Many factors fueling rising food prices

ShareThis

The falling value of the U.S. dollar is contributing to a rise in food prices, particularly with imported foods such as fruit from Spain. A gallon of whole milk that sold for $2.78 in January 2000 costs around $3.95 today.Eggs were 97 cents at the dawn of the new millennium. Now they're up to $2.49 a dozen.The price of a fresh whole chicken has jumped from $1.05 to $1.49 a pound during the same time frame."A lot of that is attributed to the declining dollar," said P.J. DiNuzzo, president of DiNuzzo Investment Advisors Inc. in Beaver, Pa. "The weaker currency is having an effect all across the board, all the way to food prices."The falling U.S. dollar isn't the only culprit. The rush for biofuels and record-setting oil prices also appear to be having a ripple effect on food prices.According to the Consumer Price Index, the price of food on average has gone up 5.4 percent between November 2006 and November 2007, the latest figures available. The cost of dairy and related products has soared 14 percent, while the cost of meat and fish has gone up 4.1 percent, and the cost of bread has risen 8.1 percent."In general, food prices will continue to go higher as the dollar weakens," said Greg Womack, a certified financial planner with Womack Investment Advisers in Edmond, Okla."We're going to keep seeing higher food prices. Some of that will be because of the weaker dollar, but for other reasons too, including higher international demand for food."The growing middle class in developing countries such as Latin America and Asia can afford more meat and milk, raising world demand and thus prices.Also, the new federal energy bill calling for a sevenfold increase in ethanol production to meet clean air standards and reduce dependence on imported petroleum may be having the unintended consequence of causing shortages of corn -- which is used in ethanol production -- in turn driving up the prices of a wide array of food products derived from corn.By 2012, the U.S. goal is to produce 7.5 billion gallons of ethanol a year, meaning U.S. annual corn production must increase 22 percent from about 10.9 billion bushels to 13.5 billion bushels to meet the demand.Corn prices are at their highest level since the drought of 1995, jumping from around $2.18 per bushel in 2002 to $4.78 per bushel this week.Beyond U.S. borders, the sharp rise in the price of corn recently led Mexicans to demonstrate in the streets of their capital city over the skyrocketing price of corn tortilla, a staple of their diet.Corn also is an essential feed ingredient for livestock and poultry producers, so as the price goes up it becomes more expensive to feed farm animals, which increases the cost consumers pay for chicken, eggs, ham, bacon and other meats."Agronomically speaking, we are a 'corn' nation," said Paul Brahim, executive vice president of BPU Investment Management, Downtown."Cows, sheep, hogs, chickens and people eat corn. Additionally, corn byproducts such as corn oils and corn syrups are used in food processing. If you're a label reader, you'll see they're in just about every baked good and processed food in the grocery store."The strong relationship between higher oil prices and the rising cost of getting food to the market also is causing some pressure on food prices, said Robert Dye, a senior economist for PNC Financial Services Group."Transportation of food is an issue because so much food is shipped by truck," Dyer said. "Higher diesel costs would be passed through to customers."The supply and demand for certain food commodities along with the decreased purchasing power of the dollar has delivered a double whammy on consumers.According to Bloomberg financial news data, the value of the U.S. dollar since 2002 has dropped more than 70 percent against the euro, 44 percent against the British pound, 39 percent against the Canadian dollar and 18 percent against the Japanese yen.While there are several factors contributing to higher food prices, no one is sure of the long-term impact of oil, ethanol and the shrinking dollar at the grocery store."The dollar is not going to fall forever," said Josephine E. Olson, professor of business administration at the University of Pittsburgh and director of the Joseph M. Katz Graduate School of Business."It eventually is going to increase again, which might help food prices go down." E-mail Tim Grant at tgrant(at)post-gazette.com (Distributed by Scripps Howard News Service, www.scrippsnews.com.)