Food prices swell 9% a year
Crop shortages, inflation mean double whammy on grocery costs
Food and energy prices are on the rise.
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Last week, Bill Lapp of Advanced Economic Solutions told Reuters that he is calculating a 2008-2012 average rate of increase in the consumer price index for food of 9 percent a year, a dramatic increase that will affect every household in America.
This goes along with Red Alert’s prediction that gasoline will hit $5/gallon in 2011.
The combination of price increase for food and energy are a clear indication that the Federal Reserve’s QE2 policy of buying billions of dollars of U.S. debt is resulting in inflation.
Additionally, the U.S. Agriculture Department warned last week that food prices will soar this year on crop woes.
Food prices soar
On Thursday, the Wall Street Journal noted that the prices of corn futures are now up 94 percent from their June lows, while soybeans are up 51 percent and wheat is up 80 percent.
The USDA estimates reflect the impact of dry weather in South America, floods in Australia and a drought in Russia that badly damaged Russia’s wheat fields.
At the same time, demand is growing as U.S. ethanol producers increase their use of corn to meet new EPA standards that allow 50 percent more ethanol to be added to gasoline.
EPA allows E15 for cars and trucks
The Environmental Protection Agency gave approval for cars and light trucks manufactured in 2007 and newer to begin using 15 percent ethanol, known as E15, in a decision that push up the price of corn dramatically.
The EPA decision allows a 50 percent increase from the current permitted limit of 10 percent ethanol in gasoline.
According to the EPA statement, a decision on the use of E15 for cars and light trucks manufactured between 2001 and 2006 will be made after additional testing is completed in November.
The decision was made in response to a request in March 2009 made by Growth Energy, a coalition of U.S. ethanol supporters, and 54 ethanol manufacturers who had applied for a waiver to increase the allowable amount of ethanol in gasoline from E10 to E15.
The new EPA regulations come at a time when corn prices were spiking, rising 8.5 percent on Oct. 11, the biggest one-day rise in 37 years, after the U.S. Department of Agriculture warned that America’s production of corn would drop by 4 percent in 2010, according to the Economist.
Meanwhile, the industry record suggests that ethanol companies continue to go bankrupt, despite public subsidies.
Poor die in Africa because U.S. produces ethanol
The poor are dying of famine in third-world countries such as Africa because of an Obama administration political agenda to produce ethanol as a renewable fuel substitute for gasoline.
The Obama administration’s mandates for the use of ethanol are “immoral,” Robert Bryce, a writer on ethanol for Energy Tribune, told Red Alert in a 2009 e-mail.
“We are burning food to make motor fuel at a time when there’s a growing global shortage of food and no shortage of motor fuel,” Bryce said.
“The corn ethanol scam is not an energy program,” he continued. “It is a massive farm subsidy program masquerading as an energy program.”
A controversial 2009 report released by the Congressional Budget Office, or CBO, documented that the increasing demand for corn to produce ethanol contributed between 10 to 15 percent for overall 5.1 percent increase in the price of food from April 2007 to April 2008, as measured by the Consumer Price Index.
“Producing ethanol for use in motor fuels increases the demand for corn, which ultimately raises the prices that consumers pay for a wide variety of foods at grocery stores, ranging from corn syrup sweeteners found in soft drinks to meat, dairy, and poultry products,” the CBO concluded.
An International Monetary Fund assessment was even more pessimistic.
“With respect to food, biofuels policies in some advanced economies are spilling over to the price of key food items, particularly corn and soybeans,” John Lipsky, first managing director of the IMF, told the Council on Foreign Relations on May 8, 2008. “IMF estimates suggest increased demand for biofuels accounts for 70 percent of the increase in corn prices and 40 percent of the increase in soybean prices.”
In an article titled “How biofuels could starve the poor,” published in the Council on Foreign Relations Foreign Affairs magazine for May/June 2007, economists C. Ford Runge and Benjamin Senauer concluded that if the prices of staple foods increase because of the demand for biofuels, “the number of food-insecure people in the world would rise by over 16 million for every percentage point in the real prices of staple foods.”
Runge and Senauer projected that as many as 1.2 billion people could be chronically hungry by 2025, 600 million more than previously projected, with the increase being due to the production of biofuels.
In 2008, the spike in worldwide food prices caused riots in 30 countries, from Haiti to Bangladesh, according to the Financial Times in London.
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