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Groceries Costing You an Arm and a Leg?

by Adam Price |
February 28, 2008
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Feel like it is costing you an arm and a leg when you go food shopping? While a trip to the supermarket is not quite as bad as a visit to Sweeney Todd - the current movie barber whose ‘close shave’ lands you in a butcher shop to be made into meat pies - food prices have jumped 5% over the last year. This increase, along with a 20% hike in energy prices, has led the overall consumer price index for workers in January to be 4.6% higher than a year earlier. Aside from the spike in prices following Hurricane Katrina, this is the highest rate of inflation in more than 16 years.

Higher inflation has lowered the purchasing power of workers wages by 1.4% over the last year, as price increases have outstripped wage growth. However many times the government and media try to cover up the full impact of inflation by looking at consumer prices without food and energy, which is only up 2.4% over the last year, or about half the actual inflation rate. The problem, of course, is no real family goes without buying any food or energy for a year.

Mainstream economists see inflation being driven by demand, or spending, and costs, or business expenses. But this approach tries to blame an impersonal ‘market’ for higher prices, without looking at who is spending and who is reaping the benefits of higher costs. With unemployment on the rise, the purchasing power of workers’ wages falling and the overall economy slowing down, higher inflation is not being driven by a burst of spending.

So why is the cost of food going so high? One reason is the Bush administration’s push for biofuels, which does little to save on energy, but adds a lot to food prices. Nearly two billion bushels of corn will be used in the United States this year to make ethanol, which is then mixed with gasoline. Over the past two years corn prices have more than doubled, increasing the costs of meat and milk (corn is mainly used as a feed grain for livestock) as well many foods that use corn-based sweeteners and other products. At the same time the soaring price of corn has led farms to switch from wheat, soybeans and other crops to grow more corn, pushing up other food prices as well.

Another factor that is rarely mentioned in the press are the big food manufacturing corporations who are able to raise prices to increase their profits. The Switzerland-based Nestlé corporation is the world’s largest seller of food and drink and pet food, and just announced a 16% increase in profits for 2007 to nearly $10 billion dollars, due in large part to higher prices. Besides the Nestlé brand, it also produces Alpo, Arrowhead, Calistoga, Carnation, Coffeemate, Friskies, Gerber, Juicy Juice, Lean Cuisine, Maggi, Mighty Dog, Nescafé, Ortega, Perrier, Poland Spring, Purina, Stouffers and Tidycat. Big food ConAgra, which produces Banquet, Chef Boyardee, Healthy Choice, Hunt’s, Libby’s, Marie Callender’s, Orville Redenbacher’s, Pam, Peter Pan, Rosarita, Van Camp’s, etc. said that they are raising prices on 95% of their brands in March.

Speaking of big corporations, big oil, led by Exxon-Mobil with about $40 billion in profits each year, also contributes to the higher cost of food. U.S. food production uses a lot of energy for mechanization, irrigation, processing and transportation, so that higher energy costs show up in food prices.

So far the U.S. Federal Reserve bank has been focusing on the falling economy by lowering interest rates in hopes of boosting borrowing and spending. However even if it were to turn to the inflation problem, its solution would be to raise interest rates in hopes of increasing unemployment and reducing consumer spending. While this can bring down inflation, it does so at the cost of the lives of jobless workers and their families and communities.

What is needed is to take on the bad policy and big corporations boosting food prices. Corn should be for food, not fuel - a more rational (but less profitable) energy policy would stress conservation, not biofuels. Big conglomerate corporations like ConAgra and Nestlé should be broken up to encourage more competition, while big oil (which needs to be big to provide the infrastructure - refineries, etc - needed to produce fuel), should be nationalized.