America

Monday, August 27, 2007

Grocery bill increases? Some blame goes to ethanol...


Reported here:
Blame it on ethanol, gas prices and more demand for grain in China.

Ellie Arnold doesn't care about the causes. She just knows her monthly $300 monthly grocery budget is stretched to the max.

"That's what I budget at, and we're staying there," she said during a recent shopping trip at a local produce market. "I'm being real careful. Food is the only thing we can cut."

Her experience is becoming more common this summer as food prices in just about every category have increased.

Meat and dairy products have spiked the most, but processed foods have gotten more expensive because of the corn they contain. Some fruits, vegetables and frozen juices cost more because of bad weather in the growing regions.

In the Houston area, grocery prices rose 0.9 percent in July, on the heels of a 0.4 percent increase in June, according to the latest numbers from the Bureau of Labor Statistics. A basket of groceries that cost $100 in July 1984 and $183 a year ago would cost nearly $190 today.

Nearly two-thirds of Americans reported paying significantly more per week -- between $8 and $20 -- for groceries, according to a survey by America's Research Group. That's up from 53 percent in February and March.

One reason: ethanol
***
Corn prices have been about $3.50 a bushel, $1.50 more than where it has traded the past couple of years, said Joe Outlaw, co-director of the Agricultural and Food Policy Center at Texas A&M University.

Part of the rise in price is increased demand. About 14 percent of the U.S. corn crop is going to produce ethanol as an environmentally-friendly alternative and gasoline supplement.

"One of the reasons is ethanol," said Eugenio Aleman, a senior economist at Wells Fargo. "Of course, those who produce ethanol will tell you it's not, but these new uses of corn mean there will be more demand for corn."

Higher fuel costs translate to higher food prices because very little food gets eaten in the same part of the world where it is grown, said Aleman. Trucks and ships that move it from the farm to the grocery store need gas to make the delivery.

In addition to more corn going to ethanol, growing wealth in China and other developing nations means those countries have more money to buy food. In the wealthy U.S., disposable income goes to luxury items. Countries with smaller household incomes stick to the necessities, Aleman said.

"We buy flat-panel TVs," he said. "The Chinese and Indians buy more food."

Processed foods

About half of all U.S.-grown corn becomes feed for chicken, pigs and cows, Outlaw said. More demand for meat means more demand for corn. Again, prices rise, and Arnold's grocery budget gets even tighter.

One of the ways Arnold said she saves money is by buying raw ingredients and making food, including baked goods, at home. America's addiction to processed food also is dependent on corn.

Whether it's corn syrup, cornstarch, dextrose or another byproduct, some type of corn is in nearly every kind of processed food. It serves as a sweetener, a binder, a coater and a filler, among other things.

Although the obvious signs point to corn as the main culprit for higher prices at the checkout line, it's not quite that simple, Outlaw said.

Usually farmers alternate growing corn one year and soy beans the next. Seeing the growing demand -- and higher prices -- for corn as a fuel source, farmers planted more corn than normal this year, he said. Forecasts call for 13 billion bushels of corn to be harvested, up from less than 11 billion last year.

That means the soy bean crop will be smaller, and prices are up to $8.50 a bushel instead of the usual $5, according to Outlaw.

Like corn, soy beans are a staple in animal feed. They're also the source for a lot of vegetable oil -- another key ingredient in many processed foods.

An end in sight?

Again, higher prices for the ingredients and feed translates to higher prices for processed food, dairy products and meat.

Aleman and Outlaw tend to agree on the causes of higher food prices, but they're split on how long they'll last.

"We have to get used to it," said Aleman. "I don't think we are going to go back down."

Outlaw disagrees. The extra supply of corn should push prices back down this fall, as long as flooding, drought or some other disaster doesn't hurt the crop.

"If the current corn crop comes in like it's supposed to, corn will drop below $3," he said.

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