Soaring food prices are really putting the squeeze on household budgets. Just about everything in the grocery store costs more these days--dairy, coffee, and especially meats. USDA predicts the price of beef will rise as much as 8 percent in the next year. Prices on fats and oils are predicted to increase by as much as 6 percent, and the price of fruits and veggies will jump by nearly 4.5 percent. And yesterday, Kroger CEO, David Dillon said he expects food prices to rise on "center of the store" items like dry goods, canned goods. So what gives?
Here are 5 reasons food prices are soaring.
1. Energy
This is an easy one. When energy prices go up, the cost of everything else goes up too. But beyond that, skyrocketing gas prices have also increased demand for bio-fuels, which puts more demand on crops, like corn for ethanol, and that translates to higher prices at the grocery store. Corn is in just about everything Americans eat these days, like it or not.
2. China and India
China and India are changing the way they eat. The rising middle classes are eating less starchy foods like rice and eating far more milk and dairy than in years past, which increases demand and runs up global food prices. And there are a whole lot more Chinese and Indians than Americans. So you do the math on that one.
3. Weather
Weather has really taken a toll on crops around the world. Australia, Canada and Russia have cut back on exports because of severe weather and you're feeling the pain at the grocery store. And recently, rain has delayed corn seeding, which is causing investors to freak out and drive up the price of corn even higher. Great.
4. Politics
The Ukraine has banned exports on grain and corn. India is trying to hold down domestic grain prices by banning grain exports, and many other countries have added huge fees and taxes onto food exports. Add on top of that, you've got a Middle East in revolution, and the U.S. engaged in three wars now, including Libya. That all adds up to one volatile situation that hammers food and gas prices.
5. Wall Street
Ever heard of the Goldman Sach's Commodity Index? Well it's a nifty little gimmick that the good 'ol boys in expensive suits at Goldman Sachs created in 2008 that allowed traders to bet big bucks on the futures of raw food commodities like coffee, coco, cattle, corn, wheat and more. Speculators have now entered the market and are buying food futures like they're going out of style, which drives up food prices. Farmer's really get hit hard in an already volatile industry where success means Mother Nature's got to cooperate. Now, the GSCI lets bankers play casino with the price of their crops. What do yo have? Bingo! Higher food prices. Thanks guys, really.
Photo: By tjdewey
