katrina
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Food Inflation Accelerates Due To High Energy Costs
Food inflation has accelerated to 3.8% in the 2nd quarter of 2007, and it appears likely to accelerate further through 2007, according to Michael Swanson, Wells Fargo agricultural economist.
"A hot debate has broken out on whether ethanol is 'to blame' for food inflation," says Swanson. "Unfortunately, most news reports boil the answer down to an overly simplistic answer."
High energy costs are the main reason corn prices hover near $4/bu., explains Swanson. "The consumers should complain to The Organization of the Petroleum Exporting Countries (OPEC) and not to the farmer if they're unhappy with food prices," he says.
While "energy via ethanol has logically accelerated food inflation," Swanson notes that the current inflation in food prices is more the result of high oil prices than any other factor. In addition, under the current economic conditions, food retailers and manufactures are able to increase profit margins and pass the blame onto ethanol.
"The U.S. regularly encounters food inflation even when corn and soybean prices are low or falling," points out Swanson. "Retailers and food processors typically put an extra markup on top of any increase in commodity prices."
The bad news for farmers is that food inflation is occurring at a time of rewriting the current Farm Bill. "During the 2002 Farm Bill cycle, the government faced a projected budget surplus, low food inflation and low commodity prices," points out Swanson. "All three of these factors have been reversed, and it appears that the commodity portion of the Farm Bill will receive adverse scrutiny."
Food inflation has accelerated to 3.8% in the 2nd quarter of 2007, and it appears likely to accelerate further through 2007, according to Michael Swanson, Wells Fargo agricultural economist.
"A hot debate has broken out on whether ethanol is 'to blame' for food inflation," says Swanson. "Unfortunately, most news reports boil the answer down to an overly simplistic answer."
High energy costs are the main reason corn prices hover near $4/bu., explains Swanson. "The consumers should complain to The Organization of the Petroleum Exporting Countries (OPEC) and not to the farmer if they're unhappy with food prices," he says.
While "energy via ethanol has logically accelerated food inflation," Swanson notes that the current inflation in food prices is more the result of high oil prices than any other factor. In addition, under the current economic conditions, food retailers and manufactures are able to increase profit margins and pass the blame onto ethanol.
"The U.S. regularly encounters food inflation even when corn and soybean prices are low or falling," points out Swanson. "Retailers and food processors typically put an extra markup on top of any increase in commodity prices."
The bad news for farmers is that food inflation is occurring at a time of rewriting the current Farm Bill. "During the 2002 Farm Bill cycle, the government faced a projected budget surplus, low food inflation and low commodity prices," points out Swanson. "All three of these factors have been reversed, and it appears that the commodity portion of the Farm Bill will receive adverse scrutiny."
