Friday, September 28, 2007

Getting Hungrier

Those on fixed incomes, food stamps, or just on a tight budget because the wages aren't keeping up with prices are in for more pain. America spends a relatively low percentage of its disposable income on food compared to other developed countries. From what I have read a third as much as the average Italian and about half of what the average Frenchman does. This is changing very rapidly though and not for the reasons we might think. The French and Italians insist on fresher, higher quality food and preferably sourced locally and they are willing to pay for it. It is virtually impossible, in my experience, to find a frozen chicken in a market in France. Americans are, in many cases, not so much focused on quality and freshness but on convenience and price.

Americans are beginning to spend a greater percentage of disposable income on food because the fundamental sources of our food are rising in price. Corn, wheat and milk have all experienced double digit price increases in the last twelve months. This drives the price of bread, meat, and many other products higher as well. We also have the rising cost of fuel adding to the price pressure on food since very little of the food in American supermarkets is local and depending on the season comes from completely around the world and burning fuel to do so.

Couple these rising prices for fundamental products that are also contributing to price increases for the products which contain them and it is an ugly picture looming for the lower economic strata in this country and also for millions and millions around the world.

This from the Wall Street Journal

The reversal of a long-term trend toward lower grain prices could have profound effects on the world’s ability to feed its poor. Global grain stockpiles are being drawn down to their tightest levels in three decades, leaving the world vulnerable to shocks brought on by bad harvests. And it’s far from clear how much more land could be brought into production or to what extent advances in biotechnology might increase crop yields in the future.

American families, which spend 9.9% of their disposable income on food, are facing the fastest-rising food prices in 17 years. The consumer’s cost for everything from yogurt and popcorn to breakfast cereal and fast-food french fries is climbing. In U.S. cities last month, the average retail price of a pound loaf of whole-wheat bread was up 24% from a year ago, according to the Bureau of Labor Statistics. Whole milk hit $3.807 a gallon, up 26%.

Similar increases are showing up abroad. Italian shoppers are protesting soaring pasta prices, and Mexican authorities have capped the price of corn tortillas. Pakistan is curbing wheat exports to counter rising food-price inflation while Russian authorities, worried about rising bread prices, are considering a similar clampdown.

Food companies are struggling to figure out how to pass on higher costs to supermarkets and restaurant chains, which have gotten bigger and thus gained clout since the last prolonged rise in food prices in the 1970s.

“We’re in uncharted territory,” says Christopher Fraleigh, chief executive of the food and beverage division of Sara Lee Corp., which earlier this month raised its bread prices 5%.

Here in the Southeast we are suffering the worst drought on record and climatologists are predicting that this is not just a one off event. A couple of years of this kind of drought and we might all have trouble finding a loaf of bread we can afford.

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