past few months. In May, Fox News reported that 37 nations had declared food crises, and 20 had imposed price controls to help keep food affordable.

Reuters reported that Argentina, the world’s fourth largest wheat exporter, banned such exports for several weeks in March and April to preserve its supplies. Pakistan, Honduras, and Bolivia halted wheat or corn exports, and China has increased export taxes on several grains. Economists say that when countries start to impose export reductions, local farmers lose money, and the incentive to improve and increase future yields diminishes. There is also a good deal of trade warfare between rice-producing and rice-consuming countries such as Thailand and Japan.2

Food riots have broken out in places such as Burkina Faso, Cameroon, Indonesia, and Mexico. Even in locales where supplies are ample, poor people cannot afford to buy the food. The prime minister of Haiti was even ousted due to food conflicts.2

Kimberly Lutes Haider, RD, an American who resides in Singapore and belongs to that country’s dietetic association, reports that the price of rice is directly impacting daily life in southeast Asia. “Food prices have increased very significantly. Since rice is a staple eaten at most every meal, its dramatic price increase is having a severe impact on all people, especially the poor,” she says. “Rice and food prices have tripled in the past year, and wages have not kept pace. Here in Singapore, restaurants and hawker stands have had to absorb the food cost hikes. Although southeast Asian governments are trying to do something about the situation, there are fears that it won’t be enough to prevent public unrest in the future.”

Causes of Rising Costs
Global economists say that the recent price jumps have stemmed from vast changes in the global economic landscape, which now involve tighter links between agriculture, energy, and finance. The Chicago Board of Trade claims that the high levels of investment in grain derivatives are defying conventional economics, and some deals are under investigation. In addition, a larger number of investors are entering the grain market and making it difficult for farmers to use futures to set commodity prices.3

Some experts say that a rapidly increasing and urbanizing world population is creating a greater demand for meat, which, pound for pound, requires more energy to produce. Others point to the high price of petroleum, which provides the energy for the planting, harvesting, fertilizing, processing, and transporting of conventionally grown food to markets around the world.

Still others say that recent food price increases are mainly due to higher labor costs, noting that labor is the biggest chunk of the “marketing bill,” the costs of selling food that are incurred beyond the farm stage.4 By this thinking, the new, higher U.S. minimum wage, which is scheduled to take effect near press time, may push food prices even higher.

Whatever the reasons behind the cost increases, market analyses show that large farms are still reaping large profits, as are most large grocery store chains and superstores.5 Thus, the additional costs of acquiring grain for food, feed, or fuel are being passed on to consumers, and carbohydrate-loving Americans are picking up the tab.

Food vs. Fuel
The most publicized factor behind higher food prices is the diversion of corn crops to ethanol production. The International Food Policy Research Institute in Washington, D.C., estimates that the increase in world ethanol demand was responsible for 30% of the rise in grain prices from 2000 to 2007.

For years, numerous nations, including the European Union  countries and Brazil, have led the way in alternative fuel production and utilization. According to the Food and Agriculture Organization (FAO) of the United Nations, world corn utilization increased by 40 million tons in 2007, and almost 30 million of those tons were utilized by ethanol plants. Today, about 12% of the worldwide maize crop is dedicated to ethanol production, but this may rise due to some nations’ policies and goals to increase reliance on this biofuel.

In fact, last year, the United States—long considered the world’s environmental laggard—passed a law mandating a 15-year increase in ethanol use. For years, the United States has provided subsidies for its farmers, even for large industrial farmers, to keep U.S. grain cheap and plentiful. These subsidies may now help the same farmers produce corn for ethanol, which captures higher market prices than corn produced for food. Thus, political changes, along with growing world demand for alternative fuels, have led to the dedication of one fifth of the U.S. corn crop to ethanol production.6

The “green” promise of ethanol fuel, thought to ease demand for environmentally harmful fossil fuels, has arguably backfired and created stress on food supplies. Less than a decade ago, there was consensus that boosting ethanol production would mean planting more corn, which would absorb more carbon from the atmosphere while conveniently utilizing the corn surpluses of developed countries—all without hurting the world food supply. Agronomists and economists believed that the market for ethanol would provide new revenue for farmers and encourage the technological innovation and investments that were long overdue in developing countries. The trouble came when experts discovered they neglected a few key factors in the ethanol equation.

For one, converting some of the land once used to grow wheat or soybeans to corn fields means that supplies of these crops drop and prices go up. And with a lower supply of wheat and soybeans, adverse weather conditions or natural disasters trigger far more devastating effects on world grain supplies. Another problem with the biofuel revolution is that planting more corn leads directly to  the deforestation of virgin land. Burning forests release more carbon into the atmosphere than the newly planted crops could possibly absorb.

Looking to the Future
Most experts do not believe that the United States or other developed nations will enjoy the low food prices of past decades anytime soon. Others predict that the boom in the grain market may represent a bubble that is vulnerable to bursting like the housing bubble did last year. Assuming current biofuel production mandates continue, the United Nations predicts that world food costs could increase 10% to 15% in coming years. And unless governments act quickly and generously, suffering in this nation and in poor nations may grow more severe.

Consumption Changes
Can any good come from high food prices in the United States? Darius Lakdawalla, PhD, director of research at the Bing Center for Health Economics at the RAND Corporation, believes that people are bound to eat less—and weigh less—when food prices are higher. “This prediction matches the historical evidence, which suggests that people gain weight when food is cheap,” he explains. “For instance, the decline in food prices from 1978 through the 1990s can explain as much as one half the growth in average body weight that occurred over that period. It is quite possible that the process will run in reverse as food prices rise. The apparent rise in the price of grain is likely to contribute to weight loss. However, the eventual outcome depends on which particular food prices are rising: the prices of fruits and vegetables, or of fats and oils, or of refined carbohydrates.”

Any slimming down of overweight Americans would be positive in terms of health, as long as the diet consists of nutritious foods and junk foods are the ones that fall by the wayside. A good way to produce healthful weight loss is to reduce empty carbohydrate intake. However, many of the foods becoming more expensive contain mainly complex carbohydrates, while junk food prices have actually fallen.1

Policy Changes
On the policy front, the European Union is starting to rethink biofuels, currently reconfiguring its plan to run 10% of its vehicles on ethanol by 2020. Agricultural policies in most wealthy nations are slowly moving away from farm subsidies, and this may help small U.S. farmers and those in the developing world prosper. The most recent version of the U.S. Farm Bill continues substantial subsidies for large farms, even after much debate. For years, the Farm Bill has channeled 56% of all government payments to the top 11% income-earning farms—a reality that, in the global economy, hurt small farms virtually everywhere.7

Furthermore, the developed world will need to deliver on its promises of foreign aid to poor countries. In 2005, the G8 countries promised $50 billion in annual aid increases by 2010, but they have increased aid by only $11 billion.8 Wealthy nations can help by supporting local, sustainable food systems in poor regions rather than exploiting them as new commercial markets. Developing nations can play an important role by refraining from imposing export bans that further disrupt the global market system. The current trade system does not take human needs into account; it simply sells products to the highest, not the hungriest, bidders.

Many experts believe that there is no world food shortage, only unjust food distribution. After all, Americans toss away up to 26% of what’s on their plates, while some people in poor countries live on small amounts of food all their lives.9 There are numerous steps people can take to help save money, stay healthy, and save the planet. Share the following tips with your clients:

• Cut back on meat. Meat and animal products are the most grain-expensive foods; make plant foods the base of your diet.

• When you eat meat, look for grass-fed or free-range products.

• Eat plenty of fruits, vegetables, and complex carbohydrates. Because grain products are expensive, choose the most nutritionally dense selections and avoid sugary foods.

• When you find a favorite bread at a good price, buy plenty of it, slice it, and freeze it.

• Talk to your grocer/farmers’ market staff about keeping locally baked, or at least healthful, and affordable breads in stock.

• Eat what’s in season and look for labels indicating “locally grown” at the grocery store. By eating what’s in season, you can better support local farmers.

• Try to shop at farmers’ markets and local produce stands whenever possible to reduce demand for food transport. (However, if you choose highly processed food, there’s less benefit to eating local food.)

• Try to cook and eat at home to control where your food comes from and keep costs down.

• Join a community-supported agriculture organization, an arrangement whereby a local farm sells a share of its seasonal produce, delivering a family-size box (or more) of seasonal fruits and vegetables throughout the growing season.

• Write your government representatives about supporting sustainable agriculture in the United States and in developing nations, as well as supporting aid to small farmers in America and abroad. Oppose subsidies for large, industrial farms.

— Christen C. Cooper, MS, RD, is a Pleasantville, N.Y.-based freelance health and nutrition writer. She has worked in healthcare consulting in Latin America and the United States and holds a master’s degree in nutrition education from Teachers College, Columbia University.

References
1. Weber JA. Increasing food costs for consumers and food programs straining pocketbooks. J Am Diet Assoc. 2008;108(4):615-617.

2. Curry T. Why your food is costing more money. MSNBC online. March 14, 2008. Available at: http://www.msnbc.msn.com/id/23632933. Last accessed May 1, 2008.

3. Henriques DB. Odd crop prices defy economics. The New York Times. March 28, 2008. Available at: http://www.nytimes.com/2008/03/28/business/28commodities.html?n=Top
/Reference/Times%20Topics/Subjects/S/Soybeans. Last accessed May 1, 2008.

4.  Food Marketing Institute. Marketing costs. Available at: http://www.fmi.org. Last retrieved May 1, 2008

5. Herszenhorn DM. Farm income up, but subsidies stay. The New York Times. April 24, 2008. Available at: http://www.nytimes.com/2008/04/24/washington/24farm.html?ref=us

6. Food and Agriculture Organization of the United Nations. Food situation. January 2008. Available at: http://www.fao.org/worldfoodsituation/en. Last retrieved May 1, 2008.

7. Philpott T. The 2007 Farm—and Food—Bill. Backgrounder. 2006;12(3). Available at: http://www.foodfirst.org/backgrounders/fall2006

8. Halliday J. No quick fix to the food price crisis. Food Navigator Europe. April 28, 2008. Available at: http://www.foodnavigator.com/news/ng.asp?id=84954. Last retrieved May 1, 2008.

9. Buzby JC, Guthrie JF. Plate waste in school nutrition programs — Final report to Congress. Food Assistance & Nutrition Research Program. March 2002. Available at: http://www.ers.usda.gov/publications/efan02009/efan02009.pdf. Last accessed June 9, 2008.