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Is this the end of cheap food?

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Is this the end of cheap food?

Postby momopi » Mon Jan 28, 2008 2:38 am

"Inflation is like a silent thief in the night that comes, sight unseen, and steals our valuables. Unlike the burglar who takes our visible assets, inflation is much more insidious because it steals something that we can't really see -- our future buying power." -- The Boglehead's Guide to Investing, Pg. 49. ... 2003399227

Is this the end of cheap food?
People in developed nations have grown used to low-cost food, but that is about to change as global forces drive huge increases that could threaten international stability

By Alex Reton
Monday, Jan 28, 2008, Page 9

Outside a Co-op supermarket in Edinburgh this month, I met three sisters, all doing their shopping for this weekend. In their baskets were tins, mainly -- Ambrosia creamed rice and minted peas. They were peering at stickers and examining labels with the look of hardened skeptics.

"Terrible, just terrible," said Betty Pryde, at 82 the eldest of the three. "Look at the price of these eggs."

They were free range, and cost ?1.28 (US$2.50) for six -- 60 percent more than in most supermarkets a year ago.

"Everything's gone up," she said.

The sisters live apart but they often shop together, pooling their state pensions. Jean, 78, the youngest, said she doesn't bother looking at the prices, she just gets what she needs. Her older sisters looked at her as if she had just said something naughty.

"Oh no, you've got to watch the prices -- bread, milk, everything, it's all going up," said Nan, 79.

And they all agreed their weekly shopping bill was up a good 10 percent on last year, although the cost of gas and electricity was more of a worry to them.

"We may look back at the second half of the last century as an era of cheap food. It'll be like the Hundred Years' War, as we were taught it in school: A seminal moment in human history that's gone and will not return."

-- Tim Lang, professor of food policy at City University in London

"It's the price of oil, isn't it? And the bad weather?" said Nan, musing over the reason for the price rises.

"The shops, they all like a profit well over the score," Jean said.

"Aye, well, I must get on," Betty said.

Clearly this was the wrong moment for a long chat.

"I want a bit of fish for my supper, and I imagine that's gone through the roof, too," Betty said.

When they had gone, the store was as empty as a church on a Monday. But the discount grocery store Lidl, a block away, was throbbing. Poundstretcher next door was packed, as was the discount frozen foods store, Farm Foods. And no wonder -- food prices are rising faster than they have at any time since the mid-1970s. The middle class in Britain has barely noticed, but here in one of the poorer corners of Scotland, people are feeling the pain.

Everyone in the stripped-down warehouse of Lidl, where the posters promise, simply enough "40 percent cheaper!" had a story to tell.

Shubnam Rasoul, 23, out shopping with her husband, Shahid, and their two small children, said: "I never buy anything for myself any more. And I never buy anything that's full price -- it's all in the sales."

Shahid, who works in a Leith butcher's shop, said that the price of their lamb is up 10 percent since last month.

"We spend ?200 a month now on groceries for the family," he complained. "Probably 25 percent more on a year ago. It's frightening."

While a liter of orange juice is ?0.57 in Lidl, it sells for ?0.99 in the Co-op. Such products, and staple foods like eggs, bread, frozen peas, butter and cheese have seen price rises of between 20 percent and 30 percent in mainstream supermarkets., which collates UK supermarket prices daily, puts the overall rise last year at 12 percent. That means the average British family's shopping bill has gone up by ?750 a year.


From Lidl, I went to another food shop, only a kilometer away, but a planet away in every other way. Occupying part of a terrace in the grandeur of Edinburgh's New Town, Herbie's is a fittingly stylish grocer/cafe -- the sort of place where they don't put price labels on the goods in the chill cabinet because, presumably, no one is particularly bothered. If you do ask, half a liter of milk here costs ?0.75 -- in Lidl it's ?0.32.

I was introduced to five obviously middle-class Edinburgh women, the fundraising committee of the PTA for one of the city's private schools. They were having a meeting over cappuccinos.

Did any of them know how much half a liter of supermarket milk cost, I asked. ?0.80 at the upmarket supermarket Waitrose, said one confidently, and the others nodded. And how much has the price gone up? Not much: it's about the same, they all agreed. In fact a half a liter of milk costs ?0.40 at the supermarket, and is up by 15 percent to 20 percent on a year ago.

Two of the women -- none wanted to be named -- didn't think food prices had gone up noticeably. But the other three weren't so sure. They'd seen a difference in their weekly shopping bills.

"Tesco [supermarket] deliver," one said. "We're vegetarians and it's usually the same order. And it's usually ?180. But it's been ?200 lately."

Another laughed: "My husband's certainly noticed we're spending more."

"Do you know," the third said, "I have actually started looking at labels in the supermarket. Prices per kilo, and so on."

Everyone smiles -- how absurd it seems.

It's going to be interesting, said James Walton, chief economist with the UK food retail industry's education body, IDG.


UK shoppers aged under 50 have so far never experienced food-price inflation. Essentially, throughout most Britons' lifetimes, food has become cheaper. But, in December, the inflation rate (by the government's preferred consumer price index, the CPI) was 2.1 percent, while for all foods it was 5.9 percent. Habits will change, although it's unlikely we're going to see Soviet-style lines at empty shelves.

However, label-watching may become a habit for those Edinburgh women, because -- and all the analysts agree on this, if nothing else -- this is only the beginning.

Walton's organization is funded by the supermarket industry, whose bosses are, in public, largely in denial about the significance of the price rises. But Walton, himself, forecasts two further years of similar increases, at least.

All the indicators, the prices of every food staple, are on the up -- wheat doubled in price at one point last year.

"It's something the industry has expected and is thus, hopefully, a manageable cycle," he said.

"No hunger riots. But we have enjoyed food prosperity for a long time, and we're seeing the end of that," he said.

Others offer an even more bleak assessment. Jacques Diouf, head of the UN's Food and Agriculture Organization, spoke recently of a "very serious crisis" brought about by the rise in food prices and the rise in the oil price. Various global economic bodies are forecasting rises of between 10 percent and 50 percent over the next decade.

There have already been riots about food prices in Mexico, West Bengal, Morocco, Senegal and Yemen, although not in Edinburgh. But the factors behind the price rises in Leith are exactly the same as those in Mexico, or in China -- where, on Jan. 16, the government introduced price controls on dairy products, meat, vegetables and cereals. And while food price inflation hit 18 percent last year in China, there's no good reason why they should not do that here.

In fact, there are a lot of reasons why they should.


There have been four chief drivers of food price inflation in the last two years.

The first is the huge rise in oil prices: US$100 a barrel means food that is four-times as expensive to plant, irrigate, harvest and transport as it was six years ago. Some commodities brokers are now betting on oil going to US$200 a barrel within a decade.

The second factor is the climate: drought, hurricanes and floods around the world last year made for terrible harvests -- from Australia to the Caribbean and the UK.

The third is the massive rise in the price of the staple-food commodities: wheat, maize and soya. This has been partly driven by speculation in the markets, partly by the demand for crops to turn into fuel. Ethanol, a diesel-type fuel made from plants, must bear a lot of the blame.

Since US President George W. Bush announced a rush to corn-based ethanol it's done well for US corn farmers -- 20 percent of whose harvest, subsidized by the government, went into fuel tanks rather than flour mills this year.

Bush's taste for corn-based ethanol is based partly on trying to break the US's reliance on Middle East oil suppliers, and partly on a (largely misplaced) faith in its ecological credentials. (Its increasingly voluble critics claim that growing grain and then transforming it into ethanol requires more energy from fossil fuels than ethanol generates.)

And, as a result of the vast tracts of farmland now being given over to corn for ethanol production, the price has risen sharply. Hence the tortilla riots in Mexico, last summer, over the price rise in the corn flour that makes the pancakes.

Some claim that there is now a war between the 850 million chronically hungry of the world and the 800 million motorists -- all fighting for the same food crop.

It's a pretty unbalanced battle: The maize to fill a tank for a 4x4 would feed a family of four for three months.

In October the UN's spokesman on famine, Jean Ziegler, called the biofuel boom "a crime against humanity". And as the Economist magazine recently noted: "The 30 million tonnes of extra corn going to ethanol this year amounts to half the fall in the world's overall grain stocks."

This month, after a mass protest at the price of soya beans in Indonesia (which rose because of the shortage of corn and other crops to supply the biofuel industry), Ashok Gulati, director at the International Food Policy Research Institute said: "It's finally a trade-off between filling stomachs and filling diesel tanks in cars and trucks."


But the last, and perhaps the most disturbing factor in the food price rise, is the financial boom in India and China. Around the world, and through history, people have eaten more meat as they have become richer. This is called the nutrition transition and it's now happening, very quickly, in the two most populous nations on the planet.

Hundreds of millions more people are now rich enough to eat meat compared with 10 years ago, with meat consumption in China more than doubling over the past 20 years. Meat also consumes food resources in a shockingly inefficient way: It takes 8kg of grain to produce 1kg of beef, and 4kg for pork. But each kilo of grain may need a tonne of water. And fuel oil is needed throughout the process, to fertilize the grain, pump water and to transport it.

Water and oil will both be in short supply this century.

None of this is a surprise to Tim Lang, professor of food policy at London's City University, and an adviser to the British government through the Sustainable Development Commission.

"I've been expecting this for two years," he said. "The food system is entering a period of very significant restructuring, the first since the years after the Second World War. We may look back at the second half of the last century as an era of cheap food. It'll be like the Hundred Years' War, as we were taught it in school: A seminal moment in human history that's gone and will not return."

That food is -- for the rich world, at least -- astonishingly cheap, is undeniable. The average British household spends 13 percent of its income on food -- for our grandparents that figure would have been 30 percent.


In Lidl in Edinburgh, I met a 75-year-old retired nurse with a basket of vegetables -- broccoli, leeks, courgettes -- along with apples, vinegar and a tin of condensed milk.

"I make jam and I pickle things," she explained. "My daughter thinks I'm mad, but it's a habit. I got married in 1948 just after the war, when things were still rationed. We appreciated everything we got to eat. Now, we've got used to having too much. We throw so much away. People eat unwisely -- they don't plan, they just shop."

But could there be positive aspects to the food price rises? Some environmentalists believe so, including Tim Smit, founder of the Eden Project, near St Austell in Cornwall, England.

"Food is ridiculously cheap and we need to pay more -- for our environment to be healthy, to cut down on carbon emissions and give more income to our farmers," he said.

"It's said that 30 percent of all food produced in Britain is thrown away. We may be getting back to seeing what the real price of food is, and that is healthy for producers and for society," he said.

So is there a morally preferable price level for food, at which people will value it more, and waste less? Raj Patel, a political economist at Cornell University in the US, and author of Stuffed and Starved -- on the politics of global food supply -- said that allowing the market to set prices to make people behave better is not the answer.

"There are greens who are crowing that the price of food going up is going to benefit the environment and help the small producer," he said. "But the benefit of the rises is going to the contractors and the commodity brokers -- not to the farmers or to developing world economies."

"Nor are supermarkets innocent victims of price rises. [Two in the UK] Sainsbury's and Tesco have recorded double-digit growth in profits last year," he said.


The supermarkets insist there's no problem. Tesco's finance director, Andrew Higginson, said that tales of rampant inflation, based on one or two products, are complete nonsense. When I asked Sainsbury's about the reported 26 percent rise in the cost of a basket of its food, it said that its prices overall had actually only risen by 1 percent in the last year.

As an illustration they sent me a list of five items that had become cheaper, including 200g of Sainsbury's mixed olive hummus which was 20 percent down.

Dismissing alarmist predictions, British Retail Consortium's head, Kevin Hawkins, said last week that intense competition between food retailers was continuing to keep prices down, with retailers absorbing much of the impact of increasing costs themselves.

But as the situation stands today, at least a third of the world -- including the populations of China, Russia and India -- have government-imposed price limits on their foods.

"That's how it's going," Lang said. "You can't wriggle out of the facts. There are water shortages, climate change, energy price rises, population demographics, waste. We can't go on eating meat the way we do -- the economics of it just won't add up."

He's not expecting food riots in Britain -- yet.

"But we're entering a long period of restructuring, and politicians will have to get involved," he said. "For years, successive governments have got used to food prices going down. The `leave it to Tesco' policy has dominated. But that's over. After half a century, food security is on the political agenda again."

And so, you imagine, is hunger.
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Postby momopi » Mon Jan 28, 2008 4:37 am ... -Consumers

Higher Food Prices Start to Pinch Consumers
by Julie Jargon, David Kesmodel and Janet Adamy
Thursday, January 3, 2008
Provided by WSJ

With the rising cost of milk, eggs, meat and produce contributing to the biggest jump in food prices in 17 years, consumers are starting to feel the pinch.

Some shoppers, already dealing with falling home values and rising fuel costs, are finding creative ways to save, opting for cheaper ingredients and private-label goods and leaning more heavily on discount grocers. And restaurant diners, who have been eating out less frequently, will likely face even higher prices on menus.

For Christmas dinner, Karen Littleton, a 54-year-old freelance writer in San Antonio, says she bought a huge salmon fillet at discount retailer Costco Wholesale Corp. rather than an "exquisite fish," such as Chilean sea bass, from a local grocery store.

She says she loves to prepare gourmet dishes, but "I'm using cheaper foods and having to be more imaginative with how I put them together. ... I used to use eight or 10 ingredients in just a sauce, but those days are over."

Many of the price increases seem small on a per-item basis. The average retail price of a dozen eggs went up 38% to $1.86 in November from a year earlier; a gallon of milk rose 30% to $3.90; and whole-wheat bread rose 12% to $1.78 per pound, meaning a 24-ounce loaf of bread now costs, on average, $2.67. But the costs can add up on a weekly grocery bill. Overall, food prices as measured by the consumer price index rose at a 5.3% seasonally adjusted annual rate through November, compared with a 2.4% rise for all of 2006. That is the biggest increase since 1990.

Food prices are rising for a number of reasons. A growing middle class in Latin America and Asia can afford more meat and milk, which has driven up demand for grain to feed cattle and hogs. A drought in Australia in 2006 reduced the supply of milk available to Asia, further pushing up the cost. Rising global demand for U.S. wheat and poor harvests in other wheat-producing countries caused wheat prices to soar to record levels last year.

Demand for grain-derived ethanol, driven by government incentives, has helped push up corn and soybean prices, which in turn have raised the cost of many products derived from those crops, such as oils and high-fructose corn syrup, a sweetener used in everything from soft drinks to ketchup. To top it off, rising fuel costs are making it more expensive to transport food from the producers to stores and restaurants.

'Everything's Going Up'

"Between weather conditions, fuel charges and labor, everything's going up," says Sandy Levine, vice president of Carnegie Deli in New York, which will be raising prices on several menu items this year. A slice of cheesecake will cost $8.50, up from $8, and coleslaw will cost $4.50 instead of $4. The deli processes its own meat, but with produce, Mr. Levine says, "I can't buy direct. It has to be trucked across the country from California or Florida."

For the past several months, food manufacturers including General Mills Inc. of Minneapolis and Sara Lee Corp. of Downers Grove, Ill., have been passing along their higher costs to retailers, which in turn have been passing them along to consumers. In addition to basics like bread, cereal, cheese and eggs, nonessentials such as chewing gum, chocolate and ice cream also have become more expensive.

Last week, an 18-ounce box of Kellogg's Corn Flakes cost $4.29 at an Albertsons in Lake Havasu City, Ariz. The same box at a nearby Safeway cost $3.79, while it cost $3.43 at a nearby Smith's, a chain owned by Kroger Co. Each store offered an in-house brand, which varied in price across the three stores from $1.89 to $2.79. Other private-label goods were priced at a significant discount. A 7.25-ounce box of Kraft Macaroni and Cheese Premium Thick 'n Creamy cost $1.69 at Smith's, while the store-brand competitor made by Kroger cost 49 cents.

Phyllis Hoag, an interior-design consultant shopping last week at a Smith's in Lake Havasu City, said she now plans many of her family's meals around what's on sale. After reviewing the weekly specials, she scooped up six T-bone steaks for $3.99 a pound. "Usually they're $9.99," Ms. Hoag, 47, said as she pushed her cart down the pasta aisle. "I just try to shop with ads and stock my cupboards with dry goods that are on really good deals."

Passing Along Increases

Some large conventional supermarket chains such as Kroger and Safeway Inc., which have passed along most of the price increases in food products, say they haven't felt a negative impact on their sales. "In our view, periods of modest inflation [are] a positive for our business, because inflation tends to improve sales," Kroger CEO David Dillon told analysts in December.

And not all food items have gone up in price: The average price of red delicious apples remained flat, as did the price of malt beverages. But food analysts are predicting that the prices of most food products are likely to continue to rise throughout 2008.

Carol Skusek, a mother of two teenage boys in Temecula, Calif., says she is buying cheaper cuts of meat to pare her grocery bill. "If I buy a chuck roast instead of a rump roast and just cook it longer in some sort of broth, it's just as tender," says Ms. Skusek, 47. She shops at a nearby Stater Bros. grocery store just before it closes at 11 p.m., when butchers often slash the price of meat that is near its sell-by date rather than throw it away. "I recently got hamburger for 99 cents a pound, and it's normally over $3 a pound," she said. She is also shopping more at a discount grocer, WinCo Foods.

That shift appears to be helping Wal-Mart Stores Inc., which recently said its rate of food inflation is lower than that of the rest of the grocery industry. During an earnings conference call in November, Eduardo Castro-Wright, chief executive of Wal-Mart's U.S. business, told investors: "Our grocery business, including pharmacy, was strong throughout the quarter, and Supercenter food sales grew by more than 13%."

Restaurants have had a hard time passing along price increases because consumers already had cut back on dining out due to rising gasoline prices and declining home values.

Burger King Corp. raised its prices 1% in July. McDonald's Corp. said in October it raised prices by about 3.5% during the previous year and will continue to adjust for higher dairy and chicken costs. Some McDonald's franchisees have raised prices of items on the company's Dollar Menu above the $1 mark. At one Chicago restaurant, for example, that menu has been renamed "Dollar Menu & More," and includes a $1.29 double cheeseburger and $1.49 chicken snack wrap.

Angel Crawford, a 49-year-old Chicago resident, says she visits McDonald's every day for breakfast and other meals but has been staying away from the higher-priced items on the Dollar Menu & More section. "I don't buy them because they went up," she says.

$12.99 for Chicken Wings

Wing Zone Franchise Corp., a chain of 103 restaurants in the Southeast, instituted an 8% price increase in August and will try not to raise prices again during the first six months of 2008. "There isn't a single product in our restaurant that hasn't gone up in cost from the vendor," says Wing Zone founder and CEO Matt Friedman.

Now, an order of 20 chicken wings costs $12.99 instead of $11.99 -- and that has cost Mr. Friedman some customers. Between September and December, Wing Zone saw its customer count go down by 2% to 3%.
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