Springdale Morning News, AR
05-18-07
Corn Gobbled Up for Ethanol Leaves Consumers Paying More
By Kim Souza
The Morning News
Corn for ethanol is just one factor resulting in a foul taste in the mouths of
consumers who now pay more for food and fuel.
"I predict higher food prices will be the greatest hindrance for economic growth
this year -- even ahead of fuel prices. We are seeing food-related inflation
permeate through the various levels of the economy and that means many
consumers will have less money to spend on other goods and services, " said
Richard Yamarone, chief economist for Argus Research in New York.
He said basic food raw products -- corn and soy beans -- jumped on increased
demand from the ethanol mandate. President George W. Bush's mandate to
grow more corn has sent the commodity soaring roughly 66 percent. This
increase in raw products was felt throughout the food processing sector and
anyone who feeds farm animals.
Dick Bond, CEO of Springdale-based Tyson Foods Inc. predicted in January that
consumers would being paying more for meat. The world's largest meat company
said it would raise prices to offset the extra $300 million the company will have to
spend in fiscal 2007 on grain and corn purchases
Derivatives of corn like high fructose corn syrup, which is used as a sweetener in
colas, feeds, cough syrup and many processed foods, has jumped 25 percent
this year -- which will likely mean consumers are asked to pay more for these
products, Yamarone said.
The third tier also taking price increases is the restaurant sector. Some
restaurants decided to decrease portion sizes like TGI Friday's announced two
months ago and others raised menu prices across the board like Buffalo Wild
Wings did in response rising chicken costs -- up 78 percent-year over-year as of
May 15.
This week the U.S. Commerce Department reported food at colleges and
universities and catering services rose 5.4 percent for the year, Yamarone said.
"Not only are we seeing food and non-alcoholic beverages cost more, recently
Anheuser-Busch said it was raising beer prices because of the run-up in barley.
The rise in barley is a direct effect from acreage being diverted away from this
grain to grow corn," he said.
A new study by economists and agricultural experts at Iowa State
University on the impact of higher corn prices estimates that corn-based ethanol
production could add as much as $14 billion per year to the price of food that
Americans pay.
"In the aggregate, this will have an impact on the federal budget and federal
feeding programs as well as on food buying. In fact, we're already seeing that: If
you believe USDA figures, there will be a two-pound reduction this year in meat
and poultry consumption in the U.S," said Patrick Boyle, president and CEO of
the American Meat Institute.
Rising food prices garnered the attention of Richard Bernstein, the chief
investment strategist for Merrill Lynch, who recently said in an investors note that
"rising food prices were leading to agflation."
The term agflation relates to an increase in food prices that occur as a result of
increased demand from human consumption and use as alternative energy
source -- as with corn for ethanol.
The Producer Price Index -- a major indicator for inflationary pressure being felt
in an economy -- index for farm products registered a PPI of 141.0 in April
compared to 111.3 a year earlier. The PPI data suggests an annual food price
increase of 29.7 percent.
Through the first four months of this year, total consumer inflation is rising at an
annual rate of 4.8 percent, almost double the 2.5 percent increase for all of 2006.
The acceleration has occurred in large part because of higher costs for food and
energy, the U.S. Labor Department said Tuesday.
Inflation is insidious -- it just creeps up on you -- slowing eroding away your
purchasing power, said economist Kathy Deck, director for the Center for
Business and Economic Research at the University of Arkansas.
Deck said food and fuel purchases does put money back into local economy.
However, she warns that as prices rise for food and fuel there is less money for
other, less critical goods and services.
Susan and Marty Rhodes of Springdale have one income, as Susan made the
decision to jump off the corporate ladder as a public relations professional nearly
eight years ago to stay at home with the children.
"We cut every corner that we can so that I can stay home with the kids and rising
food and fuel costs hit us hard," Susan Rhodes said.
She said Marty often rides his bike to work to keep from having to drive his SUV
and every little bit the couple can save on gas seems to be going for food and
clothing. The couple said they shop at deep discount grocers like Aldi and
seldom buy name brand products when a generic is offered.
Tracie Whelan of Springdale also feels a crunch in the family's budget from a
combined higher grocery bill and soaring fuel costs.
"We live at the lake and haven't yet fired up the bass boat because fuel is so
high. We have opted to take out the canoe and have found it's also lots of fun,"
Whelan said.
With more of the family's income going for food and fuel, Whelan said there isn't
much left for entertainment venues like movies. Family walks or bike rides are
the new source of entertainment, she said.
The Whelan's have four children, one just graduating from the University of
Arkansas and three under 8. Tracie, a stay-at-home mom, recently took a parttime job at her church where she had previously volunteered.
Experts say food price increases affect those with fixed incomes, single incomes
or those who live closer to the marginal poverty lines much more severely
because a greater portion of the disposable income must be spent on food.
When food prices jump it simply redistributes income from one group of citizens
to another, said economist Jeff Collins of Streetsmart Data in Springdale. Even
though it is costing everyone more to eat, those who can least afford the extra
costs are hurt the worse, he said.
The median weekly gross earnings for consumers grow 1.6 percent in the first
quarter, according to data from the Bureau of Labor Statistics. When compared
with inflationary pricing seen in food and fuel, consumers are simply running in
place, Yamarone said.