Food Prices Are Soaring Everywhere!

Photo: arbyreed

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.

Topics: Financial News

10 Responses to “Food Prices Are Soaring Everywhere!”

  1. pyotr petrovich

    Dear Dr. Writer:

    By publishing a chart that ends in 2008, you report one of the larger price run-ups in several decades. If you had inserted a more current chart, your audience would see that after that spectacular rise, prices fell precipitously. Although current prices are not “low” as compared to a ten year average, higher oil prices have set a new floor for food production costs. US consumers spend a lower percentage of their income on food than any other nation, developed or underdeveloped. This is because our government made the decision half a century ago to insure that farmers stayed in business by setting floor prices – usually referred to as subsidies – to insure that all Americans had access to lower cost food. As the cost of supporting excess food production, especially corn, continued to rise, either an alternate use for corn had to be found or a decision to bankrupt 1/3 of the corn farmers had to be made. Our government came up with the plan to divert excess corn to make ethanol which minimized corn subsidies and created a use for the surplus. Yup, surplus. No government regulation is ever perfect. No one had a crystal ball that indicated massive oil price increases, a reduced crop, and unusual speculation would combine in a perfect storm to drive corn prices to an unusual peak in 2008. However, it must be remembered that there has been similar spikes in commodity prices on average once every decade.

    Russia had a massive crop failure. Is it not logical for them to discontinue exports to protect food supplies until next year? Wouldn’t you agree that their citizens could expect nothing less of their government? If or when we encounter such conditions, I would expect our government to do something similar.

    All-in-all, our government food policy has not been that bad.

  2. Crazy stuff and really interesting analysis. I suppose the only advantage to the recent recession is at least some kind of delay in the continued food prices…I noticed recently that even Walmart has been increasing their food prices.

  3. Quite absurd to suggest as you did at the end of the article that consumers must commit to altering their diet for a more equitable distribution of food.
    Come on, are you quoting some sociology student or just dumping a load of your own irrational whimsical thought at the end of the incredibly obtuse analysis of rising food prices. To wit: as another posted reply pointed out you failed to mention the increased price of oil in the interim and instead chose to focus on increased demand for meat on the part of Chineses and Indians. Hmm… And yet you only manage a quote of 217%
    increase in price of RICE-apparently unaware of the Hundu practice of vegetarianism which places the overwhelming population of India outside your “analysis.”
    -Globalist, statist utopian double-think, double- speek claptrap.

  4. People will alter thier diets based on affordability and availability, and food prices for the staples are creeping up. I have always purchased food that was on sale, and it had shaped our diet for the large part.

    I raise poultry and rabbits for meat and eggs and have seen the Feed prices begin to creep up as well. As the article indicates, it is cutrrently based on the rising price of wheat.

    I had spoke to some good friends in Germany and France just this week, and they stated that price inflation is well underwayn there and it is definitely effecting the pocketbook. Perhaps it is just a matter of time til it starts here.

    I still recall the Carter Era inflation, and I am not looking forward to that again, but am at least prepared when it happens.

  5. shweta santosh

    the main reason for food prices soaring is population and wasting of food in partys and other grand functions.
    we cant stop the soaring of population but we can control this.
    above informations are realy good.
    great article.

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