Relief Seen for Rising Food Prices (06/27/08)
Rising food prices are putting a dent in North Carolina consumers’ wallets, but prices should ebb soon, says North Carolina State University economist Dr. Ed Estes.
“Sooner or later we will probably see someone like Wal-Mart announcing across the board price cuts – maybe as early as July. The demand side is not changing, and the supply side is catching up with demand,” says Estes, a professor of agricultural and resource economics. “Food prices tend to move seasonally and in tandem, with multiple factors influencing food items or groups of items.”
But in the meantime, wheat, corn and soybeans are all at record prices, Estes says, and butter, cheese and milk are near records. The U.S. Department of Agriculture predicts that overall retail food prices will rise between 4 percent and 5 percent this year - and Estes says that figure is conservative.
Last year, after nearly two decades of low food inflation, food prices rose 4 percent - the greatest increase since 1990.
The rise in food costs could present a greater problem for American consumers than soaring oil prices, because Americans spend more of their disposable income on food than on gas. Americans spend about 10 percent of their income on food and about 7 percent on gasoline.
But Estes urges caution in focusing on averages, because averages aren’t equal to the impact felt by individual families. First, he says, “many American families have multiple cars per family and all consumption calculations assume one car per family. Second, percentage calculations are a function of income level. If you are poor, working-class American, you will spend eight times more of your disposable income on gasoline than do wealthier Americans.”
Also, “For example, in New Jersey, people spend about 2 percent of income on gasoline for one car, while people living in Alabama or Mississippi spend between 11 and 12 percent of income on gas for one car. So income levels are an important determinant on whether you spend a lot or a little on either food or gas,” he says. “When both go up a lot, normal spending on higher-cost food or gas puts a halt to spending on discretionary items like movies, dinner out, et cetera.”
While Americans are certainly feeling the spike in food prices, they aren’t feeling it as acutely as people in developing nations are. In those countries, there have been food riots and food export prohibitions. And some families are essentially spending a month’s salary for a month’s worth of food. Mexicans spend 25 percent of their income on food, while those in China spend 29 percent; India, 40 percent; and Russia, 37 percent on food consumed at home.
There’s no one factor that explains what some are calling a world food crisis, Estes says. Instead, it’s more like a perfect storm of factors. Rising oil costs are driving up production and transportation costs and adding to demand for alternative fuels made from grains like corn and soybeans.
Also at work are the unfavorable U.S. exchange rate and reduced global stockpiles. In addition, rising living standards in such nations as China and India are leading to higher demand for meat and poultry, which depend heavily upon grain production.
North Carolina producers in general have been able to pass their rising production costs onto consumers, Estes says, but pork producers are struggling because supply exceeds demand.
