The Growing Food Cost Crisis

Sharp price hikes are hurting the poor and sparking violence

A peasant woman with a basket of corncobs joins a demonstration against high corn prices in Mexico City.

A peasant woman with a basket of corncobs joins a demonstration against high corn prices in Mexico City.

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The troubles erupted early last year. First, there were the tortilla riots in Mexico City: 75,000 angry demonstrators, mostly poor, taking to the streets to protest the surging price of a food staple. Then in Italy, merchants from Milan began clamoring about the cost of pasta. By year's end, protests had broken out in at least a dozen countries: in India over onions, in Indonesia over soybeans, and, last month, in the small African country of Burkina Faso, where hundreds of looters burned government buildings to protest soaring grain prices.

The United States, like most western countries, has been spared from riots, but the sharp hikes in food prices that have triggered violence abroad are also being felt here. According to the Department of Agriculture, grocery prices are rising at rates not seen since 1990. On the wholesale market, the country's biggest commodity crops—corn, wheat, and soybeans—are selling at record highs; wheat prices are up nearly 50 percent since the first of the year.

To Americans, the combination of high food prices and social unrest is bound to stir up edgy memories of the early 1970s, when food prices were being pushed up by high energy costs and decreased supplies. The current wave of food troubles, analysts say, is the most significant since then—and arguably more troublesome. "The crisis of 1973 and 1974 was a blip; it went away after a year or two," says Joachim von Braun, the director general of the International Food Policy Research Institute. "This one is actually quite different and much more serious." Already, in fact, there are signs that higher prices have caused political instability in a number of countries important to U.S. security interests.

The main differences between the price hikes of the '70s and those of today are the severity and persistence of their causes. In the 1970s, the increases resulted largely from short-term forces—the Arab oil embargo, which jacked up transportation costs, and regional droughts. In the quarter century that followed, global food prices tumbled dramatically; from 1974 to the early 2000s, real food prices, on average, fell 75 percent.

Soaring demand. By contrast, the current causes are more varied and stubborn—and, in many cases, growing. Overseas, an expanding middle class is fueling unprecedented demand. In China and India, hundreds of millions of people, earning larger incomes, are buying not only more food but more expensive food, such as grain-guzzling beef. By some estimates, developing countries, come 2016, will consume 25 percent more poultry and 50 percent more pork than they do today.

Compounding matters, crude oil is selling at record highs, affecting not only the transportation of food but also the cost of fertilizer. Climate change may play a role, too, as massive droughts and storms, such as a cyclone last year that destroyed $600 million worth of rice in Bangladesh, appear to be increasingly destructive.

Then there is the elephant in the room: ethanol. Most experts agree that the race among western countries to produce this grain-based alternative fuel is responsible, in significant part, for the rising costs. Their logic is simple: When countries put corn aside for energy, the amount available for food is in greater demand, and prices rise. If demand is already high, the effect is amplified.

In the United States this year, nearly a third of the corn output will be used to make an estimated 9.3 billion gallons of ethanol. That will be more than triple the 2003 total, reflecting the effect of billions in ethanol subsidies on farmers and producers. "When other factors were pushing up prices," says Per Pinstrup-Andersen, a professor of food, nutrition, and public policy at Cornell University, "this was the wrong thing to do and the wrong time to do it." Nor is ethanol fever dying down: President Bush recently signed an energy bill that will require U.S. annual ethanol production to double by 2022.

For Americans, the prognosis is somewhat murky. The USDA says it expects food prices to rise at abnormal rates for at least the next few years. It's a disconcerting trend, but largely tolerable: Americans on average spend 9 percent of their annual income on food, down from 21 percent in the 1950s. Farmers, meanwhile, are benefiting. "I will guarantee that anyone who is farming now is making a ton more money than they were three or four years ago," says Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University. "The increases in revenue from the sale of crops have far outstripped the cost of production."