Farmer payouts, oil nabbed in food price runup
Congressional panel probes food inflation. Lawmaker blames subsidies to farmers but farming representative cites oil prices as 'main culprit.'
By Aaron Smith, CNNMoney.com staff writer
Last Updated: May 1, 2008: 4:34 PM EDT
NEW YORK (CNNMoney.com) -- Lawmakers on Thursday scrutinized the impact of soaring food costs on American consumers already stung by rising gas prices.
"The anxiety felt over higher food prices is going to be just as widespread, and will equal or surpass, the anger and frustrations so many Americans have about higher gas prices," said Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee, which convened the hearing amid growing concern about food inflation.
Some lawmakers heaped blame on farmers - and the subsidies they receive - for helping to drive up food costs. Rep. Jim Saxton, R-N.J., called for "genuine reform" of the "nightmare of wasteful, outdated [farm] subsidies."
The meeting followed comments on Tuesday from President Bush, who referred to the farm bill in Congress as "bloated" and incapable of significantly reducing food prices.
The bill would cut the 51-cent-a-gallon ethanol subsidy to 45 cents, according to news reports. Farmers who make up to $2.5 million are eligible for subsidies, but the bill would drop eligibility to $1 million or less.
Tom Buis, president of the National Farmer's Union and a former corn farmer from Indiana, defended farmers before the committee.
"Everybody seems to be wanting to blame the farmer for everything bad happening in America and around the world," said Buis. "Some people think that profit should be a dirty word only for American farmers."
Corn farmers have been blamed for everything from the rising price of beer in the United States to pasta riots in Italy, Buis said. But, he added, half of all corn is used to cattle feed and much of it is used for soda syrup.
"To make the equation that corn is taking food out of people's mouths is a real stretch," Buis said.
Buis blamed oil prices as "the real culprit," and said the situation had been exacerbated by weather conditions affecting wheat growers around the world.
For his part, Schumer pointed to a number of factors for rising food costs. Surging energy and commodities were the "main culprits" in driving up food prices, he said, while also pointing the finger at the rising cost of corn grown for ethanol production.
"High gasoline prices don't just raise transportation costs - they increase demand for gasoline substitutes, mainly ethanol derived from corn," said Schumer.
Food costs hit middle America
Americans spent an average of $1,926 on groceries per person in 2007, a 4.2% increase from the prior year, according to the U.S. Department of Agriculture. The department projects another 4.5% increase in 2008, to $2,013.
Certain foods have spiked dramatically over the past year. The price of eggs surged nearly 30%, while milk and flour jumped more than 13% and rice rose nearly 10%, according to the U.S. Department of Labor.
Food inflation has become a global problem. This year, food riots have broken out in Egypt, Haiti, Yemen, Bangladesh and other nations. On Tuesday, the United Nations formed a task force to deal with the problem.
Even in America, the specter of hunger is growing for many low-income families, including former high-income earners who recently lost their jobs.
George Braley, senior vice president of America's Second Harvest, the largest hunger relief organization in the United States, testified that the rising prices are taking their toll, as annual donations to the organization "remain frozen" at $140 million.
"Costs are eating up our surpluses," said Braley. "We need to buy more food, but the money is not there. These are very discouraging times."
Many factors pushing up the price of food
Dr. Joseph Glauber, chief economist for the U.S. Department of Agriculture, said the price increase in 2007 for all food was the largest annual jump since 1990. He blamed it on worldwide economic growth, weather factors in parts of the world, restrictions on food exports and the relatively new biofuel industry.
In particular, he said the two-year drought in Australia has pushed up wheat prices, and said there have also been poor crops in Canada, Europe and the Ukraine.
Corn production has increased, with 93.6 million acres planted in 2007 - the biggest crop since the wartime harvest of 1944. Despite that, prices are projected to reach a record of between $4.10 to $4.50 a bushel in 2007-2008, up from $3.04 in the prior 12-month period, according to Glauber.
"Demand is expected to remain strong, supported by expanding use for ethanol," said Glauber, noting that 24% of the corn grown in the U.S. is being converted to ethanol.
Rising oil prices are feeding the demand for alternative sources of fuel. Oil prices were $111 a barrel on Thursday, up 75% from a year ago. Gasoline, at a nationwide average of $3.62 a gallon, is up 20% from a year ago, according to motorist organization AAA.
First Published: May 1, 2008: 10:26 AM EDT
Source: http://money.cnn.com/2008/05/01/news/economy/congress_foodprice/index.htm?section=money_latest&referer=sphere_related_content&referer=sphere_related_content