Why are food prices so high?

Why are food prices rising?

Milk, bread and egg prices are climbing as a result of global shifts in food supply and demand.

David Zilberman and Peter Berck, professors of agricultural and resource economics at U.C. Berkeley, spoke with The Press Democrat about the rise and offer up the following:

PRESS DEMOCRAT: Why are we witnessing worldwide food inflation?

ZILBERMAN: Over the last 10 to 15 years, there has been an increase in the demand of food from the rise of incomes in Asian countries, Russia, India and other countries. People who were eating vegetables are eating more meat, which increases the demand for food.

Countries have moved from steel to adopting biotech and that has led to a slow increase in the supply demand -- it grew as the inventory went down. Biofuels are increasing the demand but the biofuel supply is not growing very fast and we don’t have enough food for the future supply now.

Berck: Additional demand from developing countries like India and China, they are both are getting richer and the richer you get, the more you eat.

The demand for food goes up higher on the food chain, which impacts basic things like bread to chicken. The demand for basic food stuff for people means more grain for chicken rather than to just eat it yourself.

P.D.: What are some reasons for rising food prices in the North Coast?

BERCK: The major driver people identify is growth in developing countries and growth in food demand. The mismanagement of the U.S. dollar; it has gone down and our food is internationally traded, so our food prices seem to be going up.

We run huge deficits and part of what we see at the grocery store is that our government has decided to have a war and not pay for it -- that piece is about fiscal responsibility.

The other increased internal demand for food is that we are burning it. For some reason we think this is good. The Europeans are understanding that their quest for biofuel comes at the cost of food or the environment and they are questioning biofuel. We are too, but not as publicly. Ethanol buys a huge number of electoral votes.

P.D. Are U.S. food prices affected more now by global prices than in the past?

ZILBERMAN: Yes, prices go up when the dollar goes down because the U.S. is a food exporter that sells internationally.

BERCK: I would say yes, we are affected more now than ever before. We used to have a program of export with internal food prices set by policies and not by the demand from the rest of the world. Now our internal food prices are set by the world’s situation.

P.D. Will high food prices in the U.S. last long?

ZILBERMAN: It will last for awhile, but if we use the right policies, it will go down again. But, if we have a drought next year, it will get really bad.

I’m a little bit worried, to tell you the truth, because biofuel is taking away food from people to produce energy. We really are dependant on increasing supply and it is difficult to tell people all over the world they need to eat less meat and also offer some sort of incentives, but that would prevent starvation.

There are a lot of opportunities to expand agricultural production in Eastern Europe, in Southeast Asia, even Africa. The nice thing about the market is that people really respond to what’s going on. So, to some extent, supplies will increase and prices will return to some sort of normality. But it will take two or three years.

BERCK: They won’t drop quickly, we’re only going to see whatever got planted in the market in the late summer and it’s going to take awhile to work through the system.

Presumably supply will drop some places like Brazil. A lot of land in Brazil is not growing food crops. I don’t believe the demand is going to drop here very much, we’re very rich and we don't plan to give up eating. In India, the demand drops when the prices go up. In Egypt, people have fallen off the food chain all together, they’ve been priced out of the food market.

P.D. What are the trends we should be watching?

BERCK: The thing to watch is what the supply response is in other countries other than the U.S. — Brazil, India, China and Russia. That will determine whether or not the world gets fed in the short run and it will determine the price of food.