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Thread: Food prices going up, up, up

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    Hit By Ban Bus! pacific breeze's Avatar
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    Default Food prices going up, up, up

    The Weekend Economist "Quaerere Verum": The Food Squeeze
    The Weekend Economist "Quaerere Verum"
    Wednesday, July 25, 2007
    The Food Squeeze

    The "Food Squeeze" is a global phenomenon, it doesn't matter whether you like pasta, tortillas or rice, prices are up, and set to go even further. Basic food commodity prices have been moving up steadily for quite some time now. In France alone, grain stockpiles are down to the levels of the early 70's. Those were record lows by their own standards and therefore we are witnessing an unprecedented food squeeze. So far in Europe the effect has been dampened somewhat by the strong Euro and its relative trading strength.

    There's also another, albeit, temporary cushion that lies in the use commodity based instruments and derivatives such as futures and forwards. Major food firms such as ADM, Cargil, General Mills, Kellog, Phillip Morris employ these hedging instruments to protect them against cyclical spikes associated with the volatility of commodity markets. For consumers it creates a delaying effect, which means that in many cases you don't feel the immediate hike in food prices; at least not as fast as energy prices.

    However, bioflation is going to end up on everybody's plate at some point. Part of the food squeeze is coming as a direct result of the rapid industrialization of India and China. When agricultural laborers move into the city, their production output is lost from farms. Industrialization could theoretically mitigate these effects by further mechanization, fertilization, economies of scale and other capital intensive processes to ramp-up output. But that takes time and money. For now at least, laborers are choosing to go to the city rather than ramp up their own agricultural output. One would expect higher food commodity higher to incentivize higher production. But this is not expected to happen overnight, and things are further complicated by the bioflationary effect of a growing biofuel economy that links food prices with energy prices

    Given the sheer size of the Chinese economy and its impressive growth rate, China consumes a significant and growing slice of world wide food production. This expected to increase in tandem with slowing food production. Net food output in China can no longer keep up up with demand. As China grows and develops, its citizens will have more income to dispose on food. This increased spending power is now resonating on world markets, for grains, meats and fish.

    Food prices also have a stronger impact on developing countries rather than developed countries. In china, on average, 34% of disposable income may be spent on food. In the U.S this figure is less than half. Nonetheless, food prices are amongst the highest risers in core inflation figures for the U.S. On a macro scale, for now this only slightly affects demand for other goods. In developing countries it remains to be seen how adversely these price hikes will affect overall economic growth. For the worlds poorest, the news could be rather bad, as the U.N recently announced it could no longer afford to feed the world.


    The production of food is really part of a larger structural problem. As you may/may not remember from economics 101. Food is an inelastic good, everybody has to eat, and substitution is really not an option. Given the trend of industrialization, lagging production, climatic challenges and other side effects of bioflation food prices are expected to stay in a strong upward trend.The chain is deeply inter-connected. I.e. grain is not only used in domestic consumption for bread but grain is also used to feed pigs, poultry and other animals. This means that as prices for grain go up so do the costs of producing meat and other related products.

    With production not keeping up, inventories at record lows, the pain that occurs when China buys food "en masse" on the world market will be felt by everyone. Indirectly, this bioflation is going to add to global inflation and possible hamper growth and development. Additionally, with higher future inflation expected, the inflation targets of central banks world wide will most likely come under renewed pressure. This ultimately means higher interest rates, and thus more expensive capital. Just last week we saw what credit repricing did to world markets. It send shock waves throughout the financial world. If last week's "correction" was just a speed bump on the road to further economic growth (as predicted by most economists) then it would be wise to investigate what further bioflation will do to the world economy.

    Posted by The Weekend Economist at Wednesday, July 25, 2007

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    It is sickening the way everything has gone up. I heard there were protest in the UK over milk prices. Which surprised me, because I had heard that people in Britain really weren't big milk consumers. Everyone should protest these food price hikes. It's all another way to keep on bilking the public.

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    Quote Originally Posted by candy27 View Post
    It is sickening the way everything has gone up. I heard there were protest in the UK over milk prices. Which surprised me, because I had heard that people in Britain really weren't big milk consumers. Everyone should protest these food price hikes. It's all another way to keep on bilking the public.

    What choice do we have? Gotta eat. We go through about 4-5 gallons of milk a week here with 2 kids and it's averaging $4.35/gallon now. Sucks.

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    Elite Member nwgirl's Avatar
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    Everything's going up except wages. No surprise there.
    "The difference between genius and stupidity is that genius has its limits."

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    Elite Member Sweetie's Avatar
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    plant a garden and buy a cow

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    hotncmom, I feel for you. Having to buy all that milk a week. I guess I'm lucky there my son is grown and doesn't drink it. We just use a little for cereal. That's what makes the raising milk all the time so mean of them. After all moms and dads with kids need to buy so much of it. It's a dam shame.

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    Well, I don't think they're being "mean" per se...just passing along their increased shipping costs since gas has gotten so high. Although I don't know what other factors have increased milk so much in comparison to other foods.

    Between food prices and gas prices we are getting killed on our budget. I was talking to a friend of ours with 2 kids and comparing grocery bills. For food, paper products, and hygiene items (shampoo and such), we have a budget of $1000/month for a family of 4. I thought that was a whole lot until my friend told me they spend $1200/mo for a family of 4. They have 2 boys, 12 and 14, and you know how teenage boys can eat you out of house and home. I was joking with someone that you know things are bad when you spend as much on food as you do on your mortgage payment.

    I remember when our gas budget was $150/month. Now it is $300/mo and some months that isn't even enough.

    Not to mention energy costs (heat and air for the house). I'm Little Miss Spreadsheet so I can tell you exactly how we've been impacted by that. In 1999 we spent $1461/year on gas and electric. In 2006 it totaled $2467.

    Sheesh. I feel so bad for people who were already struggling to make ends meet. And the people at the low end of the income scale are also the least likely to receive pay increases that amount to anything.

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    Elite Member nwgirl's Avatar
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    Quote Originally Posted by hotncmom View Post
    Sheesh. I feel so bad for people who were already struggling to make ends meet. And the people at the low end of the income scale are also the least likely to receive pay increases that amount to anything.
    Exactly. They just raised the federal minimum wage here in the US to $5.85 ($12168 annually for a full-time job) with more changes to come to finally arrive at a whopping wage of $7.25 by July 2009 ($15080 annually). One person can't live on $7.25 right now, forget in two years. It's like wages are twenty years behind the cost of everything else.

    Just like other people said on here, my household bills have almost doubled in the last few years. Wages certainly haven't followed suit.
    "The difference between genius and stupidity is that genius has its limits."

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    Elite Member AuGusT's Avatar
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    same story in India although with the recent development salaries haven't increased much but there are infinte no. of jobs available.Infact India is creating more jobs then any other country and Companies are beginning to feel shortage.

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    This is just pretty standard inflation imo..

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    Elite Member effie2's Avatar
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    For us in here is simple and clear.Petroil is up?So is food.
    Cold weather?Food goes up.
    Heatwave??Food prices burn our pockets.
    Like i told you,simple and clear.
    "Effie is all kinds of awesome." - Some internet moderator


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    Yes, any reason whatsoever to raise prices - I still dont understand - arent the dairy farmers in the US still subsidized by the govt and yet we are now paying over $4 for a gal of milk?
    I've got family of 4 and even though I 'budget' $200 week I typically end up spending closer to $300 - like another mortgage payment
    Money can't buy happiness but it can certainly rent it for a couple of hours.

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    I've got a family of five and budget $500 a month for groceries and household items (toilet paper, etc). I think what helps us get away with spending so little is that I cook everything from scratch. When I get busy or lazy and rely on a bunch of frozen or pre-packaged stuff, our grocery bill skyrockets.

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    Hit By Ban Bus! pacific breeze's Avatar
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    ^^I was just about to post that. Food prices have always been very high where I live, but I'm always amazed at the amount of junk people buy and then complain about how much food costs. Real food is expensive enough without all that crap.

    I almost always cook from scratch -- I make a lot of one or two things a week and then I supplement them with salads etc. so that I don't have to cook a big meal every night -- and it is much more economical. I don't scrimp on the important stuff like fruit and vegetables, but I hardly ever buy meat, which is hugely expensive and mostly bad for you in the quantities that so many people eat IMO. I don't have a family to feed, although hubby eats a lot, but I don't load up my buggy with pop, frozen meals, junk food or tons of household cleaners. Plain old baking soda, vinegar and lemon work wonders.

    The whole point of supermarkets is to make money by convincing people to buy lots of stuff they don't need and that is probably bad for you anyway. Stay away from the perimeters and just go get what you actually need.

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    You know what I have found to be very interesting though, with all this talk about corn and ethanol, and fuel...that corn on the cob in my area is actually the CHEAPEST its EVER been!! Makes NO SENSE!

    I just got 12 ears of corn for a freaking DOLLAR! And the corn was outstanding! How is this possible???

    I dont' get it.

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