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| Tuesday, February 12, 2008 |
| Global demand lifts grain prices, gobbles supplies |
Just yesterday I was noting the rising cost of food in Boston, then today this article in USAToday: Global demand lifts grain prices, gobbles supplies Pakistan is stockpiling wheat and using its military to guard flour mills. Indonesian consumers have taken to the streets to protest rising soy prices. Malaysia no longer lets people take sugar, flour or cooking oil out of the country. North Dakota, the top U.S. wheat-producing state, may import from Canada due to tight supplies.
The world is facing the most destabilizing bout of food inflation since the "Great Grain Robbery" of the early 1970s when the former Soviet Union bought massive quantities of U.S. grain, sending prices soaring. That episode helped fuel a Farm Belt boom — and later bust — as soaring exports soured and record agricultural land prices fell.
[...]
The USA isn't expected to relive the crushing double-digit food inflation of the 1970s. Still, food prices last year rose at the fastest pace in 15 years, hitting U.S. companies and consumers even as the economy slowed. Purdue University economist Corinne Alexander says U.S. food inflation could range as high as 6% this year, compared with 2.1% in 2006.
Higher food prices have been gouging profits at some U.S. companies.
•Kraft Foods' fourth-quarter earnings were hit by a nearly 40% jump in dairy prices.
•Tyson Foods in late January said it would raise prices "substantially." The company, which in November forecast a $300 million increase in feed costs during its fiscal year, boosted that figure to $500 million.
Other companies are raising prices, something that would have been unthinkable five years ago. Hershey increased the price of candy bars 4% to 6% in April, citing the costs of raw materials, packaging and fuel. Starbucks bumped up the price of lattes an average of 9 cents. Hum, looks like rising food prices may get noticed more in 2008... |
| posted by Boston Gal @ 9:58 AM *
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| 8 Comments: |
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Skyrocketing dairy prices is the one that makes me scratch my head. I've often seen them blame higher dairy cost on the higher prices of oil. Huh? Do cows and chickens drink gasoline? I understand the part about transportation costs of the dairy being higher, but isn't that the case for ALL food? Why does dairy spike higher than other types of food if this is the reason?
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I work in the Dairy Industry. The reason why milk prices have spiked is because grain and corn prices have soared. Cows eat a lot of food to produce milk. :)
Our transportation chain works as follows:
Transport raw product to manufacturing facilty.
Transport finished goods to retail center.
Transport milk crates back to manufacturing facilty.
Many companies are embacing new technologies to reduce the need for milk crates. This will reduce the transportation costs, leave a better carbon footprint, and reduce material handing costs.
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Over the weekend, I went to Home Depot and stocked up on a wide variety of vegetable seeds. I have had an organic vegetable garden for the past ten years but this year it's expanding. I have noticed that even the cost of local food at farmer's markets and elsewhere has also risen. My response is to grow more of my own. This way I know definitively that is organic. I can't grow that shrimp from Costco that I like, but I can trade vegetables with local fisherman. I already have two apple and a cherry trees, now I'm going to add white peach and fig trees. All of the food that we like to eat and is expensive in the supermarket, we will grow ourselves on a .30 of an acre.
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Skyrocketing dairy prices is the one that makes me scratch my head. I've often seen them blame higher dairy cost on the higher prices of oil. Huh? Do cows and chickens drink gasoline? I understand the part about transportation costs of the dairy being higher, but isn't that the case for ALL food? Why does dairy spike higher than other types of food if this is the reason?
It's funny. People complain about the volatility of oil prices, but the volatility of dairy prices is much greater. (You just don't notice it because the volatility is usually eaten by the retailer and doesn't necessarily translate into higher retail prices. This is primarily because so many consumers use the price of milk as a proxy for how competitive the store's prices are generally. So it behooves retailers to compete on milk.)
But the big reason is because fuel prices raise the price of corn (used to make ethanol) which is used to feed the cows. So dairy products are hit a couple of different ways.
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I wish we could grab the old wise ways of people who lived through wars and depression. Todays youth know nothing of the tightwade ways or how to get buy on very little. If I could encourage anyone out there who knows of these ways, please write a book. Our youth need this vital information to survive the inpending future of high cost food.
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I just pulled out our breadmaker and started making our own bread -- at $4.29/loaf, at the supermarket, it's worth the trouble now. It costs me about 75 cents a loaf to make it at home. :) But yes, food price are incredible!
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The reason most people don't notice food price increases is because food is so cheap, relatively speaking. In the old days it'd eat up (ha!) 25% or more of a household budget, whereas eating moderately well at home these days can easily be done on 5% if you've a decent wage.
As for dairy prices, in the short term blame as the other poster said the price of feed. In the long term, China is getting taste for milk and cheese...
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Interesting thing about dairy--the trend over the last few decades is for the price at the grocery store to go up faster than the price paid to the farmer.
The price the farmer gets for milk is based on a complicated formula set by the federal government, which has more to do with the price of dry milk powder on the global market than with the cost of feed and such to the individual farmer selling the milk.
When the farm price goes up, the processor middlemen and the grocery stores raise their prices. But when the farm price goes down--as it sometimes does, drastically--you rarely see the same level of reductions at the consumer end.
The result? Farmers and consumers both get screwed; milk gets expensive. Here's some worthwhile reading, for milk-econ wonks:
http://www.umass.edu/agcenter/census/dairy-retail%20milk%20prices.htm
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Skyrocketing dairy prices is the one that makes me scratch my head. I've often seen them blame higher dairy cost on the higher prices of oil. Huh? Do cows and chickens drink gasoline? I understand the part about transportation costs of the dairy being higher, but isn't that the case for ALL food? Why does dairy spike higher than other types of food if this is the reason?