Financing food getting trickier

By Karl Terry: PNT Managing Editor

This morning, your bowl of cereal and milk probably cost you 49 cents. Last year, it was 44 cents. By next year, it could be 56 cents. It’s enough to make you cry in your cornflakes.

The forces behind the rise in food prices — China’s economic boom, a growing biofuels industry and a weak U.S. dollar — are global and not letting up anytime soon. Grocery receipts are bulging because raw ingredients, packaging and fuel that go into the price of foodstuffs cost more than they have in decades.

Locally, consumers say they’re feeling the pinch but believe there’s not much they can do but bear the costs.

“We just go with it, what can you do,” questioned Martin Sanchez of Portales.

Sanchez has noticed the higher grocery bills for his family of four. Even so, he says it’s less painful than gasoline prices.

It’s the worst bout of food inflation since 1990, but not yet worrisome to the economy, said John Lonski, chief economist of Moody’s Investor Service. While high food prices can cut into discretionary spending, the 4 percent rate of food inflation is still far below the crippling double-digit levels of the 1970s.

Still, consumers anxious for relief in the checkout line may have to keep waiting.

“I have to stay on a budget and shop sales,” Viola Villanueva of Clovis said. “Milk affects me the most. It’s never on sale. And cheese. It’s so expensive sometimes we have to do without cheese.

“A couple of years back, I used to pay under $2 for milk, now it’s almost $4.”

It’s possible to trace the jump in food costs to the commodities markets, where the price of agriculture products and energy have reached multidecade highs this year. Crude oil, which helps dictate the price of gasoline and plastic packaging, hit an all-time peak in September. Wheat prices also climbed to a record.

China is the juggernaut. Rapid growth there — and in Brazil, Russia, India and other developing nations — has led to massive demand for raw materials, including energy to run factories and cars, metals to build infrastructure and beans and grains to feed livestock and people. China will import almost 50 percent of the world’s oilseeds within a decade, becoming the world’s largest importer, according to estimates from the Organization for Economic Cooperation and Development.

China’s oilseed demand reflects another trend: The world is using more of its food supply to make fuel. Corn in the U.S. and China is being converted to ethanol, a gasoline additive. Europe is using more wheat for ethanol and rapeseed for biodiesel, a cleaner burning fuel that is mixed with regular diesel. Brazil has bulked up production of sugarcane to make ethanol.

Demand for corn from the burgeoning ethanol industry in the U.S. helped drive corn prices to a peak earlier this year, setting in motion a domino effect of price increases through the food chain as livestock raisers, food makers and retailers tried to recover costs.

Local grocers say customers have mostly been understanding about the rise in prices which they say have been mostly affected by commodity prices and fuel. They say they’re just trying to keep up.

“Probably flour (is affecting grocery prices most) now since wheat’s been going up. Flour will be one price, and by the next delivery it’ll be higher. You don’t make enough off of what you buy to replace what you spent. We used to pay less than $1 for a five-pound bag of flour, now it’s almost $2.”

In Portales, Tim Russell at Russell’s Super Save agrees commodity prices are having a domino effect.

“Most of it’s due to the corn prices,” Russell said. “I get more complaints about milk and eggs than anything else, though.”
Russell said he has seen a 70 percent increase in wholesale egg prices recently.

Russell said another, yet less noticeable, factor was the increase in the minimum wage this year.

Sanchez said he’s noticed that a gallon of milk is pretty expensive these days and that makes little sense in an area with so many dairies.

“Nobody here (in the area) makes any money on milk, it’s just too expensive,” Stansell said. “There is no competition. People try to keep their prices down, but everything is expensive, so they can’t.”

“We’ve noticed,” Chris Woods of Portales said of the impact on his family’s budget. “It seems like you can’t get out of Wal-Mart for less than $200 now.”

High commodity prices tend to trickle slowly down to the consumer as growers, food manufacturers, distributors and retailers each swallow a portion of the added cost before passing a chunk of it on to the consumer.

— Freedom New Mexico staff writer Liliana Castillo and the Associated Press contributed to this report.

By the numbers
4.2 — Current percent of food inflation annually
18 — Percent milk prices are up nationwide
35 — Percent egg prices are up nationwide
3-4 — USDA’s estimate of food price inflation for 2008
8.5 — Percent of the American household budget spent on food at home today
19 — Percent of the American household budget spent on food at home in 1960.

Commodity Prices
Corn — Approximately $3.50 bushel, compared to $2 a few years ago
Soybeans — Approximately $10 bushel, compared to $7 in January
Wheat — Approximately $9.50 bushel, compared to $5 in January