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Food Crisis

07/10/08 5:55PM By Ron Krupp
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(HOST) Author, gardener, and commentator Ron Krupp has been thinking about food, and why the cost of food has risen so sharply in recent months.    

(KRUPP) We live in a rather strange and convoluted world these days.  Malnutrition, even famine, is increasing in parts of Africa and South Asia.  And yet about a fourth of the world's population are overweight, and many of them are obese.  Americans spend $1 billion a year to lose weight, while millions of people in poor nations can't afford to buy enough food to put a little weight on.

Now that the price of food in the U.S. is skyrocketing, inexpensive food may be a thing of the past.  But what most people don't realize is that households in the U.S. still spend a smaller chunk of their income on food than in any other developed nation.  Twenty two percent of the average Polish citizen's income was spent on food in 2005.  Up until 2006, the average American family spent 10 percent of their income on food.

In the past year, milk has gone up 13 percent, chicken - 20 percent, bread - 16 percent, and eggs, a whopping 30 percent.  The price of a 100 pound bag of wheat sold to bakers increased 157 percent, and U.S. wheat reserves are at their lowest point in 60 years.

Increasing food costs are directly related to higher chemical fertilizer costs, which are the result of higher fuel costs, because it takes large amounts of natural gas to produce fertilizer.  And as more corn is grown for ethanol production, corn prices have risen, causing a ripple effect on the agricultural commodity markets, that in turn has resulted in higher food prices in the marketplace.

Still, you can't just blame ethanol for the Food Crisis.  The weak U.S. dollar, annual government subsidies to farmers in rich nations, and drought conditions in Australia and New Zealand have all contributed to the crisis.

Global agribusiness firms, traders, and speculators are raking in huge profits.  The profits of the largest grain dealer, Cargill, went up 77 percent in the last quarter of 2007, and in the same period profits at Archer Daniels Midland - Supermarket to the World - increased 67 percent. Some call this an opportunity for greater market share; I call it greed.

Investment funds now control 50 to 60 percent of the wheat traded on the world's commodity markets.  Its been calculated that the amount of speculative money in food commodity futures - markets where the investors do not buy or sell a physical commodity like rice or wheat, but merely bet on future price movements, ballooned from $5 billion in 2000 to $175 billion in 2007. It's scary to think where we'll be in five years.
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