Surge in Food Prices Expected Through 2012

Fuel costs, a weak dollar, global demand, and ethanol production push up food prices.

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A study released today by the former chief economist of ConAgra Foods forecasts record-breaking food inflation through 2012. The report, by Bill Lapp of Advanced Economic Solutions, estimates food inflation will rise by an average of 9 percent annually between 2008 and 2012. The rate is more than three times the average rate of food inflation in the United States in recent years.

The price explosion is due to rising fuel costs, a weak dollar, growing global demand, and the surge in domestic grains used to produce ethanol. The author calls the government mandate for ethanol production "the most significant factor driving corn and other agricultural commodity prices to record levels."

Recent floods in the Midwest will compound the problem, according to the report.

The cost of food inputs currently represents 19 percent of the overall share of each dollar a consumer spends on food. That number is expected to jump to 29.9 percent of the retail price of food in the next five years.

Lapp also points out that today there is no grain stock buffer in storage—in the United States or around the world—to mitigate the explosion in corn prices, which have hit a record $7 a bushel.