The Food Cost Crisis Hits the U.S.

Still, some companies are struggling. In 2007, Sara Lee's costs grew by $100 million as wheat prices more than doubled. It cut 300 jobs in April, roughly 1 percent of its North American workforce. Tyson recently cut 1,500 jobs at a slaughterhouse in Kansas, blaming high feed costs that have been bumped up by demand for corn from ethanol producers. Nestlé has cut 10 percent of its product line and expects to cut more. Analysts estimate that companies have passed along between 50 and 75 percent of their rising costs.

In such a climate, farmers have reported record incomes. But farmers' production costs are up, too: for feed, fuel, and fertilizer, which requires fuel to make, as well as land rental costs. The average hog farmer, for example, is losing money by the pig: The cost of feed and energy outweighs the value of the resulting pork. The true winners of the farming boom are grain processors like Archer Daniels Midland that are turning record plantings into enormous profits.

Ultimately, this process becomes cyclical. As producers and manufacturers look to stay profitable, they not only raise prices for retailers and consumers but also donate less to the poor. For the average American, who spends only 10 percent of annual income on food, the impact is still modest. In the developing world, by contrast, hundreds of millions of people subsist on only $1 or $2 a day and eat fewer refined foods, making them more vulnerable to commodity swings.

But for lower-income groups, the situation is dire and likely to worsen. Food prices are expected to rise through 2008 at rates not seen in decades. Food banks, meanwhile, see their highest traffic in the summer, when children on federal lunch programs are out of school. Many are working to find new corporate partnerships, and they are waiting desperately for a new farm bill, which provides much of their support—a fact often overshadowed by the controversial subsidy debate. Congress and the president are still fighting about the farm bill's contents and cost, and even if it passes, aid won't start showing up for several months.