CHICAGO Rising U.S. food inflation, now a
25-year high, is reminiscent of the 1970s and will continue for
the next five years due to growing world economies, increased
food demand and a sharp expansion of corn-based ethanol
production, a top food economist said on Friday.
"What happened in the early '70s and what is happening
today is that we have moved food input price to a new plateau.
Ultimately, the consumer is going to have to absorb those
increased costs," said Bill Lapp, president of Advanced
Economic Solutions, who on Thursday released a study that
looked at food inflation data going back to the 1960s.
Futures prices on the Chicago Board of Trade, the benchmark
for commodity grain and soy markets, have risen to multi-year
highs this year. Wheat hit an all-time high of $9.81-3/4 a
bushel just on Friday. Soybeans on Friday reached over $11.60 a
bushel, a price not seen since 1973, and corn rose to $4.37-1/4
in February, the highest level in a decade.
"The underpinnings for the higher commodity prices are
world economic growth, a weak dollar and increased use of our
corn crop for the production of ethanol," Lapp told Reuters in
While most of the U.S. corn crop, or 43 percent is fed to
livestock to produce meat, dairy products and eggs, an
increasing percentage is being used to produce ethanol.
Twenty-four percent of this year's corn crop will be turned
into ethanol, up from just 14 percent two years ago.
The higher cost of raw commodities contributed to the
Consumer Price Index for food, a broadly used gauge for
inflation, which rose to an annual rate of 5.4 percent during
the first 10 months of 2007, a level not seen since 1980,
according to Advanced Economic's study.
"During the next five years, food inflation is forecast to
increase by an average of 7.5 percent, well above the 2.3
percent average of the past 10 years.
"The U.S. experienced a similar period of rising commodity
prices and food inflation in the 1970s. Commodity prices
doubled ... this ultimately resulted in food inflation from
1972 to 1981 averaging 8.2 percent," the study said.
Traditionally, the food industry -- processors, grocery
stores, restaurants, and others -- absorbed the cost of higher
commodity prices within its operating margins as the rise was
temporary given the competitiveness of retailers.
But times are changing, said Lapp, who is a consultant to
the food and agricultural industries.
"The difference in the current environment is that we're in
the midst of a sustained increase," he added.
The world is not going back to the long-term averages --
$2.40 a bushel corn, $3.50 wheat or $5.50 soybeans, he said.
From 2008-2012, Lapp is estimating that CBOT corn prices
will average $4 a bushel, wheat $6.50 a bushel and soybeans $10
Experts agree that global demand for food and rising energy
prices are two key drivers of rising inflation, but they differ
on how much of an influence corn prices are having on food
Another study released by analytical firm Informa Economics
this week said that historically, there has been very little
relationship between corn prices and food inflation.
In the past, for every dollar an American consumer spends
on food, only 19 cents goes to the farmer, according to the
U.S. Department of Agriculture. The balance, or 81 cents, goes
to labor, fuels transportation, packaging, and other non-farm
"The input costs increases are tremendous. Without any
relief, the only recourse is to pass along some of the costs to
consumers," Lapp said.
(Reporting by Christine Stebbins; Editing by Marguerita