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Squeezed at the supermarket

September 7, 2007 | Page 3

NICOLE COLSON looks at drastic rise in grocery prices hitting U.S. families.

IN THE midst of the sub-prime mortgage mess, working families are getting hit with another financial crisis that, so far, has received little notice from politicians or the media: A sharp increase in food prices that is making it harder than ever to make ends meet.

According to a McClatchy Newspapers report, "The Labor Department's most recent inflation data showed that U.S. food prices rose by 4.2 percent for the 12 months ending in July, but a deeper look at the numbers reveals that the price of milk, eggs and other essentials in the American diet are actually rising by double digits.

"Already stung by a two-year rise in gasoline prices, American consumers now face sharply higher prices for foods they can't do without. This little-known fact may go a long way to explaining why, despite healthy job statistics, Americans remain glum about the economy."

The Bureau of Labor Statistics' June inflation report revealed that prices on more than a dozen staple food items had double-digit increases in the past year.

Egg prices, for example, were 19.5 percent higher than in June 2006. Milk prices rose 13.3 percent in the same period and were expected to climb even higher; chicken rose 10 percent; navel oranges 19.8 percent; apples 11.7 percent. Dried beans are up 11.5 percent, and white bread just missed double-digit growth, with the average price rising 9.6 percent. Overall, food prices today are at a 17-year high, after accounting for inflation.

And the situation is going to get worse. "As oil prices stay high, wheat prices hit an all-time peak of over $7.50 a bushel for December delivery," reported the Economist magazine. "Aside from wheat, the prices of corn, rice and barley have all risen by over a third since 2005."

As of July, a gallon of milk--averaging $3.80, according to the U.S. Department of Agriculture (USDA)--had outstripped the cost of a gallon of gas. In some areas, including much of the South, prices were much higher. By the end of September, say experts, milk prices could reach $5 a gallon in some areas of the country.

"It's really expensive when you're on a budget," Georgia resident Beth Byington told CNN last month. Byington has two small children, and milk in her town had already neared the $5 per gallon mark. "We can't do anything, we have to buy our milk," she said. "So sometimes we cut back on other food."

Chicago resident Nena McLain told USA Today in June that she had stopped buying beef for herself and her three teenage children--and that it's been difficult to eat healthy, with prices for fresh fruits and vegetables also rising quickly. "It's hard," McLain said. An office manager, her firm recently cut her hours from full-time to part-time, making it even more difficult to afford higher food costs.

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THE SHARP increase in food prices is especially bad news for the estimated 12 percent of Americans who live in "food-insecure" households--some 36 million poor and working class people, half of them children, who already may go without food on any particular day.

In November, the annual report from the USDA (which no longer uses the term "hungry" in an effort, say critics, to diminish the scope of the hunger problem in America) found that the number of people in its "very low food security" category--households in which "the food intake of some household members was reduced and their normal eating patterns were disrupted"--rose in 2005 to 10.8 million.

Across the country, food banks are reporting they are having trouble stocking their shelves--in part because of higher food prices and in part because of increased numbers of people seeking help.

Lisa Hamler-Fugitt, executive director of the Ohio Association of Second Harvest Foodbanks, recently told the Columbus Dispatch that the amount of donated food Second Harvest had available to distribute in the first quarter of this year dropped to 9.8 million pounds, from 10.5 million for the same period last year.

Overall, including federal, state and purchasing programs, Second Harvest is down 2.8 million pounds of food, an 11.5 percent decrease.

Though summer is generally a time when food bank supplies run high, at the RCS Food Pantry in St. Petersburg, Fla., the number of hungry people seeking assistance is up, and donations are down.

"The donations are not keeping up with the food going out," Kathi Trautwein, director of RCS, told the St. Petersburg Times. "It's got a lot of us in social services a little concerned." In July 2006, the RCS Food Pantry served 1,613 families, Trautwein said. In July 2007, the number was 2,057.

Another Florida food bank, the Volunteer Way Inc., wrote a letter to the St. Petersburg Times reporting that it had "never seen so many people...We cannot keep enough food in our warehouse."

Unsurprisingly, food banks are reporting an alarming rise in people seeking assistance who are losing their homes to foreclosure because of the current mortgage crisis. Officials also note they are seeing an increase in the number of two-income families seeking food assistance. "Even those who are not losing their homes are hanging on by the skin of their teeth," said Judy Mitchell, president of Church and Community Outreach.

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THE FOOD price crisis isn't limited to the U.S. As the Economist noted, "Food prices around the world are rising so quickly that a new term has been coined to describe the ballooning price of breakfast staples and dinner-time favorites: agflation."

In Italy, a consumer organization has called for a day-long "pasta strike" on September 13 to protest price increases that may reach 25 percent. In Mexico, 75,000 people turned out to protest earlier this year after the price of tortillas quadrupled.

In China, sharply rising food prices pushed inflation to 5.6 percent in July. Overall, consumer food prices were up 15.4 percent from last year, hitting unskilled and low-income workers particularly hard. This is on top of a 42 percent rise in the price of staple foods, such as pork, last year.

The increases are blamed on a number of factors, including the rising price of fuel and increased demand for ethanol production--which has driven up the price of corn and cut down supply--affecting everything from the area available for planting other crops to the price of animal feed.

Changing land use and diets, particularly in China and India, are also factors, as well as severe weather, which has had an impact on the U.S. orange crop, Australian milk production and Canadian wheat, among other crops. According to the USDA, world stockpiles of grain are expected to drop to their lowest levels since the 1970s.

But there is another factor that never gets discussed: the drive for profit.

Take just one example: In California in 2003, when independent dairy farmer Hein Hettinga began bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, "a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative," according to the Washington Post.

The milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers like Senate Majority Leader Harry Reid, until Congress last year passed a law to stop Hettinga or others from undercutting the prices of the larger producers--even though a USDA study last year acknowledged that the current system of U.S. dairy programs used to set prices actually raises the retail price of milk for consumers.

In fact, across the globe, there is an overabundance of food. According to World Hunger Notes, world agriculture produces 17 percent more calories per person today than it did 30 years ago, despite a 70 percent population increase. This is enough to provide everyone in the world with a diet of at least 2,720 per person per day (some estimates put the number even higher, at 3,500 calories).

Instead, prices are fixed--and grain, dairy and other foods are left to rot or are purposely destroyed--to keep profits high.

For the world's poor, the consequences couldn't be more deadly. Last year, more than 2.5 million children under the age of five died of malnutrition in sub-Saharan Africa alone. Globally, more than 5 million children die each year because of malnutrition--and with food prices on the rise, that number will likely only get worse.

But not everyone sees rising food prices as a bad thing. For some, it's an opportunity.

Last year, for example, Deutsche Bank started the $1.6 billion "DWS Global Agribusiness Fund" specifically to make money off "agflation." Bill Barbour, an investment manager for the fund, crowed to Australia's The Age that DWS has raised $14 million from local investors in less than a year, and that units in the fund have risen four times faster than other investments. "Higher food prices are inevitable all over the world; we're in a sweet spot," he said.

As the investment Web site ThisIsMoney.co.uk commented, "While [rising prices] may be bad news for shoppers, it could signal a profitable harvest for investors."

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