High food, low commodity prices raise questions

By Ron Kotrba | January 15, 2009
Food prices remained high for months after the commodity markets tumbled in the second half of 2008, prompting groups such as the National Biodiesel Board and the National Farmers Union to ask why.

In an editorial written in December, NBB Chief Executive Officer Joe Jobe accused the food industry of fallaciously blaming government policies that support domestic biofuels production for record commodity prices, which food companies said in turn forced them to raise prices. "Something interesting happened on the way to the grocery store checkout line," he wrote. "The prices of corn, wheat and soybeans dropped dramatically, about 50 percent from their prices in the spring of [2008]." When adjusted for inflation, the price of soybeans is at its lowest level since the Great Depression, he pointed out, yet grocery prices haven't budged. Meanwhile, Kraft Foods posted net earnings of $1.4 billion in the third quarter of 2008, more than doubling its profits. "Besides Big Oil, can you name one other industry with such profits in the current economic malaise?" Jobe wrote. "It is clear today that the multimillion dollar public relations campaign financed by the Grocery Manufacturers Association to relentlessly drive the 'food-versus-fuel' farce was a smokescreen to divert our attention from the profits of the food companies. Biofuels, not yet fully understood by all Americans, was an easy scapegoat."

In November, the National Farmers Union asked U.S. Congress to reexamine the cause of high food prices. NFU Director of Communications Liz Friedlander said the union's intent was to "set the record straight on the true causes of food price increases," and the action may in turn repair the reputations of the ethanol and biodiesel industries, and the government policies supporting domestic biofuels production. She said the small business committee put the issue on its agenda for the upcoming session. "We're optimistic they'll take it up," she added. "The day before they did the joint economic committee hearings in the Senate, there was a story on the front page of the Washington Post about how a bagel shop in Bethesda was going to raise their prices because of ethanol. So we did the math, and there's 8 cents worth of wheat in that bagel, and they raised their price by 25 cents, blaming it all on ethanol. That is the sort of thing that gets on the front page of the paper, and we're trying to squash it."

According to the Bureau of Labor Statistics, food prices increased 0.2 percent in November and 6 percent over the past year, while energy prices fell 17 percent in November. "It is clear that contrary to claims of food processors, retailers and others quick to criticize agriculture commodities, commodity prices have very little impact on the American consumers' cost of food," wrote NFU President Tom Buis in a recent letter to Congress. "It is equally clear that processors and retailers are pocketing the economic benefit of declining farm commodity prices and reduced energy costs without passing those savings on to the consumer."

The GMA and the Food Products Association's biofuels policy opposes new biofuel mandates, and supports the expiration of the ethanol tariff and ethanol, biodiesel and alternative fuels tax credits. The World Bank also blames biodiesel, ethanol and U.S. policies for the global hike in food prices. "The contribution of biofuels to the rise in food prices raises an important policy issue since much of the increase was due to EU and U.S. government policies that provided incentives to biofuels production," the organization stated. "Biofuels policies that subsidize production need to be reconsidered in light of their impact on food prices."

However, Jobe said high food prices appear to be the result of price gouging. "Gouging is a serious charge, for sure," he wrote. "What's more important: the bottom line of consumers or the food industry's billions in profits? No more excuses."
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