Food prices keep on climbing, affecting manufacturers and consumers alike. In 2007, the consumer price index (CPI) for food in the United States increased by 4%, the largest annual increase in retail food prices since 1990. In 2008, USDA’s Economic Research Service projects retail food prices will increase by 4% to 5%.
On May 1, 2008, Senator Charles E. Schumer (D-NY) convened a Joint Economic Committee hearing “How Are High Food Prices Impacting American Families?” to examine the causes of rising food costs, and their impact on the middle class. Schumer’s goal for the hearing was to gain an understanding of the underlying causes of rising food prices so appropriate policy responses could be formed.
In his opening statement, Schumer noted: “Everyone has to buy food to feed their families and it already swallows over 12% of the average household budget. When gas prices are high, families may decide to drive a little less or carpool or take the subway. When food prices are higher, families can’t just decide to not feed their children. And because they have less to spend on food, what they do buy is often much less healthy.”
Among the witnesses at the hearing was Joseph Glauber, Ph.D., chief economist, USDA. “Several key factors are shaping the current situation, including domestic and global economic growth; global weather; rising input costs for energy; international export restrictions; and new product markets, particularly biofuels,” he said.
In his statement, Glauber revealed the current and projected economic status of specific markets and the forces affecting the numbers. The CPI for cereal and bakery products, for example, increased 4.4% and is projected to rise 7.5% to 8.5% in 2008. “The increase in the CPI for cereal and bakery products reflects higher prices for wheat, rice, corn and other grains, as well as higher marketing costs,” he said.
The CPI for fats and oils increased 2.9% in 2007, and is expected to increase by 8% to 9%. Because soybean oil is the primary domestic oil in this category, Glauber specifically addressed that market, saying: “Strong soybean oil exports and increased use of soybean oil for biodiesel production have pushed up the price of soybean oil. In addition, higher transportation, labor and other marketing costs are contributing to the increase in retail prices for fats and oils.” The price of soybean oil is projected to average $0.50 to $0.54 per pound, compared with $0.31 per pound in 2006 and 2007.
Glauber also detailed markets for rice; fruits and vegetables; livestock and poultry; eggs; and milk, and discussed the impact of rising food costs on consumers and domestic food programs.
“The Department’s current long-term projections indicate that retail food price inflation will gradually moderate over the next several years,” Glauber stated. “Continued expansion of biofuels production will likely maintain corn and soybean prices at historically high levels and livestock producers will adjust to the increase in feed costs by reducing production, leading to higher retail prices for beef and pork in the longer term. In contrast, future upward movements in retail dairy product prices may be limited following the strong increase in 2007. In addition, global agricultural production is expected to rebound, especially for wheat, relieving some of the pressure on retail food prices for cereal and bakery products. Of course, future increases in retail food prices depend heavily on energy prices and other food marketing costs.”
To view the full transcript of the hearing, log on to jec.senate.gov.
