The Ripple Effect From Rising Food Prices

As drought and high temperatures continue to devastate much of the country's corn and soybean crops, the USDA reports that food prices will continue to rise at least into 2013. NPR senior business editor Marilyn Geewax and The Earth Policy Institute's Lester Brown discuss the rising cost of food.

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NEAL CONAN, HOST:

This is TALK OF THE NATION. I'm Neal Conan, in Washington. A report from the Department of Agriculture today projects that already rising food prices will continue to climb through much of next year, as the effects of this summer's drought reverberate from farms and ranches to processers, packagers and retailers.

Though it's impossible to say exactly how much more we'll pay for a box of Corn Flakes or a pound of hamburger six months from now, the price will likely be higher, and not just here. The United States dominates the world market for corn, so the effects will be widespread, and we may have to get used to changes amid hotter, drier summers in the years to come.

If you work in the U.S. food industry as a farmer, grocer, wholesaler, we want to hear from you. What changes do you see? Give us a call: 800-989-8255. Email us: talk@npr.org. You can also join the conversation on our website. That's at npr.org.

Later in the program, a new look at a documentary that tells the story of two young Navajos who struggle with their decision to leave home. But first, Marilyn Geewax joins us here in Studio 3A. She's an NPR senior business editor. Always nice to have you with us.

MARILYN GEEWAX, BYLINE: Hi, Neal.

CONAN: And we're already seeing higher prices, especially for meat. But the USDA Food Price Outlook Report says that's not from this year's drought. That's from last year's drought.

GEEWAX: You know, the way you need to think about food is it takes a long time to get from the field to your plate. Now, that's not true if you're just running out to the local farmer's market, you want an ear of corn. Maybe it was picked that morning. If the weather's been good, maybe you get three or four ears for a dollar. If the weather's been kind of lousy, maybe you get two scrawny ones.

So there's a very direct relationship between that sweet corn that you're chomping for dinner tonight and what was happening in the field near your home. It's very different if we're talking about Tostitos. You know, the corn that goes into the very processed foods, it can be months between when that corn was sitting out in a field and when you're sitting there with your dip, crunching.

So what we're seeing today generally reflects what happened last year. Now, we had that terrible drought in Texas last summer. And then this spring, we had very high energy prices. So some of that is still cooking through the system. Last year, we saw food prices rose about 3.7 percent, and that was a little higher than inflation in general. Overall, prices were up 3.2 percent.

So we've already had some momentum from prices rising. This year, they'll probably continue to rise. But the worse effects from this year's drought will probably be felt next year.

CONAN: And the corn and soy, that's what we're told is suffering the most in this terrible drought and the terrible heat we're also seeing.

GEEWAX: Yes. Remember, in 2008, we had some very high prices at that time, and that was really related to rice and wheat, because globally, those areas that grow a lot of rice and wheat had terrible growing seasons. But this time, it shifted. The problem is not in Russia. It's not in Pakistan.

CONAN: Or Australia.

GEEWAX: Or - right. This year, it's the United States. It's that Midwestern Corn Belt. And if you look on any of those scary looking maps where they show where the drought is...

(LAUGHTER)

CONAN: They're usually glowing red.

GEEWAX: Yes. They're burning up in the middle of the country, and it's not just the middle of the country. South Georgia's terrible. A lot of places around the country have been having extreme drought. And that's really affecting - it will have an impact on the whole world, because the United States is by far the largest producer of corn, and corn goes into lots of things.

There are people in Latin America who will want to make corn tortillas. There's people in Africa who eat a lot of corn. And those people will be affected by what's happening in the Midwest, in this country, this year.

CONAN: And you mentioned the price of food just a little bit ahead of the price - the rate of inflation, that reflecting the terrible drought last summer. So how much more does the USDA figure it's going to run ahead of inflation next year?

GEEWAX: Well, now, keep in mind the growing season is still in progress. I talked this morning with an economist at the USDA, and he said that you can't say absolutely for sure how bad this drought is going to be, because suddenly, it could start raining.

CONAN: It could start raining, yeah.

GEEWAX: You know, things can change, and maybe you tear up a field and you replant something else. And, you know, so we're still right in the middle of summer. So we don't want to get too far ahead on these predictions. But from what they can see right now, the assumption is that this year, prices will be up about 3 percent, three and a half, maybe stretching towards four. But next year could be a little worse, where you're talking about 4 percent inflation coming.

So - and it depends on what you eat. Meat is really the big thing, here, because the larger the animal, the more corn it needs to eat. When you're talking about cattle, it takes a lot to get that animal to a size where you can slaughter it and turn it into a lot of meat products. So, really, that's where the big spikes have been in meat. And last year, we saw more than 10 percent increase in beef and veal prices.

This year, we're probably looking at another three-and-a-half, 4 or 5 percent, maybe, and the same next year. So I don't know about you, Neal, but my raises haven't been keeping quite pace with 10 percent jumps. So for people who are on either fixed incomes or not getting huge raises, that's a lot.

CONAN: And, of course, during the drought last summer, you mentioned, most prominently in Texas, a lot of people sold off their herds because, well, they obviously had a problem feeding and watering them. And so fewer cows in the country means there's less beef, and it costs more.

GEEWAX: That's exactly right. Inventories are quite low. That's a real problem, because actually, we've had several years in a row now where there have been pressures towards reducing the size of the livestock herds. You don't want to have to pay for feeding them in all of these droughts. Energy's expensive.

So as soon as an animal gets to the point where they call it market-ready, they want to slaughter it so that they can take what profits they can and move on. But that means that the inventory of meat coming up will be very reduced. And at the same time, of course, around the world, lots of people want to buy our food products. So that causes a lot of our food to be exported, and it drives up the prices.

CONAN: We're talking with Marilyn Geewax, NPR senior business editor, about the report today outlining the prospect for food prices in the year to come. And, well, we're talking about the food industry in general, which is undergoing changes. Well, part of that is due to the weather, and part of that is due to the climate, which looks more hot and more dry as we look ahead.

We want to hear from those of you in the food business, whether you're a farmer, a rancher, a wholesaler or a retailer. Whatever part of the business you're in, what changes do you see? 800-989-8255. Email us: talk@npr.org. And let's start with Karl(ph), and Karl's with us from Arroyo Grande in California.

KARI: Hi, I actually own a wine bar in the middle of the Central Coast, and, you know, where we get to shop wholesale or with farmer's markets, the prices have gone up dramatically. My business has been around for three years now, and I've gotten to see a $25 - I'm sorry, 25-pound bag of flour go from being $5 to $7 in three years.

You know, chocolate chips, a big bag has gone from $7 to $12. And corn has gone from, you know, a package of six being $3 to $6.99.

CONAN: And I have to apologize: I glanced at the screen, I saw Karl. It's Karrie(ph), isn't it?

KARI: Yeah, it's Kari .

CONAN: Kari, excuse me.

KARI: It's OK.

(LAUGHTER)

CONAN: And you have to pass those prices along to your customers, I assume?

KARI: Yeah, we do. I mean, there are some items that we just don't buy anymore because they're so expensive, and you can't get a customer that wants to pay for that item. But as well, you know, our portion sizes have gotten smaller on some things, or we've charged more.

CONAN: I gather the name of your wine bar is not the Cheesecake Factory.

KARI: Well, what's really funny is the name of my wine bar is Gather.

(LAUGHTER)

CONAN: OK. Thanks very much, and are you doing OK otherwise?

KARI: Yeah. You know, we kind of roll with the punches. One of the things that, as a small business, you have to kind of hear what your customers are saying. And if they want things that are less expensive but higher quality, you have to spend your time looking for it.

CONAN: Thanks. Marilyn?

GEEWAX: You know, that's one of the things that we'll have to see as consumers, is how much are merchants - restaurant owners and grocery store managers - how much are they going to pass along to us? Because, you know, as I said, wages are really not going up. We still have 8.2 percent unemployment. So a lot of people can't afford a lot more for groceries.

That leaves people like this merchant in the position of having to decide: How much of that do you just cut your profits, and how much can you afford to pass along to people? Another response from consumers, the USDA economist told me today that we are seeing people shifting away from meat and more towards chicken, which is a little cheaper, and other just going a little more vegetarian or smaller portions.

So just because wholesale prices rise, it doesn't necessarily mean that retail prices will track as much, because we may change our behaviors, and merchants may just eat the losses.

CONAN: One of the questions I had about you - we were talking about the U.S. corn crop, and it's down or projected to be down this summer. What - a significant percentage of that goes into ethanol, which is added into gasoline. What's happening with that? Obviously, that affects the price of fuel, as well.

GEEWAX: Well, whenever oil prices rise, the demand for ethanol grows, as well, because it becomes a relatively cheaper option. And an awful lot of our corn does go into ethanol, and many people who are, shall we say, food activists - people who believe that corn should only be used for eating - are really being more energized by this issue.

They're seeing these corn prices rise, and they say: Why are we using something as precious as food to fuel, you know, motorcycles or whatever? So that's an ongoing political debate about how much should we put into ethanol. Other people think that farmers will respond. We'll just get more corn in the future. We're just having a tough year. We shouldn't change energy policy based on one year's drought.

CONAN: But if the corn prices are spiking, aren't ethanol producers facing their own problems?

GEEWAX: The thing is they've really been - they've done about all they can do for this year. They've made a lot of ethanol, and at this point we're really, the corn is moving into food.

CONAN: All right, Marilyn Geewax is with us, NPR's senior business editor. Up next, Lester Brown of The Earth Policy Institute will join us to tell us we better get used to what he calls the new geopolitics of food scarcity.

(SOUNDBITE OF MUSIC)

CONAN: This is TALK OF THE NATION from NPR News; I'm Neal Conan. We're talking about rising food prices. We may pay a bit more at the grocery store, but Americans on average spend about 10 percent of their income on food. In the world's poorest countries, that's closer to 50 percent.

Record prices for food were among the many forces that contributed to political unrest in Egypt, Tunisia and Yemen last year in what became the Arab spring. Prices also spiked in 2008. Families lined up for bread in Egypt. Two days of violent riots broke out there. In Bangladesh, workers went on strike over the cost of food, and protests erupted in Haiti.

Some warn if the trend toward hotter, drier condition in the grain belt continues, we may see similar unrest in the next year. If you work in the U.S. food industry, as a farmer, grocer, wholesaler, we want to hear from you. What changes are you seeing? 800-989-8255. Email talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.

NPR senior business editor Marilyn Geewax is our guest. She wrote about the effects of rising food prices in a piece for npr.org. And joining us here in Studio 3A is Lester Brown, president of The Earth Policy Institute, author of the forthcoming book "Full Planet, Empty Plates: The New Geopolitics of Food Scarcity." And thanks very much for being with us today.

LESTER BROWN: My pleasure, Neal.

CONAN: And as we look towards the effects in other countries, we pointed out what happened in 1988, I think people remember that very well.

BROWN: One of the things that happens when you have a shortage of one of the big three grains - wheat, rice, corn - is that when the prices first go up, the prices for the other grains tend to follow because there's a certain amount of substitution possible in the world grain market, the world food economy.

And one of the interesting things about this is that it's not wheat or rice, which are food staples, but corn, which is our feed grain. And so what we're going to be seeing probably for the first time in history is substantial numbers of people moving down the food chain because the prices of livestock products are going up faster than their incomes.

And this includes not only the Western industrial countries but China, where a lot of people have moved up the food chain, I mean to the point where China consumes twice as much meat as the United States now in total, so they've really made some huge gains in the last 15 years. But it takes a lot of corn and soybeans in order to move people up the food chain. And right now, I mean, we're focusing on corn, but soybeans are in trouble, too.

CONAN: Sure, and as we look to the future, in 1988 a lot of the problem was in countries like those we mentioned reserves of food were very low. How are those reserves now?

BROWN: They're low, and that's one of the sort of worrisome things about this decline that we're seeing in the U.S. corn harvest. The U.S. corn harvest, by the way, is the largest grain harvest of any country in the world, and corn is the major grain now. We produce more corn in the world than either wheat or rice. And what was your question before I...

CONAN: Where our food stocks in places - well, Central America or in South Asia.

BROWN: Yeah, what we tend to look at is the carryover stocks of grain, how much is in the bin when the new harvest begins. That's the real food security indicator. And those are down now. We had 100, 110 days of carryover up until not too many years ago, and it's now dropped down to 80, down toward 70, and that's when it gets a little dicey because you don't have much to fall back on. And that's one reason why corn prices are setting record highs.

If we had a lot of stocks we could bring into play, that wouldn't happen, but we don't have those stocks. So when the corn harvest begins to plummet as it is, prices do go up.

CONAN: Let's get another caller in on the conversation. Let's go to Tim(ph), and Tim's with us from Ann Arbor.

TIM: Hello.

CONAN: Hi, Tim.

TIM: Hi, how are you, Neal? I like your show.

CONAN: Thank you.

TIM: So I am part owner of a small local food distributing company here called Eat Local, Eat Natural. We source from local farms. And we like them to be what we call sustainable farms or clean farms, and we deliver to, oh, I don't know, 80, 90 chefs around the Detroit, Ann Arbor area, as well as retail stores like Whole Foods and so on. So...

CONAN: And what are you seeing in terms of prices?

TIM: OK, right. So it - you know, well, we're seeing an increase, and particularly our poultry suppliers are beginning to inform us of increases coming, and in particular eggs are - you know, eggs are the first to hit because it doesn't take long for a hen to produce eggs out of the grain it eats, that corn and soybean meal that it eats. So that affects the egg growers really fast.

And so we've just recently increased the price of our eggs because of increasing prices from the farms that we pick up from. And the poultry, the chicken suppliers, chicken meat suppliers, are hitting us right now, too. The - we haven't been hit by the beef suppliers yet nor the pork suppliers nor any of the other meats that we sell. But, you know, the eggs come right up.

CONAN: Marilyn Geewax, I wanted to ask you about this. Eggs, of course, are one of those staples by which we, well, sort of measure our diet.

GEEWAX: Yes, it's interesting because while lots of things change, a dozen eggs, if you sat down and looked at them 100 years ago, they were pretty much - looked like eggs, and now they pretty much look like eggs. So we can actually compare those things.

In 1900, to buy a dozen eggs, it took a little bit more than an hour's worth of work for the average person. You were making about 21 cents an hour, and a dozen eggs cost about 23 cents. So that was a lot of work to serve your family a dozen eggs. So just to understand how much the prices have actually fallen over time, the typical wage now is about $23 an hour, and eggs are, you know, $1.69, maybe $2 depending on what you're buying.

So it takes a fraction of your hour. You can make enough money to buy a dozen eggs in a matter of minutes these days. So it's important for us to remember that.

CONAN: Tim, you were saying, I'm sorry?

TIM: Well, I said and that's because both of large, mechanized farm systems, right, plus the cheap cost of grain, which is due in part to the huge subsidies that are paid out by the government.

CONAN: And I wonder, as we turn back to you, Lester Brown, are those things that we can depend on in the future?

BROWN: By those things, you mean...

CONAN: The efficiency of industrialized farms and U.S. subsidies to agriculture?

TIM: Good question.

BROWN: Well, the subsidies are under a lot of pressure now as part of the overall budget-cutting sort of thing. But so far they've been hanging on surprisingly well. But the efficiency of agriculture, Marilyn was mentioning it used to take hour, you know, of work to buy a dozen eggs, and now it's probably five minutes or something like that.

One of the reasons that we have the diversity in our diet at a relatively low cost is because of the efficiency, and these are larger operations, there's no question about it. They are highly efficient. And we have, as a result, the cheapest food of any society in history. We spend only about 10 percent of our income on food. That's historically unheard of.

CONAN: Tim, good luck, thanks very much for the phone call.

TIM: Thank you.

CONAN: I did want to ask you, though, as we - if we see what's happening this summer, Lester Brown, if this is going to be a drought that is persistent, obviously some years better than others but a persistent drought over an extended period of time, that is going to change things, no?

BROWN: Well, it's a major concern because we don't have the stocks and because we're facing a lot of other issues at the same time that we're facing this drought, which is probably, partly at least, the result of climate change. We're facing water shortages on a scale we've never seen before.

Our major agriculture states, Texas and California, the irrigated area is shrinking. More and more water is going to cities, aquifers are being depleted, and this story is being repeated in many countries around the world. So water is emerging as a major constraint on food production.

We have enough land, there's a lot of land that'll produce if we had the water to go with it. So water's becoming a major issue, along with climate change.

CONAN: And I just wanted to ask Marilyn a point about that. The - there's a part of this country that's often referred to as the rust belt. It's the places that were first industrialized in this country. But those cities, if you think of Youngstown, Ohio, or Cleveland or Chicago or some of the places in New York, mill towns in Massachusetts, all those places are there because there's water there.

GEEWAX: Well, that's how you get rust, isn't it, from moisture?

(LAUGHTER)

GEEWAX: Lots of those places that - you know, in the '90s, I grew up in Ohio, a lot of the exurbs of Cleveland spread out. Cornfields that I knew as a child became suburbs. I have to wonder if in the future, a lot of those suburbs are going to turn back into cornfields because you do have the Great Lakes up there. If you had to, you could irrigate. There's more water in those areas.

It seems to me that a lot of the upper Midwest could be put back into farm production. Land that I knew as farmer's land is not anymore. So I think that's one of the things that may be interesting going forward is what land comes back into food production.

CONAN: Let's get another caller in on the conversation. Let's go to Randy(ph). Randy is with us from Madison in Wisconsin.

RANDY: Yeah. Your screener wanted me to mention that the farmers here - I've farmed all my life, stalk and corn, soy beans and so on. I've been through a number of drought cycles. And the farmers that had managed to fertilize and plant in such a way that held the maturing of their corn off - we just have gotten some drenching rains and the corn crop that had no tassel will make it. We will have a good crop because even though we got no rain, the worst drought - probably of the four I've been through, this was the worst one and I lived through, from my early age on, some bad ones. This was the worst one, and it will now make it. The leaves have opened back up and the tassels will come, and it looks fantastic.

CONAN: Forgive me, all I know about corn is from the plate to the mouth. When you're speaking about no tassels, explain a little bit.

RANDY: Well, corn will mature - it will begin to mature. And once that tassel comes, because it's such a powerful thing to get the, essentially, the sex organ down to pollinate, you get no kernel on the cob. And it's such a short little (unintelligible) thing that there's nothing there when it's dry. If that does not occur and you get rain, it'll go ahead and grow on out and mature. And then you get the tassel, you get a good crop. But if that tassel comes before you get moisture, you get nothing in the cob. And that was happening - see, that's the dreaded fear of a drought, the corn will mature too early.

CONAN: And I have read a little bit about farming, and it strikes me that farmers are a lot like gamblers. You're just waiting - you're hoping that the rain arrives at the right moment.

RANDY: Right. A skillful farmer knows how to plant and fertilize in a dry year to hold the maturing off. And you learn from your grandparents and parents how to plant and fertilize to make the maturation process later, which those of us that were smart listened to our grandparents and we did that this year. And they knew how to do that, and so...

CONAN: Well, congratulations on the rain, Randy.

RANDY: Now I have one more topic as far as water. Foreign countries have learned to drip irrigate. That's not done in this country. We're going to have to learn how to do that because spray irrigation tends not to work as well in these dry times, and drip irrigation is a technology we're going to have to start to learn how to do. It's more labor intensive, but it uses small amounts of water more regularly. And it conserves the water. That's probably our future. That's my comment.

CONAN: All right, Randy. Thanks very much and, again, congratulations on the rain. I'm sure it was a blessed event.

RANDY: Oh, my goodness. Just fantastic.

CONAN: Our guests are Lester Brown, president of the Earth Policy Institute, and Marilyn Geewax, NPR senior business editor. You're listening to TALK OF THE NATION from NPR News. And, Lester Brown, as you're talking about crisis of water, clearly more efficient use of water could alleviate that to some degree.

BROWN: Well, we probably reached a point with water now that we did with land back in the 1950s. Suddenly there wasn't much new land to bring under the plow. We really concentrated on raising land productivity. As a result, the grain yield last year per acre was three times that in 1950. We now have to think about raising water productivity in a very systematic way. Drip irrigation worked very well for high-value crops, and we do, in fact, have quite a few acres, probably a few million acres in drip irrigation in the southwestern United States now but it's high-value crops. It's not corn and soy beans. So it's - it clearly has a role to play. But water is going to figure very prominently in our food future.

CONAN: Let's go next to Cameron(ph). And Cameron is with us from Pensacola.

CAMERON: Yes. Hi. Thank you for taking my call.

CONAN: Go ahead, please.

CAMERON: I am down here in Pensacola, and I work in a grocery store, actually at the deli counter. So I've seen, even over the past couple of months, all of our products, meats and cheeses, just keep going up incrementally, a couple of cents at a time to the point where a lot of my customers have come up and said, oh, that's far too much a pound. I can't pay $10 a pound for a cheese or whatever and...

CONAN: So you have passed some of those increases along to your customers, no choice?

CAMERON: Yes. Yes, we have. I don't know exactly how much because I'm just on the front. But what a lot of my customers have actually been doing is they've been buying smaller amounts more frequently rather than doing your one shopping trip every Sunday. They tend to come back to the store a couple of days a week every, you know, a quarter of a pound of turkey on Monday and then back on Wednesday again for extra if they need it.

CONAN: And I guess if they're driving by anyway, that doesn't add to their fuel costs very much.

CAMERON: Yes. I don't know exactly where the price break is, but I think that's their goal.

CONAN: And, Marilyn, those are some of the changed habits you're talking about.

GEEWAX: Right. You know, when you think about where you're going to feel these price increases, as I said, the more direct it is - an egg, cheese, meat - that's where it's very direct. If you look at something that's far more processed, let's say, a box of corn flakes, the corn that's in that box really amounts to just a few cents. The big cost of a box of corn flakes is the box itself, the packaging, the marketing, the labeling...

CONAN: The television commercials.

GEEWAX: The commercials and the, you know, the staff it takes to put it on to the shelf, the air conditioning in the store. There is, you know, the price of corn could double and it still would have only a marginal impact on the cost of that box. So where this gentleman works, where you're seeing the cheese and the meat very directly, that's where you're going to really feel it. So people can shift their breakfast. Instead of having a cheese omelet, you might want to think about corn flakes.

CONAN: Cameron, thanks very much for the call.

CAMERON: You're very welcome. Have a great day.

CONAN: And good luck to you. And our thanks to Lester Brown of the Earth Policy Institute and to Marilyn Geewax. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

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