Carnivore's Dilemma: Meat Can Be Murder (on the CPI)

Growing global demand for meat, and the grains it requires, may be pulling food prices higher.

By SHARE

Fueled by spiking gas prices, the Consumer Price Index jumped by 0.4 percent in February, the biggest uptick since last April. However, grocery prices were a bright spot, flat for the second straight month.

However, U.S. food prices are notably volatile and will rise again. And when they do, any number of factors could be to blame, including weather and the cost of gasoline...not to mention a shifting Chinese palate.

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A growing standard of living for many people in emerging economies means a taste for more meat.

"That's a given that as incomes generally go up, diets change in favor of more meat," says Jeet Dutta, senior economist with Moody's Analytics. "To produce more meat you need more grains, and that's essentially what has kept corn and wheat prices high, translating eventually into higher food prices because of how these grains are used as inputs in a very wide range of foods that people buy."

The Chinese economy in particular is driving demand for U.S. grains. Last year, China became the top market for U.S. agricultural goods. One example of increased Chinese consumption is corn, a major feed grain. According to recent Department of Agriculture projections, China is expected to import 4 million metric tons of corn in the current crop year, compared to just under 1 million the year prior.

It's not just China; other emerging economies have been eating more meat as well. A 2009 report from the UN's Food and Agriculture Organization reported that Brazilians have also been eating more meat, and showed that per-capita GDP and meat consumption tend to be positively correlated for countries where per-capita GDP is below roughly $30,000—that is, for all but the richest countries.

Raising that meat is not as efficient as growing grains. The USDA has estimated that it can take 7 pounds of corn to produce 1 pound of beef. This means that the supply of grain has to grow to meet the demand of cows, pigs, and chickens, not just the people who want to eat them.

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As global demand for meat has grown, says Dutta, supply has only barely kept up. Increasing that supply requires increasing yields, which can mean identifying and cultivating new farmland, improving farming practices, and creating better-yielding plant varieties. Those are hard things to do overnight.

"In the short run, the supply response cannot be that big," he says. "But the hope is that eventually there is going to be more intensive farming across the world, and that the output per acre [and] yields are going to improve."

Altogether, this creates a steady ramping upward in food prices--meaning that even if cooperative weather and easing gas prices create a short-run decline in prices at the grocery store, the price for a steak, or even a block of tofu, could still be on its way up.

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