Over the last several years, food prices have begun to soar. Not only at high end grocery stores such as Whole Foods (aka Whole Paycheck) but even at chains such as Safeway, Sam’s Club and Costco.
Fueled by trends in the global demand for food and the costs involved in supplying it, finding cheap food is becoming almost impossible. To illustrate the huge jump in food prices, one only has to look at commodities such as wheat and rice.
Between 2005 and 2008, average world prices for rice rose by 217%. For wheat, the recent droughts and wildfires in Russia caused the government to ban grain exports for the remainder of the year, which in turn caused wheat prices worldwide to spike.
Although the recent downturn in the economy took pressure off rising food prices as demand decreased slightly, rising incomes all over the world and increased food consumption, particularly in China and India, have resulted in a new demand/supply equilibrium: prices have adapted upwards.
According to the U.S. Department of Agriculture, food prices are expected to increase by 3% to 4%, based on increases in supermarket prices of 2.5 to 3.5 percent.
Increasing food prices can in part be attributable to an increase in the costs of inputs required to produce food such as energy, land, seed and fertilizers. Additionally, the increase in oil prices in recent years, has also affected the way that food is produced and priced. Operating heavy machinery has become more expensive, as has the price of fertilizers and shipping products from one place to another. These costs are ultimately passed to the consumer in the form of food price increases.
Plus, some otherwise food products are being used for non-food and non-human-consumption. For instance, several years ago, the U.S. and Europe began promoting ethanol research, giving farmers financial incentives to sell corn and other crops for use in biofuels. Plus, corn is used as a part of many processed foods, and is fed to dairy cows, hens, and cattle.
The growing demand for the corn crop has sent a ripple effect into every aisle of the supermarket.
Trade also plays a role in rising food prices. In an attempt to give domestic markets a competitive edge, governments are limiting free trade and placing tariffs on imported or exported goods. The ultimate goal is to prevent a food shortage at home, but this strategy is causing food prices globally to increase by hindering free trade.
As mentioned previously, large populations in India and China have recently found themselves with enough disposable income to purchase meats and other pricey foods. In economics, this principle is known as Engel’s law, which states that the healthier a country’s economy, the more food its population consumes.
A rise in the demand for meat means an increase in meat prices and an increase in meat production. This raises the demand for the produce used to feed farm animals. Developing countries such as India and China are even harder hit by high food prices because of their inability to produce food domestically and their resulting reliance on imports.
Finally, weather patterns affect the price of food. Droughts, floods and wildfires have all affected food harvests, decreasing supply. Many experts worry that these environmental occurrences are symptoms of climate change.
There are many factors leading to the increase in food prices. And as consumers, we have to make changes that will allow food to be distributed around the world – without breaking the bank.
Published or updated April 4, 2013.