Prices for key foods are rising sharply
By
Kevin G. Hall | McClatchy Newspapers
MIDLAND,
Va. - The Labor Department's most recent inflation data
showed that U.S. food prices rose by 4.2 percent for the 12 months
ending in July, but a deeper look at the numbers reveals that
the price of milk, eggs and other essentials in the American diet
are actually rising by double digits.
Already
stung by a two-year rise in gasoline prices, American consumers
now face sharply higher prices for foods they can't do without.
This little-known fact may go a long way to explaining why, despite
healthy job statistics, Americans remain glum about the economy.
Meeting
with economic writers last week, President Bush dismissed several
polls that show Americans are down on the economy. He expressed
surprise that inflation is one of the stated concerns.
"They
cite inflation?" Bush asked, adding that, "I happen
to believe the war has clouded a lot of people's sense of optimism."
But
the inflation numbers reveal the extent to which lower- and middle-income
Americans are being pinched.
The
Bureau of Labor Statistics said in its July inflation report that
egg prices are 33.7 percent higher than they were in July 2006.
Over the same period, according to the department's consumer price
index, whole milk was up 21.1 percent; fresh chicken 8.4 percent;
navel oranges 13.6 percent; apples 8.7 percent. Dried beans were
up 11.5 percent, and white bread just missed double-digit growth,
rising by 8.8 percent.
These
numbers get lost in the broader inflation rate for all goods and
services, which measured 2.4 percent for the same 12-month period.
Across the economy, rising food prices were offset by falling
prices for things bought at the mall: computers, cameras, clothing
and shoes.
"All of that stuff is going down in price, but prices for
gasoline have gotten higher, and food prices have gone up,"
said Mark Vitner, a senior economist for Wachovia, a large national
bank based in Charlotte, N.C.
People
also go to the mall a lot less than they go to the grocery store,
so they're constantly reminded that dietary staples are up sharply.
Why
are food prices rising?
It's
partly because of corn prices, driven up by congressional mandates
for ethanol production, which have reduced the amount of corn
available for animal feed. It's also because of tougher immigration
enforcement and a late spring freeze, which have made farm laborers
scarcer and damaged fruit and vegetable crops, respectively. And
it's because of higher diesel fuel costs to run tractors and attractive
foreign markets that take U.S. production.
The
Labor Department's last detailed survey of consumer spending,
in 2005, showed that Americans spent about 12.8 percent of their
income on food. A bit more than 7 percent of their income was
spent on food at home, and 5.7 percent was spent on food away
from home.
These
percentages suggest that higher food prices, while unwelcome,
won't break the bank for most consumers. But for retirees such
as Jacqueline Wilson, 60, of Upper Marlboro, Md., rising food
and fuel prices take a big bite out of fixed income.
"I make every dollar count," said Wilson, outside a
Giant supermarket. "I cut back. ... I get only as much as
I need. I don't buy it because it is 10 for $10, but so that I'm
using it and not wasting my money."
Asked
about her view of the economy, she answered, "Terrible."
In
broad terms, the economy isn't terrible. Unemployment is near
record lows, and the second quarter posted a strong 3.4 percent
growth rate. But it is for those Americans who are pinched by
rising food and gasoline costs, and that's a lot of folks. Half
the nation's families earn below the median family income of about
$56,000. Three- fifths of American families report income under
$70,000.
At
the Al-Mara farm in Midland, Va., Jeff and Patty Leonard run a
large dairy operation where about 600 cows produce 19,000 pounds
of milk each day. They plant about 1,000 acres of corn, so they
don't face all of the rising feed costs like some farmers. But
they sympathize with consumers because the costs of nitrogen fertilizers
and diesel fuel have all gone up sharply, raising production costs
by nearly 30 percent.
"That's
how your farmer feels here at home when we're trying to buy soybean
meal, food for our cows and trying to maintain our equipment,"
said Patty Leonard. "I can understand exactly what the shopper
is going through."
Milk
prices aren't set on the farm. That's done by marketing cooperatives,
which this year have been successful in passing on higher production
costs after several dismal years of prices that took dairy farmers
back to the 1970s.
"It's
pretty much a realignment of the actual value of milk in today's
dollar," Patty Leonard said. "Milk has been cheap for
a long, long time."
Globalization
also explains higher milk prices. Australia, a leading milk exporter,
is struggling through a drought, and European governments are
pulling back dairy subsidies. So U.S. farmers, aided by a weak
dollar, are stepping in to meet growing demand for milk products
in China and India. That's pinched supply at home and abroad,
driving up prices.
"U.S.
per capita dairy consumption is the highest it's been since 1987,"
said Chris Galen, vice president of the National Milk Producers
Federation, pointing to rising U.S. demand for cheese, made from
milk. "Americans are eating more cheese than ever - not just
volume but per capita."
To
make more milk, or raise more chickens that lay more eggs, farmers
need feed corn and other feed products. But corn prices have soared
over the past year as Congress pushes ethanol, a renewable fuel
made from corn. Fields that previously grew soybeans are now yielding
corn, and that's driven up the price of soybeans as they become
scarce.
Iowa
State University's Center for Agricultural and Rural Development
shocked the farm sector earlier this summer with a report that
corn farmers are expected to lock in prices of $4 a bushel through
2010, about double what corn fetched two years ago.
"You will probably be seeing these prices rise for quite
a long time and stabilizing, maybe, but not going back to the
$2-a-bushel corn," said Jacinto Feitosa, co-director of the
center in Ames, Iowa.
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