[Joint House and Senate Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-863
 
         HOW ARE HIGH FOOD PRICES IMPACTING AMERICAN FAMILIES?

=======================================================================



                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 1, 2008

                               __________

          Printed for the use of the Joint Economic Committee



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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE                               HOUSE OF REPRESENTATIVES
Charles E. Schumer, New York,        Carolyn B. Maloney, New York, Vice 
    Chairman                             Chair
Edward M. Kennedy, Massachusetts     Maurice D. Hinchey, New York
Jeff Bingaman, New Mexico            Baron P. Hill, Indiana
Amy Klobuchar, Minnesota             Loretta Sanchez,  California
Robert P. Casey, Jr., Pennsylvania   Elijah Cummings, Maryland
Jim Webb, Virginia                   Lloyd Doggett, Texas
Sam Brownback, Kansas                Jim Saxton, New Jersey, Ranking 
John Sununu, New Hampshire               Minority
Jim DeMint, South Carolina           Kevin Brady, Texas
Robert F. Bennett, Utah              Phil English, Pennsylvania
                                     Ron Paul, Texas

                  Michael Laskawy, Executive Director
             Christopher J. Frenze, Minority Staff Director


                            C O N T E N T S

                              ----------                              

                                Members

Hon. Charles E. Schumer, Chairman, a U.S. Senator from New York..     1
Hon. Jim Saxton, Ranking Minority, a U.S. Representative from New 
  Jersey.........................................................     5
Hon. Carolyn B. Maloney, Vice Chair, a U.S. Representative fron 
  New York.......................................................     7
Hon. Sam. Brownback, a U.S. Senator from Kansas..................     8
Hon. Elijah E. Cummings, a U.S. Representative from Maryland.....    10
Hon. John E. Sununu, a U.S. Senator from New Hampshire...........    12
Hon. Robert P. Casey, Jr., a U.S. Senator from Pennsylvania......    13
Hon. Robert A. Brady, a U.S. Representative from Texas...........    14
Hon. Amy Klobuchar, a U.S. Senator from Minnesota................    15

                               Witnesses

Statement of Dr. Joseph Glauber, Chief Economist, U.S. Department 
  of Agriculture, Washington, DC.................................    16
Statement of George Braley, senior vice president of Government 
  relations and public policy, America's Second Harvest-The 
  Nation's Food Bank Network, Washington, DC.....................    19
Statement of Tom Buis, president, National Farmers Union, 
  Washington, DC.................................................    22
Statement of Richard Reinwald, owner and co-founder, Reinwald's 
  Bakery, Huntington, New York...................................    24

                       Submissions for the Record

Chart entitled ``Fruit and Veggie Prices are Soaring Past 
  Inflation''....................................................    44
Chart entitled ``Grain and Bean Prices are Soaring Past 
  Inflation''....................................................    45
Chart entitled ``Milk and Egg Prices are Soaring Past Inflation''    46
Chart entitled ``Nearly All Families Spend Over 10% of Income on 
  Food''.........................................................    47
Prepared statement of Senator Charles E. Schumer, Chairman.......    48
Prepared statement of Representative Jim Saxton, Ranking Minority    51
Prepared statement of Representative Carolyn B. Maloney, Vice 
  Chair..........................................................    52
Cart entitled ``World Wheat Supply and Ending Stocks''...........    53
Cart entitled ``World Corn Supply and Ending Stocks''............    54
Cart entitled ``World Rice Supply and Ending Stocks''............    55
Report entitled ``Commodities: Who's Behind the Boom?''..........    56
Prepared statement of Senator Sam Brownback......................    62
Prepared statement of Dr. Joseph Glauber, Chief Economist, U.S. 
  Department of Agriculture, Washington, DC......................    63
    Table titled ``Food Spending by Income Class''...............    70
Prepared statement of Dr. George Braley, senior vice president of 
  Government relations and public policy, America's Second 
  Harvest-The Nation's Food Bank Network, Washington, DC.........    71
Prepared statement of Tom Buis, president, National Farmers 
  Union, Washington, DC..........................................    81
    Chart entitled, ``Farmer's Share of Retail Food Dollar''.....    86
Prepared statement of Richard Reinwald, owner and co-founder, 
  Reinwald's Bakery, Huntington, New York........................    87
    Prepared statement of the American Bakers Association and the 
      Retail Bakers of America...................................    88


         HOW ARE HIGH FOOD PRICES IMPACTING AMERICAN FAMILIES?

                              ----------                              


                         THURSDAY, MAY 1, 2008

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met at 10 a.m. in room SH-216 of the Hart 
Senate Office Building, the Honorable Charles E. Schumer 
(Chairman of the Committee) presiding.
    Senators present. Schumer, Klobuchar, Casey, Brownback, and 
Sununu.
    Representatives present. Maloney, Cummings, Saxton, and 
Brady.
    Staff present. Christina Baumgardner, Ted Boll, Heather 
Boushey, Gail Cohen, Chris Frenze, Tamara Fucile, Nan Gibson, 
Rachel Greszler, Colleen Healy, Aaron Kabaker, Israel Klein, 
Tyler Kurtz, Michael Laskawy, David Min, Robert O'Quinn, Jeff 
Schlagenhauf, and Jeff Wrase.

 OPENING STATEMENT OF THE HON. CHARLES E. SCHUMER, CHAIRMAN, A 
                   U.S. SENATOR FROM NEW YORK

    Chairman Schumer. OK, the hearing will come to order. I'd 
like to welcome you all to our first Congressional hearing this 
year about the soaring price of food and the impact on families 
across America.
    For many years, price increases in certain foods like cold 
cereal have vexed consumers, but now we are hearing from people 
about food prices going up across the board.
    When you walk down the street, you hear people complaining 
about food prices almost as much as gas prices. While gas 
prices seem to be the number one issue today, I believe anxiety 
felt over higher food prices is going to be just as widespread 
and will equal, or even surpass the anger and frustration so 
many Americans have about higher gas prices.
    I want to look at what's behind the rise in food prices, 
and frankly, what that rise in prices looks like for average 
American families.
    My wife, Iris, and I went to Fairway last weekend, our 
neighborhood grocery store in Brooklyn, and we continue to be 
floored by the prices. From aisle to aisle, shelf to shelf, 
including everything from staples to special treats, the prices 
families are paying to fill up their shopping carts go up and 
up and up, and they go up a lot.
    While we've been cringing at gas stations, as gas prices 
have more than doubled since 2001, now it's a double-whammy. 
People pay more to drive to the supermarket and then get hit 
with higher prices when they get there.
    Our family does pretty well, but even we feel it. Like many 
others, we have a family budget, and right now, we're budgeting 
$40 more a month for groceries; and while we feel the $40 is 
something we can afford, many families just can't.
    They don't have the extra income for higher food prices and 
have to stretch their dollars, or even worse, cut back on their 
food purchases altogether.
    The price of milk, cheese, chicken, eggs, ground beef--
regular stuff, nothing fancy--are way up. If you're trying to 
eat healthier, it's even worse.
    Now when we buy--when we go shopping, we buy this light 
wheat bread, like this loaf here. We're paying almost $4 now, 
and that's up from $3 since we started eating it a few years 
ago.
    I'm a meat-eater, and what we buy now is largely dictated 
by what's on special that week at Fairway or at Costco.
    My daughter, like many young people in families now, wants 
to buy organic chicken and organic food. Those prices are 
shooting even higher.
    At Fairway, we can buy a regular chicken for about $5--and 
that's also an increase--but an organic chicken is $12. This 
dozen of organic eggs cost my staff about $6 this morning.
    So, everywhere you go, prices are higher and higher and 
higher. And higher food prices have squeezed small businesses, 
too.
    Our local bakeries, two of them, closed recently: Uprising, 
which sold bread and cakes, and Regina's Italian Bakery, which 
had been there for decades and decades and decades.
    Was it because of higher grain prices? I don't know for 
sure, but it certainly wasn't because local bakeries are making 
a killing off their local customers. Even bagels are over $5 
for a dozen now.
    When it comes to higher food prices, even when they're not 
going up by large percentages, there isn't much room for error.
    Everyone has to buy food to feed their families. It already 
swallows around 12 percent of the average household budget.
    When gas prices are high, families may decide to drive a 
little less or carpool or take the subway. When food prices are 
higher, families just can't decide not to feed their children. 
That's not acceptable.
    And because they have less to spend on food, what they do 
buy is less and less healthy. Now to be clear, not every single 
product in the grocery is more expensive than it was 1 year 
ago, or even 7 years ago.
    Some food products, because of more efficient processing, 
less transportation, or just more plentiful supply, cost 
consumers less or as much as they have for years. For instance, 
the price of pork per pound has gone down about 20 percent from 
January 2001 to last month, but the prices of the staples we 
all depend on for a healthy diet--eggs, bread, milk, fruits--
are rising by eye-popping leaps and bounds, especially in the 
last year.
    For instance, between January 2007 and 2008, egg prices 
went up nearly 40 percent and are about 80 percent higher than 
they were in January of 2001, and eggs are just one example in 
a broader trend. From January 2007 to January 2008, the 
Consumer Price Index (the CPI) for all food grew by nearly 5 
percent. That's the highest 12-month increase in over 17 years.
    Americans are paying 5 percent more for food; at the same 
time many people are seeing their paychecks shrinking.
    As we will learn in more detail from our panel, flour 
prices have gone up at least 30 percent since January 2001. 
This has raised prices for good old processed white bread, but 
has also raised the costs of fresh-baked breads--rolls, 
muffins--things you might buy at Reinwald's Bakery, or H&H 
Bagels.
    Another area that's not on the radar screen just yet, but 
will be a bigger problem as farmers adjust their crops, is the 
rising cost and potentially dwindling supply of fruits and 
vegetables. Apples, grapefruits, potatoes, beans, and broccoli 
have gone up over 20 percent since January 2001. Peppers are 
almost 40 percent more expensive.
    While some might be telling us to make lemonade out of the 
lemons this economy has given us, even this is going to be more 
expensive. The price of lemons has gone up nearly 50 percent.
    Now, we have some charts here on the prices for foods, 
vegetables, grains, milk, and eggs. Let's look at the average 
price of items we shop for in our grocery stores, and how much 
they've gone up since last March.
    As I said, fruits and vegetables have gone up a lot. This 
is just from last March: Peppers, 20 percent; tomatoes and 
bananas, 13 percent; apples, 10 percent.
    Look at the next chart. Pasta, up over 13 percent; a 
regular loaf of bread, 12 percent; a pound of beans is 17 
percent higher; flour is up a whopping 32 percent.
    The next one: milk--a staple--20 percent higher a gallon; 
buying a dozen eggs is 30 percent more expensive than it was 
last year.
    [Chart entitled ``Fruit and Veggis Prices are Soaring Past 
Inflation'' appears in the Submissions for the Record on page 
44.]
    [Chart entitled ``Grain and Bean Prices are Soaring Past 
Inflation'' appears in the Submissions for the Record on page 
45.]
    [Chart entitled ``Milk and Egg Prices are Soaring Past 
Inflation'' appears in the Submissions for the Record on page 
46.]
    So while the economic message that we're getting out of 
this Administration sounds like let them eat cake, I assure 
you, it is much more expensive cake than you were eating when 
President Clinton was in office.
    Even the foods that aren't going up as much are still going 
up beyond the level of inflation.
    Then there are energy costs. Two of the main culprits 
sending food prices higher are commodity and energy costs. 
Agricultural prices were up over 33 percent in the past 12 
months, and between March 2007 and March 2008, inflation-
adjusted corn and soybean prices shot up 35 and 67 percent, 
respectively.
    To Mr. Reinwald, the baker from Long Island--to Mr. 
Reinwald's detriment, wheat prices increased unbelievably by 
over 130 percent.
    Energy is a key ingredient to the food industry, both for 
primary commodities and for processing, marketing, and 
distributing everything from apples to zucchini and bread to 
yogurt, and of course, the price per barrel of oil has 
skyrocketed beyond $100, and today it was $116.
    The price for natural gas, which is the primary ingredient 
for making fertilizer, is up 33 percent; diesel fuel, which not 
only trucks our goods, but most farmers use diesel fuel in 
their combines and tractors and other farm machinery, that's up 
45 percent; and regular unleaded gasoline, of course, has gone 
up 27 percent.
    High gasoline prices don't just raise the transportation 
costs, they also increase the demand for gasoline substitutes, 
mainly ethanol derived from corn.
    On top of the higher gasoline prices, tax subsidies and 
Federal biofuel mandates have boosted the amount of domestic 
corn products devoted to producing ethanol to one-quarter of 
the crop in 2007, while it was less than 15 percent in 2005. 
That's a lot of corn taken out of food production.
    And in 2008, over 30 percent of the corn crop will be going 
into gasoline tanks, according to USDA estimates. This has 
obviously raised the price of corn and grains, because farmers 
have shifted more land into corn production, squeezing domestic 
supplies of wheat and many other crops.
    In other words, you don't have to be a big corn eater to 
feel the results of the demand for corn, because when farmers 
produce more corn, they produce less wheat and everything else, 
and that drives prices up across the board. Corn, soybean, 
wheat, and energy prices have gone up so much that consumers 
are seeing significant increases in the price of groceries.
    Eggs and dairy prices are up sharply in part because the 
cost to feed animals has doubled since 2001. Energy costs have 
helped drive fruit and vegetable prices higher, because highly 
processed foods are less vulnerable to higher commodity prices, 
but are still going up because of increased energy costs.
    The Food and Agricultural Policy Research Institute 
predicts that continuing high oil prices and biofuel mandates 
from last year's energy bill will keep prices at historic highs 
across the board.
    It is critical to remember that commodities are global, and 
supply reductions in other countries are transmitted to prices 
paid in U.S. markets. Bad weather, like droughts in Australia 
and Eastern Europe, and reduced production in Canada, Western 
Europe, and the Ukraine have put world grain stocks at 
historically low levels, as demand has grown, especially in 
places like China and India.
    Beyond increasing energy prices--biofuel mandates, global 
demand and weather issues--speculation emboldened by low 
interest rates may also have some role in raising prices for 
consumers. Low real interest rates increase the profitability 
and decrease the risk of speculating in commodities and also 
act as a hedge against inflation.
    Moreover, the falling U.S. dollar has decreased consumer 
purchasing power and made these higher food costs tougher to 
swallow, especially among lower- and middle-income families.
    Now, you can see from this chart the percentage of family 
budgets that goes for food. These families are spending even a 
higher percentage of their income on food.
    [Chart entitled ``Nearly All Families Spend Over 10% of 
Income on Food'' appears in the Submissions for the Record on 
page 47.]
    And you can see that the lowest quintile spends 32 cents of 
very dollar on food. That's a third. It goes to 16 percent to 
7.2 percent for the highest, and senior citizens, of course, 
spend a little more, 11.8 percent.
    According to this chart, 80 percent of families spend more 
than 10 percent of the budgets on food, and for the bottom 20 
percent--families that make the least--one in three dollars 
they earn, after taxes, goes toward buying food.
    So, higher food prices are especially bad news for poor 
households. The share of U.S. households that receive food 
stamps has climbed dramatically from 7.5 percent in December 
2001, to over 11 percent in December of 2007, and these numbers 
may even understate the problem.
    On a global scale, higher food prices and scarcity are 
leading to civil unrest in many developing nations like Haiti 
that almost solely rely on imports for food. Last week, Costco 
and Sam's discount stores were limiting the amount of rice 
customers could buy. It's another place where food prices have 
gone up.
    Prohibiting customers from buying more than four 20-pound 
bags of rice certainly isn't going to cause riots, but it's 
evidence that families, even here at home, are anxious.
    Getting to the bottom of high food prices will not be easy. 
There are multiple causes, but as we consider appropriate 
policy responses, we need to understand them and hopefully, our 
panelists will help us do that today.
    [The prepared statement of Senator Schumer appears in the 
Submissions for the Record on page 48.]
    Chairman Schumer. Congressman Saxton is our next speaker. 
We're going to let everybody make brief opening statements 
today, if you so wish.

 OPENING STATEMENT OF HON. JIM SAXON, RANKING MINORITY, A U.S. 
                 REPRESENTATIVE FROM NEW JERSEY

    Representative Saxton. Mr. Chairman, thank you very much 
for holding this hearing. It obviously is a subject that is of 
great importance to American families, and I might add that 
it's of great importance to your staff, as well, and I hope you 
do reimburse them for the cost of the eggs.
    [Laughter.]
    Chairman Schumer. It's a lot of their salary.
    Representative Saxton. Let me join you, Mr. Chairman, in 
welcoming our panel of witnesses today. In recent months, the 
rise in commodity prices worldwide, has led to increases in the 
price of food in the United States, as well as in many other 
nations.
    We're all concerned about the impact of food prices on the 
American family, and you have pointed out many examples of why 
we should be concerned about that and the effect that it has on 
families.
    The global food crisis has led to outbreaks of food riots 
and potential famine in other countries which is disturbing, as 
well.
    What has caused this spike in food prices is a great 
question and a question that we should try to shed some light 
on. The global food crisis, as you have pointed out, Mr. 
Chairman, has multiple causes.
    One factor is higher demand for food in China, India, and 
other countries undergoing rapid economic development. Another 
factor is drought, as you pointed out, Mr. Chairman, and 
conditions in Australia and other grain-exporting nations.
    An additional factor has been export tariffs on food 
imposed by several countries. Since many farm commodities are 
traded globally, the effects of these international factors on 
U.S. food prices should not be neglected.
    Government policy has also made major contributions to the 
food crisis. As the respected Financial Times noted just the 
other day, protections, subsidies, and other such follies 
distort agriculture more than any other sector.
    The present crisis is a golden opportunity to eliminate 
this plethora of damaging interventions. Unfortunately, despite 
sky-high food prices, the U.S. Congress seems to be moving in 
the opposite direction.
    According to one Democratic Congressman, obviously from the 
House side, the forthcoming Farm Bill looks like a nightmare 
and negotiators, quote, ``Manage to avoid every opportunity to 
reform wasteful, outdated subsidies. Consequently, not only 
will consumers be hit with higher food prices they will have to 
pay again to finance billions of subsidies for farmers, a 
number of whom are already quite wealthy.''
    The U.S. import tariff on ethanol is another factor 
contributing to higher food prices which you also mentioned, 
Mr. Chairman. This tariff provides an incentive for farmers to 
produce more corn than they otherwise would for the domestic 
ethanol industry.
    If the tariff were repealed, farmers would have more 
incentive to produce corn and other crops for food, increasing 
supply. Finally, to the extent that the Federal Reserve 
monetary policy has been too easy, short-term inflation 
pressures may have increased rising commodity prices, in 
general.
    In addition, higher fuel prices, partly due to OPEC's 
restrictive policies have contributed to the increase in food 
prices by boosting the cost of fertilizer, processing of foods, 
as well as transportation.
    As consumers face higher prices in the coming months, 
Members of Congress will continue to express their concern. 
However, what matters more than rhetoric is the action that 
Congress takes.
    Will Congress actually proceed to enact what has been 
described as a nightmare of wasteful, outdated subsidies, even 
as food prices continue to rise, or will there be a genuine 
reform at a time when food prices have risen dramatically? As 
things appear now, the prospects of reform don't look 
particularly promising.
    If this is the case, consumers can look forward to paying 
high food prices and then paying again as taxpayers finance 
billions of farm subsidies. The opportunity for reform will 
have been lost. Mr. Chairman, thank you very much.
    [The prepared statement of the Representative Saxton 
appears in the Submissions for the Record on page 51.]
    Chairman Schumer. Thank you, Ranking Member Saxton. Now, 
Vice Chair Maloney.

  OPENING STATEMENT OF HON. CAROLYN B. MALONEY, VICE CHAIR, A 
               U.S. REPRESENTATIVE FROM NEW YORK

    Vice Chair Maloney. Thank you, Chairman Schumer, for 
holding this hearing to examine rising food prices and the 
impact it's having on American families. Just last week, 
Chairman Schumer, I had a town hall meeting with my 
constituents and the high price of food was very, very strong 
in their comments and very much on their minds.
    This week, big oil companies are reporting record profits, 
but families are struggling to make ends meet in the face of 
stagnant wages and rapidly rising fuel and food prices.
    In some areas of the country, people are paying $4 for both 
a gallon of milk and a gallon of gas. Families are forced to 
cut back on meats and fresh vegetables for lower-cost items 
such as pasta and canned foods. Some are calling this ``the 
recession diet.''
    As the price of oil sets a new record almost daily, it is 
clear that rising fuel costs are driving up the cost of food. 
Higher energy costs have driven up the cost of commodities such 
as corn and wheat, feed for livestock, and transportation to 
get products to market.
    As we will hear from our witnesses today, other factors 
have also contributed to rising food prices, such as growing 
global demand, severe weather in farm regions, and increased 
speculation in commodity futures that have caused price spikes 
for certain crops.
    In our quest to become less dependent on foreign oil, we 
face a new dilemma between raising crops for food or fuel.
    We will hear from a bakery owner in New York who has seen 
prices spike for fuel and grains, on top of declining sales, as 
consumers cut back. We will also hear from Second Harvest about 
how food banks are seeing an increasingly large number of 
people seeking help while food donations are declining.
    The Food Bank for New York City and City Harvest serve over 
300,000 people per month, many of whom are the working poor who 
have to choose between food and utilities, housing, or health 
care each month.
    We need to find ways to bring relief to families who are 
feeling the squeeze of higher prices. We have taken concrete 
steps in the House to try to end unnecessary subsidies to big 
oil companies, and to invest in clean fuels and efficiency by 
passing the Renewable Energy and Energy Conservation Tax Act 
back in February of this year. And last year's Energy Bill 
ensures that biodiesel sources, such as switchgrass are key 
ingredients of renewable fuels.
    The President and Republicans in Congress blocked attempts 
to expand food stamp and unemployment insurance benefits as 
parts of the first stimulus package. The Speaker has urged them 
to come back to the table to negotiate a second stimulus that 
would include both of these measures for struggling families.
    Mr. Chairman, I thank you for holding a hearing that is 
tremendously important to the constituents that we represent, 
and I yield back the balance of my time.
    [The prepared statement of Representative Maloney appears 
in the Submissions for the Record on page 52.]
    Chairman Schumer. Senator Brownback.

 OPENING STATEMENT OF HON. SAM BROWNBACK, A U.S. SENATOR FROM 
                             KANSAS

    Senator Brownback. Thank you, Mr. Chairman, thanks for 
holding the hearing. I appreciate the panelists that are going 
to be coming up.
    I think, you know, a fair reading of the factual setting 
and looking at the situation, probably produces four major 
factors that are in play right now.
    Clearly, at the base of it is the price of oil that's so 
much of a fundamental part of so many pieces of our economy and 
globally; the value of the dollar is clearly having an impact 
on the commodity markets; production problems we've had in 
agriculture and various sectors and places around the world; 
and I would also add with that, exacerbated by Government 
policies in different places, and then finally, the speculators 
parking funds, major hedge funds, index funds, driving 
commodity prices on a near-term basis.
    And I think that if you look at those four, you've got most 
of the factors that are driving prices today. What I hope we 
will do is look sensibly at these and not exacerbate the 
problem with policies that would hurt further.
    Clearly, oil is behind a lot of it. My family farms--my 
dad's a farmer, my brother's a farmer. Former Secretary of 
Agriculture, John Block, says the cost of raising a crop has 
jumped by perhaps 40 percent.
    That's mostly driven by energy prices. You go to fill the 
tractor up with diesel and it's the same price everybody else 
pays for it. Fertilizer is energy-based, and it's gone up a 
huge amount in cost.
    The lower value of the dollar, clearly, it's helped, I 
think, our economy. It's helped us on exporting and it's helped 
us on manufacturing exports. I see that in my State. It's 
helping us on exporting crops.
    There's another side of that. You've got a declining value 
of the dollar, and a lot of people will put that money then 
into commodities, say, as a protection or a hedge against. That 
may then drive up your commodity prices.
    So one of the things that I would hope we'd do, Mr. 
Chairman, is get the Federal Reserve Chairman Bernanke back up 
again. A lot of us have been pushing to have a cheaper dollar 
as a way to try to stabilize the financial markets.
    Yesterday, they're sending the signal that maybe we're 
going to stop doing this, and we need to start looking on the 
other end, which is inflationary factors that you get, and I 
think it's probably time for us to have a discussion about 
inflation.
    Clearly, we've had some production problems in agriculture. 
Mr. Chairman, I would enter into the record the world wheat 
supplies. That's the crop I'm most familiar with, being from 
Kansas.
    We've seen a 45-percent decline in ending stocks for wheat, 
from 2000 to the present date, 45 percent drop in supply--
ending supplies. That's the market driving factor there. That's 
what everybody here that's buying these things is looking at, 
how much do we have out there?
    Last year, at Easter, we had a frost and it cut our wheat 
crop a good 40 percent in Kansas, one frost. Well, then that's 
reflected in ending stocks.
    I would also point out, though, that markets do work. I 
pulled up the Wall Street Journal Wheat Futures Prices, and I 
want to enter this into the record, as well.
    Chairman Schumer. Without objection, both items will be 
entered into the record.
    [Cart entitled ``World Wheat Supply and Ending Stocks'' 
appears in the Submissions for the Record on page 53.]
    [Cart entitled ``World Corn Supply and Ending Stocks'' 
appears in the Submissions for the Record on page 54.]
    Senator Brownback. Thank you, Mr. Chairman.
    In February/March, we had over $12 a bushel wheat prices, 
and, you know, I have a sidebar here: When you grow up in 
Kansas, this is the sort of thing you dream of. We never get 
these sorts of prices for a commodity.
    I would point out that now that we're at the end of April, 
it's at $8, so you've knocked $4 off of that, because the crop 
that we're looking at now looks like it's going to be pretty 
good. So, I'm sorry, you know that your bread prices are up, 
but the amount of wheat in that loaf of bread isn't much. It 
may be a dime. We'll have some experts in to testify about 
this, so I'm afraid it's a lot of other people getting that 
price, but you're seeing a $4 drop per bushel in 3 months, in 
wheat prices because the incoming crop is looking a lot better, 
and that should help the ending stocks, which is what people 
will track.
    We've got those problems. Now, they're exacerbated when 
people are not allowed to freely export, and I think that's 
what we're seeing, particularly in rice where you've got 
governments limiting the movement of rice. I was looking at the 
ending stocks on rice, and Mr. Chairman, I'd like to enter this 
into the record, as well.
    Chairman Schumer. Without objection.[Cart entitled ``World 
Rice Supply and Ending Stocks'' appears in the Submissions for 
the Record on page 55.]
    Senator Brownback. While they are lower, these are not the 
sort of things that should probably drive the rice prices as 
much as we are, so you're probably seeing more governments 
restricting the movement of rice, causing that on a near-term 
basis.
    In wheat, we've had production problems last year, and 
those seem to be changing.
    I would point out, as a Government policy, because people 
are saying, OK, the problem here is ethanol; that's the issue. 
We've diverted all these corn acres--or these wheat acres to 
ethanol.
    Well, there isn't a real elasticity, between wheat and corn 
acres. You've got a different cropping pattern. You need more 
moisture for corn, and while there are some margins that you 
can shift around, primarily, a shift between soybean and corn 
acreage, and so you had a big corn increase this last year, but 
it doesn't really take from wheat acres.
    It's some, but not a huge piece, and there's a positive 
with this. I would note to you, that, currently, ethanol gives 
us about 8 percent of our liquid fuel supplies in America, and 
that puts us at number five on the list of countries we get oil 
from.
    I would note to you, as well, that there have been a couple 
of studies on this--a Merrill Lynch analyst estimates that oil 
and gasoline prices would be about 15 percent higher, or $4.14 
a gallon at today's prices, if biofuel producers weren't 
increasing their output.
    So, OK, we've shifted some commodities from this place to 
that, but then it also has a reducing impact on gasoline 
prices. Gasoline prices are way too high, but they would be 
higher without biofuels in the system, and I would note that.
    Finally, Mr. Chairman--and I think this deserves, really, 
some more looking at--is the impact of the hedge funds and 
index funds on commodity prices. My sense is probably that with 
a declining dollar, that a number of these funds said,``where 
do we park our money,'' and they decided to park it in 
commodities as a way of holding it.
    And I want to ask to enter into the record a Baron's cover 
story of March 31, 2008, looking at this phenomenon, not saying 
it's wholly there at all, but saying that it's clearly had some 
near-term impact on prices. I think that this is actually 
something worth looking at. Should we allow hedge funds and 
index funds to enter into the commodity markets to a degree 
over and above what we allow the individual to do?
    [Report entitled ``Commodities: Who's Behind the Boom?'' 
appears in the Submissions for the Record on page 56.]
    We limit individuals' positions in these markets, where we 
don't in these funds, and I think this is something, as a 
factor, that we really ought to be looking at.
    So those issues, Mr. Chairman, I guess it would be fun to 
blame somebody in here for all of this, but I think you really 
need to look at these particular factors and then, please, 
let's not exacerbate it with Government policies, whether 
problems in the Farm Bill, or limiting of exports to the flow 
of commodities that's going to hurt and cause this to be worse.
    I appreciate your holding the hearing, but I hope we can 
look at it factually.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Brownback appears in the 
Submissions for the Record on page 62.]
    Chairman Schumer. Thank you. We now have a lot of Members 
here. I had offered each Member an opening statement, and I 
will stick by that, but we would ask each Member to do 3 
minutes. The order, in order of appearance, is: Representative 
Cummings, Senator Sununu, Representative Brady, Senator Casey, 
Senator Klobuchar.
    So, Representative Cummings.

     OPENING STATEMENT OF HON. ELIJAH E. CUMMINGS, A U.S. 
                  REPRESENTATIVE FROM MARYLAND

    Representative Cummings. Thank you very much, Mr. Chairman.
    As I listened to my good friend, Senator Brownback, I just 
could not help but think--and I listened to you, Mr. Chairman, 
too--I could not help but think that I hope that we do not come 
to this hearing and have something that my mother, who is a 
former sharecropper, she would say we have motion, commotion, 
and motion, and no results--motion, commotion, emotion, and no 
results.
    When you've got 11 percent of Americans now in what's 
termed a ``marginal food state,'' that is, they are insecure 
with regard to having enough food, when you have got a 14 
percent increase at food banks, and when, as the Chairman said, 
you have got Costco and other stores limiting the amount of 
food that can be purchased, rice in that instance, I want to 
just remind all of us that this is still America.
    As I heard the Chairman talk about the difficulty that his 
family was having, I could not help but think about the 
neighborhood that I live in. I live in the inner-city of 
Baltimore where they do not have a combined income in many 
instances of $75,000, let alone one person making $175,000.
    So if the Chairman is concerned--and rightfully so--you can 
imagine what the folks that are lining up at the food banks and 
the folks who are insecure, food insecure--meaning that they 
run out food before the end of the month--or they do not have 
enough food to nourish their children and their families 
properly, you can imagine what they must be going through.
    We all know, and we will hear today all the problems. There 
are a lot of problems that have caused us to be here today. You 
know, severe weather problems throughout the country; greater 
demand for food across the world; gas prices--transportation 
costs of hauling this food, and we could go on and on.
    I think the question is--and I hope that our panel as they 
tell us about the problems and explain to us about how food 
prices have increased at a faster pace than they have in 17 
years--how do we help Americans?
    Hello? How do we help them? Tomorrow. Tomorrow. People in 
my district will be going to the supermarket and their dollar 
is going to purchase much less than it did a year ago, and that 
is real.
    At the same time, we know that throughout this country we 
are facing an obesity problem. And part of the problem with 
regard to obesity is people cannot get the kind of foods that 
they need, and sometimes cannot afford them. So we already had 
a problem. It is simply going to get worse.
    Ladies and gentlemen, I have often said: If we can send 
people to the moon, we ought to be able to solve the problems 
here on earth.
    And someone said a moment ago we need to bring Mr. Bernanke 
back so he can help us with this problem. Well whoever said 
that, if you were at the last hearing, I asked him about how to 
address the subprime issue, and he said he did not know.
    So I do not know whether that is going to do us any good. 
So I am hoping that these experts who are here today will help 
us resolve this issue, because while we sit here, there are 
people who are worried about how they are going to feed 
themselves and their families.
    Thank you.
    Vice Chair Maloney [presiding]. I thank my colleague for 
his very moving statement, and we recognize Senator Sununu for 
3 minutes.

 OPENING STATEMENT OF HON. JOHN E. SUNUNU, A U.S. SENATOR FROM 
                         NEW HAMPSHIRE

    Senator Sununu. Thank you, Madam Chairman.
    Chairman Schumer did a fine job of laying out where we are 
seeing price increases. They are very real. It starts with an 
increase in energy costs, flows through the food chain of corn, 
bread, milk--just about everywhere you look in the supermarket. 
The impact on families that Congressman Cummings spoke to very 
eloquently is very real and very significant.
    We see it today, in the information that was just released 
on inflation. Food and energy prices are going up much faster 
than core prices. The inflation puts pressure on family 
budgets. It displaces other spending that they might wish to 
do. It has a real effect on our economy.
    It also has significant moral implications here at home. I 
met with the people from the New Hampshire Food Bank several 
weeks ago and talked to them about problems they see with 
donations, which was mentioned earlier. They also see the 
pressure on the families they are trying to help.
    It has moral implications around the world. Whether you are 
dealing with the food crisis that is driven by war--as we have 
seen in Darfur, or food crises that are driven by catastrophic 
economic policies, such as land confiscations and price 
controls in Venezuela and Zimbabwe, the impact on the human 
condition around the world is tragic.
    And here in the United States, given that we are the 
largest economy in the world, that we are such significant food 
producers, the policies that we enact and the effect that we 
have on global prices means that we play a real role in how 
people around the world get access to food nutrition that they 
so desperately need.
    And I think we need to understand that. We cannot shy away 
from the fact that there are many Government policies that we 
have enacted here in the United States that have an impact in 
these areas.
    It is important to hear from economists to understand how 
significant the impacts are. But if we are diverting 25 percent 
of our corn production to create fuel instead of using it for 
food, that has a very real impact on prices here at home and 
around the world.
    You simply cannot deny that. We might argue about what the 
benefits of that diversion are, but it is going to have a real 
impact on supply and on prices of food. That increase in the 
price of corn, then feeds through the rest of the economic 
chain into beef prices, into chicken prices, into the price of 
processed food.
    If we distort planting choices for corn or for soybeans, it 
has an impact on supply, availability, and price. If we 
restrict imports, as Senator Brownback discussed, it is going 
to have an impact on prices worldwide as markets become closed. 
If we protect our own markets we are going to have a negative 
effect because we are going to reduce efficiency, reduce the 
ability to move food from one place of the world to another to 
where it is most needed, or most valued, and contribute to 
local shortgaps.
    We have just such restrictions on imports here in the 
United States. We have an ethanol tariff that has the effect of 
restricting imports of a product we desire and want to use 
domestically. By restricting that import we effect the price of 
the food source, whether it's corn or sugar.
    We still have price restrictions and price controls. A 
minimum price is set on certain foods in our economy. And on 
the energy side, we still have very real restrictions on 
domestic energy production, an absolute refusal to enact 
policies that allow us to produce more energy here at home.
    We have got to look at each one of these, listen to the 
panelists today, and better understand how Government policy is 
affecting what the families are paying at the checkout counter.
    Thank you, Madam Chair.
    Vice Chair Maloney. Thank you, Senator.
    Senator Casey for 3 minutes.

OPENING STATEMENT OF HON. ROBERT P. CASEY, JR., A U.S. SENATOR 
                       FROM PENNSYLVANIA

    Senator Casey. Madam Chairwoman, thank you very much for 
this opportunity.
    I wanted to also thank Chairman Schumer for calling this 
hearing. As he and this Committee have often done over the last 
almost 18 months now since the beginning of 2007, having 
hearings on issues that pertain and relate to and impact the 
American family. This is certainly a good example of that.
    I think it is very hard to comprehend. I think Congressman 
Cummings and others today have articulated the gravity of this 
problem. It is hard for me--and I am sure it is hard for most 
people in this room--to comprehend what it is like to go 
hungry. I cannot even imagine it. The pain and the trauma that 
it causes to one person, especially if they are vulnerable, if 
they happen to be an older citizen or a child, but no matter 
who they are, it is hard for us, I think, to even begin to 
understand that kind of pain. I know it is for me.
    So I approach this problem with a great deal of ignorance 
in one sense because I do not know what it is like to go 
hungry. I think we have to try our best to understand what 
people are up against.
    The numbers we have heard are staggering. Just the cost of 
food going up 4 percent in 1 year is, if not an all-time 
record, certainly a high one for the last 20 years. The percent 
of a low-income family's budget that they have to pay for 
food--by one estimate is 17 percent, and I am sure that number 
has gone way above that.
    I think one of the most significant things I have seen in a 
long time is a report here from Second Harvest. I know we hear 
from them today, but they were kind enough to give State- and 
district-specific information about the crisis that we are 
facing.
    Just to read you one line from this, which I just read a 
few moment ago for the first time which really struck me, 
talking about different parts of Pennsylvania, it says, and I 
quote: ``A very small pantry based in the largest city in this 
particular region of our State served 8 households in July and 
last month served 42.'' I'm not sure what ``last month'' meant, 
whether it is February or March, but that is a 400 percent 
increase in one place in Pennsylvania just since July. It went 
from serving 23 to 153 individuals, in addition to what it 
meant to a household.
    So that alone gives you a sense of it. And these are not 
just anecdotes. You can pick up any paper in the country and 
you are hearing over and over again, we have never seen it this 
bad in 20 years. The shelves are bare. We cannot keep up. The 
lines are too long. Over and over again, State after State, 
region after region.
    So we have a lot to do on this issue. One of the heartening 
things about this hearing is that we will have some expertise 
at that table who will not only tell us what the problem is but 
will help us develop solutions.
    Believe it or not, even though the Farm Bill has gotten a 
lot of negative publicity--and the real name of that bill is 
The Food and Energy Security Act, so it is about food security 
as the intent of that bill--almost 70 percent of that bill, in 
the 60's somewhere, is dedicated to nutrition.
    So I think that bill goes a long way to addressing some of 
the more urgent nutrition challenges that we have in the 
country. So I look forward to learning from what our witnesses 
can tell us and being part of the solution.
    But this has to be done in a bipartisan way, and we are 
grateful for the opportunity that Chairman Schumer gave us to 
examine this problem.
    Vice Chair Maloney. Thank you. And Representative Brady.

       OPENING STATEMENT OF HON. ROBERT A. BRADY, A U.S. 
                REPRESENTATIVE FROM PENNSYLVANIA

    Representative Brady. Thank you, Madam Chair.
    I have two young boys, and this weekend one of their 5-
year-old friends said, Mr. Brady, I can count to 100.
    I said, Really? Show me.
    He said, one, two, three, four, five, skip a few numbers, 
one hundred.
    That's how he got there. As we examine the rising costs of 
food on middle-class families, I hope Congress does not skip a 
few numbers as we examine the issue, because I think we bear 
part of the blame for those high food prices our families are 
stuck with today.
    We are diverting an amount of our food supply to biofuels. 
We need to take a hard look at it.
    Fuel prices, the transportation of our agriculture 
commodities, the growing and developing of it through 
pesticides and others, that cost is coming from fuel.
    I look at this Congress, what it has done this past year-
and-a-half, and our first action was to allow individuals to 
sue OPEC. Well what does that accomplish?
    Our second action was to promote longer-lasting light 
bulbs.
    Our third action was to outsource America's energy supplies 
and use the Tax Code to punish U.S. companies for investing and 
producing here in America.
    Our fourth action was to increase fuel standards for 
vehicles, which is good.
    Our fifth action, and latest scheme, is to pound the table 
and threaten to withhold military planes unless others increase 
their importation of fuels to America. In other words, we're 
pounding the table insisting we become more dependent on 
foreign oil for our daily energy needs.
    I think, even though world oil prices are set on the world 
market, the signal this Congress has sent is that we will do 
less, and we insist others do more. It is reflected by moving 
our oil and energy reserves into unstable governments. Whether 
it is Venezuela or Nigeria or Iran, we have sent a strong 
signal to the world market that we do not want to stabilize and 
lower these prices.
    I am hopeful that this Congress at some point can come 
together to accelerate the use of nonfood sources of fuel in 
America.
    We need to increase traditional supply of energy in America 
from the Arctic reserve to deep ocean to oil shale and coal to 
superclean liquids.
    And then finally, we cannot ignore the speculative bubble 
in commodity prices. Just like the high tech bubble bursting in 
2000, the housing bubble last year, we need to be very aware of 
it and paying close attention to its impact.
    Mr. Chairman, I yield back.
    Chairman Schumer [presiding]. Thank you, Congressman.
    And last but certainly not least, Senator Klobuchar.

 OPENING STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM 
                           MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman, for 
holding this hearing.
    As you all know, I come from a farm State. We are third in 
the country for corn, and third in the country for ethanol. So 
I say that at the outset, but I would also like to say that I 
have seen first-hand the middle class families who are 
struggling in our State.
    I have seen seniors in our State where some of them are so 
focused on not getting any Government help that they are 
embarrassed to go to the food shelves, and they take a bus to 
the next town so people do not know that they did it.
    I spoke at a food shelf event a few weeks ago and it was 
predominantly seniors that were there giving $10, $20 that they 
had for years, and this food shelf is having a very hard time 
making it.
    So those are the things that I have been seeing in my 
State. And when we hear from the witnesses today, some of the 
things I have been focusing on in terms of solutions are, first 
of all, of course this Farm Bill. I am one who believes we need 
some more reform in the Farm Bill, but I also believe that the 
nutrition part of it and the Food Stamp part of it is 
incredibly important and we have to look at that as part of a 
solution, a short-term solution for this crisis that we are 
seeing.
    Second, that we look at the ethanol industry not just 
quickly and with a dismissive way and blame everything on 
ethanol, but instead talking about transitioning to cellulosic 
ethanol--switch grass, prairie grass, other parts other than 
corn that actually are higher in energy and will actually be 
better for the environment, and that we look at transitioning.
    Because I am very concerned that if we just pull the rug 
out from an infant industry at a time when countries like 
Brazil have leapfrogged us in our energy independence--when I 
talk to our farmers, their input costs are in part oil. And we 
are so incredibly dependent on foreign oil, and Senator Schumer 
and I have been focused on pushing OPEC, and stopping putting 
oil in the Reserves right now when the price is so high, and 
doing some other things with speculation in the oil market, but 
I think we are at a precarious time here. We want to transition 
to a higher energy ethanol, and not just pull the rug out from 
under them.
    The other part of this of course is really focusing our 
research on hybrid cars, electric cars. And as one of my 
colleagues mentioned, if we could put a man on the moon, when 
you think about all of the developments that came with that, 
that we should be able to do as well as Brazil when it comes to 
being energy independent.
    And then finally I would like to hear, and one of the 
things I have heard talked a lot about in the farming community 
is just the increase that we have seen in hedge funds and money 
going into commodities that have inflated the price. What I've 
heard is that when the subprimes went bad, the money went out 
from that and into commodities. And that that has in part 
pushed up these prices.
    And I am concerned about the fragile state when that money 
starts coming out of our farming community which could in fact 
make the prices even higher if we do not have a steady output 
of farm production.
    So those are some of the solutions and ideas that are in my 
mind as we approach this, and I am looking forward to hearing 
from the witnesses. Thank you, very much.
    Chairman Schumer. Thank you, Senator Klobuchar.
    Now we are ready for our first witness who is Dr. Joseph 
Glauber. He is the Chief Economist of the U.S. Department of 
Agriculture.
    I am going to ask the other panelists to wait until Dr. 
Glauber has finished his testimony, and then they can come up 
and join him and we will introduce them.
    Dr. Joseph Glauber is the Chief Economist, as I mentioned, 
for the U.S. Department of Agriculture. As Chief Economist he 
is responsible for the Department's agricultural forecasts and 
projections, and for advising the Secretary of Agriculture on 
economic implications of alternative programs, regulations, and 
legislative proposals.
    He is the author of numerous studies on crop insurance, 
disaster policy, and U.S. foreign policy, and has served as 
senior staff economist for agriculture and natural resources 
and trade at the President's Council of Economic Advisors, as 
well as an economist at the Economic Research Service, USDA.
    Dr. Glauber, your entire statement will be read into the 
record. I would ask you to confine your testimony to 5 minutes, 
and then we will have the other witnesses.
    Thank you, Dr. Glauber.

    STATEMENT OF DR. JOSEPH GLAUBER, CHIEF ECONOMIST, U.S. 
           DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

    Dr. Glauber. Thanks very much.
    Mr. Chairman, Members of the Committee, thank you for the 
opportunity to discuss recent developments and the prospects 
for retail food prices.
    In 2007 the Consumer Price Index for food in the U.S. 
increased 4 percent. This was the largest annual increase in 
retail food prices since 1990.
    In 2008, USDA's Economic Research Service projects retail 
food prices will increase by 4 to 5 percent.
    Several key factors are shaping the current situation, 
including domestic and global economic growth, the foreign 
exchange value of the dollar, global weather patterns, rising 
input costs for energy and labor, international export 
restrictions, and new product markets--particularly biofuels.
    I will describe briefly recent developments in commodity 
markets, the effect on retail food prices, and the implications 
for food price inflation, family food expenditures, and 
domestic food assistance.
    Higher commodity prices are contributing to the increase in 
food price inflation even though on average the farm value 
accounts for only about 20 cents of each dollar spent on food.
    For highly processed foods such as cereal and bakery 
products, the farm component of the retail value is less, as 
processing costs account for a higher portion of the retail 
value.
    In contrast, food products that undergo little processing 
prior to being consumed, such as eggs and fresh fruits and 
vegetables, the farm value accounts for a much larger share of 
the retail value.
    The index of prices received by farmers for all products 
increased by 18 percent in 2007, as farm prices for several 
major crops--beef, milk, broilers, and eggs--either reached new 
record highs, or posted large annual gains.
    Compared to 1 year ago, the index of prices received by 
farmers for all products was up 15 percent during the first 
quarter of 2008.
    During the first quarter of 2008, the prices received for 
all crops were up 20 percent, reflecting a strong--reflecting 
continued strong prices for major crops.
    Meanwhile, the prices for livestock and livestock products, 
while up 10 percent during the first quarter compared to a year 
ago, have moderated and are expected to moderate in the coming 
months as record large supplies of red meat and poultry have 
lowered farm prices for cattle and hogs.
    Many factors have converged to increase commodity prices. 
Global economic growth, weather problems in some major grain-
producing countries, and a weaker dollar have helped boost 
fiscal year 2008 U.S. agricultural exports and U.S. commodity 
prices.
    In fiscal 2008, the value of U.S. agricultural exports is 
projected to reach a record $101 billion, up from last year's 
record of $81.9 billion.
    Many exporting countries have put in place export 
restrictions in an effort to reduce domestic food price 
inflation. Export countries as diverse as Argentina, China, 
India, Russia, Ukraine, Kazakhstan, and Vietnam have placed 
additional taxes or restrictions on exports of grains, rice, 
oil seeds, and other products.
    By reducing supplies available for world commerce, these 
actions only exacerbate the surge in global commodity prices. 
Higher food marketing transportation and processing costs are 
also contributing to increases in retail food prices.
    In recent years the conversion of corn and soybean oil into 
biofuels has been an important factor shaping major crop 
markets.
    The amount of corn converted in ethanol and soybean oil 
converted into biodiesel nearly doubled from 2005 to 2007. The 
growth in biofuels production has coincided with rising prices 
for corn, soybeans, soybean meal, and soybean oil.
    While much of the increase in farm prices for corn and 
soybeans can be attributed to increased biofuel production, 
other factors have contributed as well to the sharp increase in 
prices.
    The strengthened exports resulting from a weakened dollar 
and global economic growth have also boosted those prices.
    I would add that the recent increase in corn and soybean 
prices appear to have little to do with the run-up in prices of 
wheat and rice prices. Rice and spring wheat plantings could 
have been affected by increasing corn and soybean prices, but 
weather problems, low stocks, and strong global demand likely 
have had a much greater impact on wheat and rice prices than 
increasing corn and soybean prices.
    And it is unlikely that the retail prices for milk, meat, 
poultry, and eggs were greatly affected by higher corn and 
soybean prices in 2007. Other factors such as weather, low 
returns, strong demand have contributed to the increase in 
retail prices for these commodities.
    I would just add that consumers spent nearly $950 billion, 
almost 10 percent of their disposal personal income, on food in 
2006.
    However, more important are the distributional aspects of 
higher food prices. While on average consumers may spend only 
10 percent of their disposable income on food, families with 
less than $20,000 in income spend over 20 percent of their 
after-tax income on food. And I think you have a chart on that 
effect.*
---------------------------------------------------------------------------
    * See chart entitled ``Nearly All Families Spend Over 10% of Income 
on Food'' in Submissions for the Record on page 47 and table entitled 
``Food Spending by Income Class, 2006'' in the Submissions for the 
Record, page 70.
---------------------------------------------------------------------------
    Thus, a 4 percent increase in retail food prices would 
increase the share of income spent on food for families with 
less than $20,000 in income by about 1 percentage point.
    Mr. Chairman, I go over in my statement the impacts on 
domestic food programs. I will skip that here. I would just say 
that as we look out, future market prices certainly suggest 
that grain and oil seed prices will remain high over the next 
few years.
    The rapid expansion of the biofuel program, high input 
costs, and strong foreign demand will continue to play a major 
driving force in U.S. and world agriculture.
    Yield growth and supply response both in the United States 
and abroad will help moderate prices in the long run, but for 
the near-term tight supplies will keep markets volatile with 
much attention being paid to the growing conditions worldwide.
    Thank you, Mr. Chairman. That completes my statement.
    [The prepared statement of Dr. Glauber appears in the 
Submissions for the Record on page 63.]
    Chairman Schumer. Thank you for that informative testimony. 
Now we are going to ask our other witnesses to come forward as 
I introduce them. We will hear their testimony and do questions 
for everybody.
    First we have George A. Braley. He is the senior vice 
president of Government Relations and Public Policy at 
America's Second Harvest, the Nation's largest charitable 
hunger relief organization. Prior to joining Second Harvest 
last September, Dr. Braley was the Associate Administrator of 
the Food and Nutrition Service at the Department of 
Agriculture. As the agency's senior executive, Dr. Braley along 
with the administrator had overall responsibility for the 
Nation's food assistance programs, including food stamps, child 
nutrition, WIC, and food distribution.
    Tom Buis [pronunciation]?
    Mr. Buis. ``Bye-as.''
    Chairman Schumer. Buis, thank you, Mr. Buis. He is the 
president of the National Farmers Union. They represent a 
quarter of a million farm and ranch families. He has been with 
the organization since 1998 and was elected president in 2006. 
Prior to joining NFU, Mr. Buis served for 5 years as Senior 
Agriculture Policy Advisor to Senator Majority Leader Tom 
Daschle. Before moving to Washington, DC, in 1987, he was a 
full-time grain and livestock farmer in Putnam and Morgan 
Counties in west central Indiana with brothers Mike and Jeff, 
who continue to operate the family farm.
    And finally at the other end of the food chain we have Mr. 
Richard--or almost at the other end, I guess your customers are 
at the other end--we have Richard Reinwald, the owner and co-
founder of Reinwald's Bakery in Huntington, New York, on Long 
Island. Mr. Reinwald opened the bakery in 1988. He is a third-
generation retail bakery owner, and he is also first vice 
president of the Retail Bakers of America, and has served on 
the RBA executive committee since 2004, and the board of 
directors since 1994.
    He also served as president of the New York State 
Association of Manufacturing Retail Bakers, and the Nassau-
Suffolk Retail Bakers Association. He works in the bakery with 
his wife of 30 years, Carol, and one of his three sons works in 
the business making his son the fourth generation in the family 
bakery.
    Dr. Braley, Mr. Buis, Mr. Reinwald, your entire statements 
will be read into the record. Please go forward and we ask you 
to try and stay within the 5 minutes.

  STATEMENT OF DR. GEORGE A. BRALEY, SENIOR VICE PRESIDENT OF 
   GOVERNMENT RELATIONS AND PUBLIC POLICY, AMERICA'S SECOND 
                    HARVEST, WASHINGTON, DC

    Dr. Braley. Thank you, Mr. Chairman.
    Thank you, Mr. Chairman, and Members of the Joint Economic 
Committee. It is my pleasure to present testimony today on 
behalf of America's Second Harvest, The Nation's Food Bank 
Network.
    Our network consists of 205 food banks serving all 50 
States, Puerto Rico, and the District of Columbia. We reach 
over 50,000 charitable agencies who receive food from our food 
banks and provide food in turn to over 25 million Americans 
each year.
    The lowest quintile on your chart* that you had earlier, 
Mr. Chairman, is the population that we tend to serve 
typically, those spending 32 percent of their disposable income 
on food. But we are seeing many more people from higher income 
families, or traditionally higher income families, who are 
seeking food assistance in our network.
---------------------------------------------------------------------------
    * See chart entitled ``Nearly All Families Spend Over 10% of Income 
on Food'' in Submissions for the Record on page 47.
---------------------------------------------------------------------------
    Thank you for holding this important hearing, and for the 
opportunity to speak with you about three challenges facing our 
network.
    Each one of these challenges would strain our ability to 
respond, but when taken together we are facing a true crisis. 
Our food banks are dealing with substantially reduced donations 
of Federal commodities, an increase in the number of people who 
need food because of the declining economy, and rapidly rising 
food prices that are seriously undermining our ability to serve 
the growing need.
    Quite simply, Mr. Chairman, our network is overwhelmed. Let 
me briefly address each of these issues.
    First, the reduced donations of Government food supplies. 
The last farm bill froze the level of donations for the 
Emergency Food Assistance Program that we're guaranteed at $140 
million per year.
    At that time the Congress, and we, expected that large 
surpluses of agricultural products would continue for the 
foreseeable future and enable us to meet the needs of hungry 
Americans by utilizing those surpluses.
    As can be seen in the first chart in my testimony, this 
expectation was short-lived. In fiscal year 2003 the value of 
surplus donated commodities totaled $242 million. As farm 
prices began to rise, surplus food donations began to drop 
significantly, reaching a low of just $58.5 million last year.
    This represents a drop in Federal commodity support of $184 
million in just four short years. Our food banks desperately 
need the increased funding for emergency food assistance that 
is contained in the Farm Bill pending before the Congress.
    TEFAP products constitute some of the most nutritious and 
popular items received by the low-income families that we 
serve. With unpredictable government donations due to rising 
farm prices and the erosion of those benefits in recent years 
due to inflation, it is imperative that the Congress include 
$250 million a year for TEFAP purchases, and that that amount 
be indexed to inflation.
    Especially having heard Dr. Glauber's testimony about the 
likely continuation of high food price inflation, building 
indexing into that program is absolutely essential.
    As the economy has faltered, the number of people seeking 
food assistance has risen. Participation trends in the food 
stamp program are a good barometer of Emergency Food Assistance 
Program demands because we see a lot of people at our food 
banks before they become eligible to receive food stamps.
    Food stamp participation has been rising for several years, 
but in the past year alone 1.3 million more hungry Americans 
have sought and received assistance through the food stamp 
program.
    We are expecting that program to reach record levels of 
participation over the next several months. Those same clients 
are often clients of our food banks before and during their 
participation in the food stamp program because they run out of 
benefits before they run out of month, and need to seek 
emergency food assistance from food panties and other Emergency 
Food Assistance Programs in their communities.
    This leads to the third problem we are facing: Food price 
inflation and its effects on the need for emergency food 
assistance. One cannot really consider the impact of food price 
inflation alone without first recognizing that rising costs of 
other essentials are also contributing to economic distress.
    When gasoline, heating, housing, and medical costs are also 
rising, families have less money to make up this shortfall.
    It can also mean increasing their reliance on local 
emergency feeding agencies. We surveyed food banks represented 
by Members of this Committee, and we found that over 90 percent 
reported that the increase in demand they are witnessing is a 
direct result of the rise in food prices.
    Let us not forget that in this economy it is not only poor 
and low-income Americans who are suffering. I saw a segment on 
CNN just a few days ago where a young mother who was making 
$70,000 lost her job, could not make her mortgage payments, had 
to move in with her child into her mother's home, and the 
segment was filmed at a food bank where she was seeking 
emergency food assistance and also trying to get referred to 
other services.
    The second chart in my testimony shows that food price 
inflation was pretty flat for the decade from 1996 to 2006, but 
in the last 6 months alone food prices have gone up over 5.5 
percent. This is the food prices based on the Thrifty Food 
Plan, which is used to adjust allotments. Food stamp allotments 
are adjusted every October annually based on June food prices. 
And yet food stamp participants will not receive an adjustment 
in their allotment for several months into the future.
    What is needed to remedy this situation is a farm bill now 
to replace a significant portion of the support that has 
disappeared since the last farm bill.
    We also need to quickly replenish our food banks to meet 
the needs of some 35 million Americans who face hunger. I want 
to thank Senator Casey for his support of a $100 million 
inclusion in the Emergency Supplemental, or the Stimulus 
Package for funding for emergency assistance.
    Senator Casey. Thank you.
    Dr. Braley. Mr. Chairman, I will conclude just with one 
comment from a food banker.

        We have not been able to continue to meet the demand. Our 
        distribution has dropped some, doing well fund raising but 
        costs are eating up our surpluses. We are not keeping up. We 
        need to buy more food, but the money is not there. These are 
        very discouraging times.

    And one of our food banks in the survey wrote in also: 
``Please pass that Farm Bill.''
    And that is the message I would pass along to the Committee 
and the entire Congress. Thank you, sir.
    Chairman Schumer. Thank you, Dr. Braley.
    [The prepared statement of Dr. Braley appears in the 
Submissions for the Record on page 71.]
    Chairman Schumer. We are getting close.
    Mr. Buis.

   STATEMENT OF MR. BUIS, PRESIDENT, NATIONAL FARMERS UNION, 
                         WASHINGTON, DC

    Mr. Buis. Thank you, Mr. Chairman, and Members of the 
Committee for holding this hearing.
    You know, as a former full-time farmer--I still own the 
farm land--I get a little frustrated whenever I read news 
stories, or new accounts and everyone seems to be wanting to 
blame the farmer for everything bad happening in America today 
and around the world. So I appreciate the opportunity to help 
set the record straight.
    First of all, there is no doubt that higher food prices 
have a tremendous impact on people, low-income people and 
people in the middle class.
    I have never met a farmer, though, that did not want to 
help address that problem. I think it is a shame that anyone 
goes to bed hungry, whether in the United States or around the 
world, because for most throughout recent history we over-
produce the amount of food necessary.
    We have problems with distribution. We have problems with 
political regimes around the world to make that assistance 
available. We have a lack of political will oftentimes to 
adequately fund programs to help those who truly need a helping 
hand.
    You have to look at the cause of high food prices. This 
past couple of weeks with the announcement that Costco and 
Wall-Mart were shutting off purchases of rice it set off a 
media frenzy.
    A lot of people immediately started pointing at farmers, 
pointing at corn/ethanol, even though rice production and corn 
production are not produced in the same areas by and large. And 
when you started looking at the facts, and slowly they dribbled 
out, but it's often hard to undo the damage and the image that 
is already out there, but those rice shortages and cutting them 
off were on two specialty rices, one from India and one from 
Thailand where they had shut off their exports.
    They were being purchased not by families at 100 pounds 
each, but primarily small businesses that count on those 
wholesale clubs to purchase for their restaurants.
    We had plenty of rice in this country. In fact, most of 
this problem occurred in California, and within California you 
have a lot of rice. Sometimes it's just what type of rice, and 
there are specialty crops that people prefer.
    First of all, we see the higher prices as bigger 
macroeconomic problems:
    $120 a barrel oil.
    The declining value of the U.S. dollar, which hit 30-year 
lows.
    Increased demand from developing economies around the world 
in India and China, and elsewhere as more people are adding 
extra meals to their diet.
    And worldwide weather production problems, primarily in the 
wheat-growing regions. We had sort of a perfect storm last year 
where all the major wheat-producing areas of the world had bad 
weather, including here in the United States, Australia, 
Canada, Ukraine, and other places.
    But the energy prices. And if you look at the real, real 
culprit here in the escalating food prices, it has to be the 
cost of energy.
    I have a chart* here on which I show how small a percentage 
actually goes to the farmer and the production. It is about 20 
percent, which means 80 percent of that food retail dollar 
occurs after it leaves the farm.
---------------------------------------------------------------------------
    * See chart entitled ``Farmer's Share of Retail Food Dollar'' in 
the Submissions for the Record on page 86.
---------------------------------------------------------------------------
    Food is produced all around this country and all around the 
world. It averages about 1500 miles before it gets to the 
retail establishment. You start doing the math at $4.25-a-
gallon diesel fuel, and the tremendous transportation costs 
alone, and you will find that that is probably the primary 
culprit in the increases.
    In fact, food price increases go up even when farm 
commodities are low. I would point out an example that was in a 
recent major newspaper that was lamenting the fact that bagels 
were going to--they were going to have to raise the price of 
bagels by 15 cents, from 95 cents to $1.10.
    I talked to our folks back in North Dakota that produce 
this wheat that ultimately is turned into the flour to make 
bagels. A 4.2 ounce bagel, which is a big bagel, there's 7 
cents worth of wheat in that bagel, that $1.15.
    Do not blame the farmers is the point.
    The other thing that I hear increasingly--and this has 
happened over the last year--people are blaming corn ethanol. 
First when we had the tortilla protests in Mexico. The only 
problem with that theory of blaming corn ethanol is number one, 
tortillas are made out of white corn, a different commodity 
than the yellow corn that we grow in the United States.
    The second fallacy of it is that our trade agreements 
prevent us from exporting any more than 2 percent of Mexico's 
white corn needs. They had weather production problems in their 
white corn market from there and in South Africa another 
provider.
    Last year right before the 4th of July, which is often one 
of the biggest beer-consuming holidays in America, the beer 
breweries came out and they blamed increased beer prices on 
ethanol.
    Now being a corn farmer from Indiana, I know that corn goes 
into some drinking spirits--it's whiskey, it's not beer--beer 
is made from rice and barley, not corn.
    I have also seen----
    Chairman Schumer. Samples, Mr. Buis?
    [Laughter.]
    Mr. Buis. Pardon me?
    Chairman Schumer. Do you have any samples we might----
    Mr. Buis. We can get some real quick.
    [Laughter.]
    Mr. Buis. The other thing is, I have seen public officials 
that should know better blaming corn ethanol. Former President 
Bill Clinton was quoted as saying that they were having pasta 
riots in Italy because Americans were planting more corn.
    Now pasta is made from durum wheat. Durum wheat is a 
specialty wheat only grown in the northern tier States where 
you have the microclimate--Minnesota and elsewhere. And to be 
bipartisan, unbiased--I was born that way--but to be 
bipartisan, Governor Perry, from Texas this past week--the 
biggest oil State in the Nation--recommended that ethanol was 
the problem of food price increases and livestock prices going 
up, and in fact, suggested we roll back the Renewable Fuels 
Mandate.
    Nothing could be further from the truth. They need to look 
at the oil industry and what it is doing to America.
    I have some recommendations that I will be very brief in 
making:
    One, to address oil, quit filling the Strategic Oil 
Reserve. In fact, tap into it. That would benefit these small 
bakeries and food processors, consumers, and everyone.
    Two, impose an oil excess profits tax and use that money to 
help the truly needy and hungry around the world.
    Three, we have been advocating for a number of years in our 
organization for the creation of an international humanitarian 
food reserve. And so when we negotiate these trade agreements, 
we ought to get the countries that export and produce excess 
production to donate a part of that so that we do have 
something to tap into when we have these rare spikes in prices.
    Thank you.
    [The prepared statement of Mr. Buis appears in the 
Submissions for the Record on page 81.]
    Chairman Schumer. Thank you, Mr. Buis.
    Last but not least, Mr. Reinwald.

STATEMENT OF RICHARD REINWALD, OWNER AND CO-FOUNDER, REINWALD'S 
                  BAKERY, HUNTINGTON, NEW YORK

    Mr. Reinwald. Thank you. I would like to thank the Joint 
Economic Committee for holding this hearing today on how high 
food prices are affecting American families.
    I would especially like to thank my Senator from New York, 
Chairman Charles Schumer, and Vice Chair Carolyn Maloney for 
their leadership on this important issue.
    My name is Richard Reinwald and I own Reinwald Bakery in 
Huntington, Long Island. I am first vice president of the 
Retail Bakers of America, and I am also affiliated with the 
American Bakers Association.
    When we opened up Reinwald's Bakery in Huntington, we 
continued a family tradition that now spans over 75 years and 4 
generations. Our bakery makes everything from pies and breads 
to fancy cookies, and of course, birthday and wedding cakes.
    We are very proud to be part of people's lives in 
celebration and in everyday life. We feel we contribute to the 
lifestyle that makes Huntington a great place to live and work.
    It is almost to the day when we opened up 20 years ago. The 
first few years were a constant struggle, and my wife and I did 
not know if we would make it. It was a great relief when the 
stress of that time was over.
    Well now the stress is back. In the last 12 months we have 
seen explosive price increases on just about every commodity. 
This has created a perilous situation that threatens our 
ability to continue doing business in our community.
    For example, a bag of bread flour that cost us $17 in 2006 
cost us $52 today.
    Semolina flour, the high durum, was $21 per 100. Today it 
is $75.50.
    Soy oil and eggs have almost doubled in the last year. In a 
matter of weeks, our cost of goods sold soared to an all-time 
high. Our bowl cost--that is the cost of the dough coming out 
of the mixing machine--went from 22 cents per pound to 51 cents 
per pound for rye bread. In fact, rye flour used to make the 
best part of the deli rye sandwich, has not only doubled but is 
now in short supply, and we are beginning to import rye from 
Europe.
    How does one respond to such increases?
    In the past, Reinwald's Bakery has tried to couple small 
increases with a strategy that enabled us to sell our way out 
of difficult times. The classic business response to rising 
material costs has always been to increase prices, cut labor, 
eliminate waste, seek economies of scale, and pressure 
suppliers.
    We have been forced to do all of these things, and until 
December of last year, that strategy seemed to be working. Then 
in January, the crisis went full circle. Flour prices again 
reached new highs, and wheat supplies plummeted to new record 
lows.
    Today I ask myself what strategy will we use to survive 
this coming year? What will we do now?
    In February, we were forced to institute dramatic price 
increases across the board. Prices on bread items in particular 
increased significantly. A one-pound loaf of rye that sold for 
$2.65 in April 2007, today cost $3.45.
    In talking with bakers across the country, these kinds of 
increases are fairly common. For us the result of these 
increases has been a drop in volume of about 5 to 7 percent. 
While this may not sound like much, it is the difference 
between profit and loss, perhaps staying in business or closing 
the door.
    Some of my colleagues have not fared so well. A friend of 
mine, a baker in Tampa, has seen a decrease in volume of 18 
percent since October alone. I feel very fortunate to have a 
loyal customer base. They understand that if we didn't raise 
these prices we could not continue in business.
    However in conversations with them, my customers are angry 
and frustrated. They ask me: What can I do? To respond to these 
record high prices I, along with many other wholesale and 
retail bakers from across the United States, came to Washington 
in March of this year to participate in the Band of Bakers 
March.
    ABA, in conjunction with RBA and many other food industry 
associations and their members, met with Members of Congress, 
the USDA, and the White House to discuss what can be done in 
light of the current commodity crisis.
    I understand that there are many elements that factor into 
today's high prices. We have heard this discussion: The 
worldwide demand, a weakened dollar, adverse weather events 
such as last year's draught in Australia.
    Additionally though, the ethanol program which continues to 
subsidize food for fuel and other Government programs that pay 
farmers not to farm their land, have also led to the current 
food crisis which we find ourselves in today.
    Why are we putting food in our gas tanks instead of our 
stomachs? As bakers we have no gripe with the farmer. They are 
trying to make a living just like everybody else. But it is 
difficult to explain to my customers that flour prices are 
increasing because farmers are choosing to grow crops for fuel 
and not for food; that the Government is incentivizing farmers 
through subsidies to grow corn for ethanol and not corn for 
feed and food uses.
    Wheat acreage continues to dwindle because farmers can make 
more money growing Government-subsidized fuel than they can 
growing food. Even with current record prices for flour, the 
response to grow wheat is greatly diminished because of 
mandates for ethanol production.
    The United States has a finite number of acres to use for 
farming, and fuel crops have taken over many acres that were 
previously used to grow food. Where will the land come from to 
grow more crops to meet new ethanol mandates?
    U.S. crop land is already stretched to the limit. Now is 
the time for Congress to act on this issue. I encourage Members 
of this Committee to re-evaluate the ethanol program and to 
take necessary actions.
    Before closing, I would like to mention an outcome that is 
incidental, but no less important. Often overlooked is the 
impact that price increases have on donations to food banks. We 
sell our fresh bread for 1 day only, and then we happily give 
it away to our local food pantries.
    I know that I am not alone in this practice, as many other 
bakeries across the country do the same. With the advent of 
increased costs, we are tightening our inventory, and we have 
been forced to bake closer to anticipated demand.
    The food pantry that has come to rely on our production 
over-runs is now short of food. This comes at a time when more 
and more people need the relief that food pantries provide to 
help them get through these tough times.
    In closing, I would again like to thank this Committee, 
Chairman Schumer, Vice Chairman Maloney, for taking time today 
to discuss this important issue. To reiterate, food prices, 
including baked goods, are reaching all-time highs at a time 
when the economy is already near its breaking point.
    Consumers cannot afford to continue to pay record high 
prices for basic foodstuffs. I encourage this Committee to 
revisit the ethanol program and ensure that there is proper 
balance between food for American families and alternative 
fuels.
    In so doing, all Americans might enjoy a wholesome diet and 
still live within a reasonable budget. I think we can all agree 
that it would be a sad day for families to be forced to 
celebrate without a birthday cake.
    [The prepared statement of Mr. Reinwald appears in the 
Submissions for the Record on page 87.]
    Chairman Schumer. Thank you, Mr. Reinwald. I want to thank 
all the witnesses. It shows you the complexity of this issue 
with the different points of view, but the real sharpness of 
this issue is really with us now and it is something that has 
not been explored. We have to understand the problem before we 
can give answers.
    Just quickly to follow with you, Mr. Reinwald, just briefly 
do you think you will be forced to reduce hours or create 
further layoffs on your staff? Are you going to be forced to 
continue to raise prices? And are you worried you might 
ultimately go out of business?
    Mr. Reinwald. Fortunately I own the real estate, so I have 
been--my wife will tell me I am behind on the rent----
    Chairman Schumer. Got it.
    Mr. Reinwald. And I am. We are looking to maybe cut down 
hours and also to cut a day off scheduling so that bread would 
only be available for 5 days instead of the current 6.
    Chairman Schumer. OK. And what are your customers saying 
when they come into your bakery?
    Mr. Reinwald. The customers, I have to say, are very 
frustrated and to a person they were very excited and glad that 
this Committee is holding the hearing today. Basically they say 
go down there and give 'em hell.
    Chairman Schumer. OK, thank you, Mr. Reinwald.
    To Dr. Glauber, tell us--I mean there are a number of 
different causes here. I do not think there is just one: 
increases in world demand, increases in fuel and diesel costs, 
poor crop production due to weather, increased domestic demand 
for corn due to ethanol, and speculation in commodity markets 
by hedge funds.
    In your opinion, which of these one or two factors has 
played the most significant role in driving up food costs? If 
you had to pick say two of those five?
    Dr. Glauber. OK, I guess I would start by saying it depends 
on the commodity. Understand that if we are looking at 
something like say a CPI for food that that largely depends on 
the weight of that commodity in the overall food basket.
    So it is easier to talk about----
    Chairman Schumer. Well let's talk about say wheat.
    Dr. Glauber. OK, wheat----
    Chairman Schumer [continuing]. Or flour.
    Dr. Glauber. I think wheat I would lay most of the blame at 
world weather over the last 2 years. We have had devastating 
drought in Australia. Australia is a major wheat producer. For 
2 years running. And unfortunately this last year not only did 
we have poor crop in Australia, but we also had a very poor 
crop in Canada.
    We had a poor crop in Europe and a poor crop in the 
Ukraine. That really shot up prices.
    Chairman Schumer. So that should make things get better?
    Dr. Glauber. Well, yes, I think----
    Chairman Schumer. If the weather gets better.
    Dr. Glauber. The weather should get better. The other thing 
is that the world is responding to higher prices. It is 
unfortunate in one sense--it's probably good that it did not 
occur, the price run-up did not occur back in the fall, but if 
it had--or in the summer--I think we would have seen a lot more 
winter wheat planted here in the United States.
    We are going to see an increase in the United States this 
year, to 64 million acres planted, which is an increase over 
last year.
    Chairman Schumer. What about eggs? What would be the number 
one reason for the increase, dramatic increase in the price of 
eggs?
    Dr. Glauber. Eggs--we're expecting, you know eggs, as I 
think I mentioned in the testimony, egg retail prices are 
pretty much, if you look at the relative value of the farm 
value, they're pretty high.
    Chairman Schumer. Yes.
    Dr. Glauber. You do have some costs, some transportation; 
you do have some keeping them cool, all that. So it is really a 
production issue.
    We had a problem with layers that manifested itself in a 
very rapid increase, I think some--just looking at the chart,* 
almost a 30 percent increase last year in egg prices. We are 
expecting that to moderate this year.
---------------------------------------------------------------------------
    * See chart entitled ``Milk and Egg Prices are Soaring Past 
Inflation'' in the Submissions for the Record on page 46.
---------------------------------------------------------------------------
    Chairman Schumer. But why did it go up so much? What is the 
reason?
    Dr. Glauber. The problem with layers. We had, you know, the 
chickens that lay the eggs.
    Chairman Schumer. Oh, ``layers''? Got it.
    Dr. Glauber. Yes----
    Chairman Schumer. Mr. Reinwald thinks when you say that 
that it is a cake.
    [Laughter.]
    Dr. Glauber. Yes, that's true, and I should be careful. It 
was all new to me 20 years ago.
    Chairman Schumer. So what were the problems with the 
layers?
    Dr. Glauber. Well, we had a reduction in numbers.
    Chairman Schumer. And why?
    Dr. Glauber. Well a variety of reasons. There were some 
healthy reasons, if I'm not mistaken. There's also--I'm sorry, 
I don't know the full thing----
    Chairman Schumer. OK.
    Dr. Glauber. I can certainly answer that in a written 
question.
    Chairman Schumer. And how much would you attribute the 
price in corn increase in things that use corn to the ethanol, 
to the move to ethanol required by law 2 or 3 years ago?
    Dr. Glauber. Very little. The prices--these were really 
production effects that hit a year ago when corn prices were 
just beginning to creep up. You know, and since then we're 
seeing the production increasing on eggs with higher prices.
    Chairman Schumer. No, I'm asking corn now.
    Dr. Glauber. No, I understand. There is no denial that 
livestock and livestock product producers have been affected by 
very tight margins caused by higher feed costs. There is no 
question about that.
    I am not meaning to minimize that. And I think in 
particular as we look forward with these high feed costs that 
you could see potential problems on expansion that could begin 
to hit that industry.
    Chairman Schumer. Thank you.
    Dr. Glauber. I was just passed a note by one of my helpful 
assistants who mentions the fact that a lot more, instead of 
laying eggs, a lot more went into the broiler market and 
actually sold as meat because of the increased trade overseas.
    Chairman Schumer. Right. OK----
    Mr. Reinwald. Senator, could I bring a street view into 
this? I was in the State of Minnesota several weeks back and I 
had some conversations with farmers from Minnesota, and also 
North Dakota. And I heard today about the Semolina flour mostly 
being grown in the North Dakota and Minnesota region, and that 
is true.
    And the anecdotal evidence that I heard from these farmers 
is that the corn has been GMO, genetically modified, so that 
they can now grow the corn crop further north, and a lot of the 
wheat farmers that used to grow Semolina in Minnesota and in 
North Dakota are now moving to corn.
    And there is a great advantage to corn. I'm sure the 
Department of Agriculture will notice this. It's that corn 
yields 160 bushels per acre; wheat yields 40.
    Chairman Schumer. Thank you.
    Mr. Reinwald. Do the math.
    Chairman Schumer. And we will let Senator Klobuchar, when 
it is her turn, talk about what is happening in Minnesota, too.
    Senator Klobuchar. Thank you, Mr. Chairman.
    Chairman Schumer. My time has expired. I am going to have 
to go. They called an emergency leadership meeting just an hour 
ago, and I have no control over the time, so I want to 
apologize to my colleagues.
    I am going to have Congresswoman Maloney continue chairing 
the hearing, but thank you all. This was excellent testimony, 
and it is going to cause a lot of food for thought. Thanks.
    Vice Chair Maloney [presiding]. Thank you, Mr. Chairman. I 
recognize Congressman Brady for 5 minutes.
    Representative Brady. Thank you, Madam Chair.
    I hesitate to ask this question of Dr. Glauber. I want to 
thank you for all the witnesses being here today, because you 
all bring a different perspective to the table.
    You cited a number of areas that contribute to the price of 
food being what it is today, a number of them international 
areas.
    I hesitate to ask this question because I think at times 
this country seems anxious to talk itself into recessions, for 
example, so I hate to talk ourselves into an inflationary 
spiral, but numbers show food prices have increased 83 percent 
over the last 3 years worldwide.
    Last month's numbers show food prices going up about six 
times faster than core prices. Those are the prices of food and 
fuel in it.
    You know, some people believe that increase in prices and 
commodities eventually, once they are in the pipeline, lead to 
higher costs down the road, even though they may be a small 
amount of the initial cost.
    From an economic standpoint, is the inflation that is 
already in the commodity pipeline, does that lead us to expect 
future increases in inflation?
    Dr. Glauber. No, I would say not necessarily. I mean, 
understand with commodity markets it can take a while for 
prices to return, to decline.
    Stocks are very, very low if we're looking forward this 
year; there's going to be a lot of attention on the weather. If 
we were to have a poor crop, that would exacerbate a currently 
very tight situation.
    A lot depends on energy costs. If energy costs were to 
increase further, of course you would have those things.
    But generally--and as we look out, and we look at crops 
returning more to normal, or stock levels to build again, 
prices should come down.
    Now will they come down all the way to where they were when 
they were at very low levels in the late 1990s? We do not think 
so. But they will come off, significantly off where we are 
currently seeing them over the mid to longer term, and I think 
our projections are that CPI numbers will return--for food, 
that is--will return more to the 2 to 2.5 percent range over 
the mid to longer term.
    The problem is the short run. We do have a very short 
situation. We will see this play out in the livestock market 
because herd size we are anticipating will shrink. Because of 
that, those prices for those commodities will increase a bit.
    Representative Brady. So you're saying if we were to 
continue unabated, eventually yes. But you see other factors 
changing those numbers for different reason?
    Dr. Glauber. I see mitigation. I think if we have normal 
harvest size crops that we will see these numbers over the 
next--I think CPI should remain higher than it's been than the 
2 to 2.5 percent over the next couple of years, but they will 
come down to we're expecting the mid to longer term with CPI's 
in the range for food that is in the 2 to 2.5 percent range.
    Representative Brady. In the biofuels issue--in the minute-
and-a-half remaining--in the biofuels issue, I actually, even 
though I come from Texas, believe we're making a huge mistake 
in not encouraging both traditional energy and renewables at 
the same time.
    I think biofuels can be part of our diverse portfolio for 
energy, but I grow increasingly worried about the amount of 
food used for fuel.
    The numbers we see and are given here on this Committee say 
that 30 percent of our corn crop was diverted for fuel, or is 
being diverted for fuel production instead of food.
    Are those numbers correct? Give us your perspective.
    Dr. Glauber. There is no question the corn going into 
ethanol has increased dramatically over the last 3 or 4 years, 
particularly over the last 2 years, and in fact because of the 
increased capacity, the number of ethanol plants being built 
that we've seen over the last year and are projected over the 
next year, we're seeing a very rapid run-up where this current 
year we have about 3.1 billion bushels of corn going into 
ethanol production.
    Next year we expect to be about 4.1. But it levels off 
after that. We have also seen a lot more land go into corn. And 
so I think that where we have seen this rapid run-up, we have 
been in a very tight situation with corn stocks.
    Over time, as we expect yields to trend upwards, that we 
will see again stock levels increase on corn. The ethanol 
production, for corn at least, should level off and the prices 
should certainly come down from the current levels.
    Representative Brady. Thank you, Madam Chairman.
    Vice Chair Maloney. Thank you. The Chair recognizes 
herself.
    I would like to ask Mr. Buis and Dr. Glauber. I've read 
that independent farmers are seeing very little in the way of 
higher profits, but just yesterday The Wall Street Journal 
noted that big agriculture is seeing record profits, as well as 
big oil is seeing record profits.
    For example, they noted that the grain processing giant 
Archer Daniels said its fiscal third quarter profits jumped an 
astonishing 42 percent. And Monsanto saw its profits in the 
last quarter more than double.
    So my question is: Are you seeing signs of price gouging by 
big agriculture? Yes, Mr. Buis.
    Mr. Buis. Well if you talk to a farmer, the biggest concern 
you are going to hear about is the higher input costs that they 
are facing.
    Input costs have almost tripled.
    Fertilizer has gone through the roof.
    Equipment has gone through the roof.
    Fuel has gone through the roof. Seed.
    Everything they use for inputs has had this big price run-
up.
    And as you see from the charts,*  the difference between 
the 7 we receive for that durum wheat and what he has to pay as 
a baker is huge. And I think there are a lot of people in 
between the farm and the table, the consumer, that are using 
this opportunity to raise prices along the way and then turn 
around and blame the farmer.
---------------------------------------------------------------------------
    * See chart entitled ``Farmer's Share of Retail Food Dollar'' in 
the Submissions for the Record on page 86.
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    You know, the other thing you have to keep in mind, is this 
big run-up in prices, because of speculation, doesn't mean the 
farmer is getting it. Right now, what we're facing is that most 
farmers cannot forward-contract their grain for sale, their 
commodities, past harvest, which means they don't have it right 
now.
    You can't sell what you don't have, and the one tool that 
we've always counted on to be able to market it into the future 
and capture, hopefully, a higher price and a profitable price, 
has been eliminated.
    So there's a big concern in farm country, that we're 
further out on the limb than we've ever been on costs, input 
costs, and have no capability to capture these higher prices, 
which may or may not be here in a few months.
    Vice Chair Maloney. Thank you. Dr. Glauber.
    Dr. Glauber. I would agree with a lot of what Tom just 
said, particularly in the sense of increased input costs. You 
look at, say, something like fertilizer, they're up, for some 
component of fertilizer, up 100 percent; on average, our 
estimate shows some 67 percent.
    There's no question that livestock producers are really 
feeling a squeeze of high input costs due to feed.
    That said, farm income, net cash income that we measure, in 
aggregate, across the entire agriculture, for 2008 is forecast 
at $96 billion, almost $97 billion, compared to about $88 
billion, so we are up in the aggregate.
    Vice Chair Maloney. I'd like to continue asking Mr. Buis 
and Dr. Glauber, according to the New York Times, Commodity 
Exchange Traded Funds, which was developed barely 4 years ago, 
have grown nearly sevenfold since 2005. To what extent are 
higher food prices being driven by speculation in commodity 
markets? Mr. Buis.
    Mr. Buis. I appreciate that question, because this has been 
a big concern. The Commodity Futures Trading Commission held a 
hearing less than 2 weeks ago to address some of these 
concerns.
    But it's something we've been hearing in farm country for 
quite some time, is that we can't capture this price. As I 
mentioned before, the futures market, which farmers have 
counted on forever, has been eliminated.
    Part of the reason is because the speculation into the 
marketplace has caused the market to explode. In the case of 
wheat, they reach contract limits, day after day.
    Well, when you do that, that country elevator or that 
farmer has to pay a margin call and one country elevator I 
talked about, that had bought wheat for Fall delivery, had a 
million bushels, and the price of wheat was going up 60 cents a 
day.
    Nothing was changing in the fundamentals at that point. 
There was a lot of speculation export markets coming in. That 
was costing him $600,000 a day to meet the margin calls, and as 
a result, he hit his credit limits.
    Hitting those credit limits, forced him to cutoff buying 
that grain from the farmer. So we raised these concerns, and we 
were told that nothing out of the ordinary was wrong except 
they could not explain cotton.
    In cotton, we have a huge surplus of cotton. We had a great 
crop. It's all over the country; you can't hardly give it away.
    And cotton prices spiked upon speculation. Now, when they 
went up, every farmer was hoping that they would be able to get 
that price, but they weren't able to.
    There's explanations that need to be made. I think it's 
similar to some of the other bubbles we've seen recently, and 
it could be the biggest train wreck we ever see.
    Vice Chair Maloney. Thank you. My time has expired. 
Congressman Cummings.
    Representative Cummings. Thank you very much, Madam Chair. 
Dr. Glauber, let me ask you this: There have been some 
proposals to cut the gas tax for a few months. Are you familiar 
with that?
    Dr. Glauber. Yes, I've read the papers.
    Representative Cummings. OK, this is not heavy. So, I'm 
just wondering what your thoughts were with regard to how that 
might affect the price of food.
    Dr. Glauber. I think it would have a small effect in the 
near term. I mean, over a longer run if the price of gasoline, 
regardless if it were to come down, vis a vis just the price of 
oil coming down or by way of taxes, that could have an effect, 
but a very short-run thing, I don't think, would have much 
effect.
    Representative Cummings. And, you know, I mean, what do 
you--what--do you see solutions to these problems? I mean, can 
you--do you have a list of things you'd like to see us do?
    Dr. Glauber. Well, I think there's two ways to look at 
this, and one is to look at the short-run issue, and I think, 
in particular, some of the ones that George has mentioned here, 
in terms of the Food Bank problems and those sorts of issues of 
shortfalls there.
    Some of these programs are just targeted with a certain 
amount--he mentioned this temporary emergency food assistance 
program at $140 million, is set at that amount, so that if the 
cost of food goes up, that's less that you can--it's a set 
amount of money you have.
    There are other programs that are indexed to the CPI, 
things like food stamps and the child nutrition programs, which 
have indexing built into them. Other issues, like WIC, Women 
Infants and Children Program, have a package quantity base, 
which also, if the price goes up, of the commodities, then the 
overall program costs go up, but it is an appropriated program, 
so there, you know, that can be dealt with through annual 
appropriations.
    We've tried to make some adjustments at USDA by 
transferring money from the food stamps emergency fund to fund 
WIC.
    Those are short-run issues. The longer run, I think--you 
know, I think things like--I don't see this thing persisting 
long-run unless there's some serious weather shortfalls 
worldwide.
    Representative Cummings. Well, let's stop right there.
    Dr. Glauber. OK.
    Representative Cummings. You know, one of the things about 
sitting on this Committee--and I listened to some of the 
experts on other issues, and a lot of them say, just wait it 
out, on different issues--just wait it out; it's going to be 
all right, things will get better.
    And you're not saying that, are you?
    Dr. Glauber. I'm saying, orient it toward those who need it 
most, and that's why I mentioned the shorter----
    Representative Cummings. Well, you know, it's interesting, 
and then I'm going to shut up and let you talk, but yesterday I 
was talking to my staff, and I said, you know, I do represent a 
lot poor people, but I said, you know what? I told my staff, 
get me--help me get solutions for the most of the people in my 
District who are middle class.
    I mean I care about the poor; don't get me wrong; I really 
do, Mr. Braley. I live in the inner, inner, inner city. I'm 
probably one of the few Congressmen that live in the inner, 
inner city.
    But I also care about those folks who are probably, I'd 
say, 80 percent of my District, maybe 70, and I'm just 
wondering, OK, talk about them, too. They're complaining about 
these food prices, too, now.
    I don't know what the Chairman, he and his wife make, but I 
do know what we make, and he makes more than the average middle 
class person, probably. And I'm just saying, he's complaining.
    So, what about them? I mean, how do we help them. You 
talked about WIC.
    Dr. Glauber. I don't mean to minimize it.
    Representative Cummings. And I'm not saying you are. I just 
want to make sure I'm clear. You know, as I tell all of the 
experts that come in here, you're the ones who--you know, this 
is what you do.
    Dr. Glauber. Right.
    Representative Cummings. And this is--you're the experts. 
And so we look to you for policy solutions and suggestions. I 
have a lot of respect for that. That's why I'm asking you.
    Dr. Glauber. Right. The only thing I think is important 
here is, while we have seen very, very low food price 
inflation, we've been used to that for a long time, we've had 
periods--not too distant--that we saw very high food price 
inflation.
    In the late 1970s, for example, we had food price inflation 
over 10 percent for a year. But I'm not saying that that's any 
reason to think that 5 percent shouldn't be worried about. It 
is a small portion of household income for most families.
    For a lot of families, it's not, and I think that's--it's 
important to recognize the problems that that might entail for 
families, particularly with low income.
    But I think that my own view is that this will moderate, 
that we will see food price inflation decline, and it should 
start happening over the next year or so.
    I don't think that it calls for dramatic changes in 
policies for the average consumer. I think it will take care of 
itself through weather and through just as things return to 
normal here.
    Vice Chair Maloney. The gentleman's time has expired.
    Representative Cummings. Thank you.
    Vice Chair Maloney. Senator Casey, for 5 minutes.
    Senator Casey. Thank you very much. I wanted to first of 
all commend the witnesses for your testimony today and your 
experience that you bring to bear on these important questions 
we're examining.
    One of the areas of inquiry that I wanted to start with is 
this debate we're having, which has surfaced rather recently 
about ethanol and the impact of Federal Government policies as 
it relates to ethanol and how that impacts food prices.
    I guess I have a fundamental question, which I know you've 
addressed, either directly or indirectly, in your testimony and 
through some of the other questions, but just very simply, if 
the Federal Government reversed course and stopped requiring 
the use of biofuels and kind of reversed the strategy that 
we've been playing out the last couple of years, would that 
have a measurable impact in decreasing food prices, or are 
there other factors at work here that would render that kind of 
decrease rather negligible?
    I'd address it to anyone, but I guess, in particular, to 
you, doctor, as well as Mr. Buis.
    Dr. Glauber. If you don't mind, let me take a quick shot. 
In terms of reverse, I guess there--the first question is, what 
would that be?
    If its elimination of, say, the--a rollback of the energy--
2007 Energy Act, in terms of the renewable fuel standards, I 
still think you'd see a lot of ethanol being produced, largely 
because right now, it's still profitable for corn to be made 
into ethanol. We see a lot of plants coming online, that are 
still intending to produce.
    We don't see the mandate as being--the levels as really 
affecting ethanol production, certainly not in the near term.
    If you're talking about rolling back the blender credit and 
eliminating the blender credit, well that's a different issue, 
and I think we do--we have seen some analyses of that, that 
would suggest--I know the Food Agricultural Policy Research 
Institute did a study at the time the Energy Bill was passed, 
that suggested that corn prices could drop by about 10 percent.
    USDA has done similar analyses that suggest similar 
magnitude of results of corn prices falling. Now that, I think, 
is--those analyses were done with assumption of corn prices in 
the range of $3 to $3.50, and of course, they are substantially 
higher than that.
    I presume that the effect would be higher with--in a very 
tight demand situation, but again----
    Senator Casey. The effect would be higher? Do you mean the 
price decrease?
    Dr. Glauber. The price decrease would be somewhat. If the 
baseline were $5 prices of corn, then I think we'd see a bigger 
drop than just perhaps 10 percent.
    But I don't see a huge drop to $2 or anything like that. I 
think that one is even without the blender credit; some plants 
probably could continue to produce ethanol profitably.
    Senator Casey. Well, anything that you could add to the 
record to supplement that would be helpful,
    Dr. Glauber. OK, I'd be happy to.*
---------------------------------------------------------------------------
    * Information was unavailable at time of publication.
---------------------------------------------------------------------------
    Senator Casey. Because what you're hearing on television 
and in the discussions around the country now is a shorthand--
that we have high food prices, and what's the cause? Well, 
let's point the finger at ethanol, and I think it's been, 
frankly, kind of the depth of the research, or the depth of the 
analysis has been pretty shallow so far.
    But Tom, do you have anything on that?
    Mr. Buis. Thank you, Senator, I do. One, I think people 
have to put in perspective what yellow corn is used for. Half 
of it goes for livestock feed. We have about 22 to 23 percent 
that went for energy.
    About 20 percent went for exports, and only about 8 or 9 
percent, I think, goes actually for food consumption. And this 
is not sweet corn we're talking about; it's not canned yellow 
corn we're talking about.
    And the primary food use, if I'm sure of myself, it's 
actually sweetener, fructose that's used in sodas. So, to make 
that equation that corn is taking food out of people's mouths, 
or off the tables, is a real stretch.
    And for those who use anecdotal reports that all this wheat 
acreage is being converted to corn, that's not correct, either. 
We've seen a shift of wheat acreage into corn and soybeans and 
other high-value commodities, not because of corn ethanol, but 
this has been occurring over the last 20 years, as new hybrids 
have been developed, but also because the price or the ability 
to make a profit from wheat--because of low prices--has led 
farmers to search for alternatives.
    You have to get a price somehow, and for some reason, there 
are a lot of people that seem to think profits should be a 
dirty word only for America's farmers.
    If you have that opportunity to produce, farmers will 
produce. Corn is probably the classic recent example.
    Two years ago, prices started to go up, and before last 
year's crop, farmers planted the largest crop they had since 
1944. We produced on a yield basis--a total yield basis--more 
corn than the previous record by 2.7 billion bushels, and out 
of that 2.7 billion extra bushels of corn last year, only about 
600 million of that extra production went into ethanol.
    It makes for easy rhetoric, but you know, ethanol has been 
under attack by the oil industry for 30 years, and we don't 
expect them to quit until they totally eliminate the 
competition.
    I appreciate the question.
    Senator Casey. I'm out of time.
    Vice Chair Maloney. Thank you, your time has expired. Thank 
you. Senator Klobuchar.
    Senator Klobuchar. Thank you. This has been very 
interesting testimony. Mr. Reinwald, I'd be remiss not to say 
that my best friend since I was 5 years old was Amy Sherber who 
owns Amy's Breads in Manhattan, and she has sent me several e-
mails about the wheat prices, so your group is doing your job.
    But what I wanted to ask you, as we look at this wheat 
issue that Mr. Reinwald raised, in Minnesota and other States, 
Dr. Glauber, could you talk, just in general--I think one of 
the things that I didn't bring up in my opening statement was 
this export market. I was just thinking of some of the soybean 
producers that came in, and they said their biggest market 
right now--outside of the United States--is China for fish food 
or aquaculture--yes, fish food for China, and that we're just 
seeing more and more demand for our products, as you pointed 
out, with the weak dollar and other things.
    Dr. Glauber. That's exactly right. We've seen very strong 
demand for protein meal. For meat, in general, particularly 
economies in Asia increased, and we've seen an increase in the 
middle class in Asia. The diet shifts toward meat, and because 
of that, people are either importing more meat products or 
they're importing the feed to feed the animals.
    As I think I mentioned, or someone mentioned, we saw corn 
exports go to 2.5 billion bushels this year, a very large 
increase, much larger than we had anticipated when we were 
doing forecasts at the beginning of the year. Soybean exports 
have just--if you look at protein demand for soybeans----
    Senator Klobuchar. What do you think of Mr. Buis's idea 
about this food reserve idea like we have with oil, as you look 
at these trade agreements and that some of our people are 
getting affected by this, and hurt by the prices?
    Dr. Glauber. I think Tom and I agree on a lot of things, 
but we'll probably disagree on this one.
    I don't think it's a good idea, I think largely because 
these reserves--our experience, at least here in this country, 
is that we tend to accumulate a lot of grain, and it doesn't 
get released on the market--hangs over the market--and when it 
comes out, it doesn't do particularly a lot of good.
    We have a small reserve here, I might add, the Bill Emerson 
Trust Reserve that we just released a little bit of wheat out 
onto the market, but it's just tough to coordinate that 
worldwide, and we've had--historically, we've had commodity 
agreements worldwide, and they just haven't worked particularly 
well.
    Senator Klobuchar. And then Mr. Buis, I just had one last 
thing that I discussed with this cellulosic ethanol. I know 
that some people say it's so far away, but yet there's plants 
right now in Canada, and we have a legitimate concern in 
Minnesota with some of the price of corn, with the turkey 
producers. As you know, we're number one in the country with 
turkey producers. I don't know if you knew that, Senator Casey, 
as well as the pork producers and others.
    So, could you talk a little bit about your knowledge of 
what's going on with cellulosic? We have some incentives in the 
Farm Bill. By the way, Mr. Braley, I'm not going to get to you, 
but thank you for talking about the nutrition programs in the 
Farm Bill.
    Mr. Buis. Absolutely, Senator. Corn ethanol is sort of the 
first generation for renewable energy. I don't think any of 
us--there's not a corn farmer in America, that would say that 
that's going to be the ultimate answer. It's part of a whole 
menu of items.
    But it's paved the way, because, number one, corn is easily 
grown, stored, transported. We figured out how to extract the 
sugar out of it long ago. It's been 30 years in the making, but 
it's paving the way for that next generation.
    And cellulosic ethanol is where we're going to get the big 
numbers, in order to significantly reduce our oil imports. If 
we gave up on corn ethanol today, it would send the wrong 
signal to those in the cellulosic industry.
    Senator Klobuchar. Could you describe for those people who 
aren't on the Ag Committee, just when you talk about 
cellulosic, the kinds of things you're talking about?
    Mr. Buis. Absolutely. You're talking about extracting the 
sugar and converting it to energy from crops such as 
switchgrass, corn stover. I suppose you could even get into 
biomass.
    Senator Klobuchar. Would that be the prairie grass, 
switchgrass? I mean, we have a lot of our conservation groups 
interested in this, because, if it's done the right way, it can 
create habitat.
    Mr. Buis. Absolutely.
    Senator Klobuchar. One of the things I've heard--and I'm 
sure Mr. Reinwald's ears are going up--would be, would this 
supplant, then more wheat? What I have understood is that the 
price, the way the prices work, it would most likely be grown 
on marginal farmland, highway medians, whatever. Could you talk 
about that issue?
    Mr. Buis. Well, first of all, in order to get more wheat, 
you're going to have to offer a price attractive enough to have 
farmers produce it. They can't continue to produce at a loss. 
And that's been happening in wheat country for quite some time.
    The income has been made up by Government transition 
payments, or incentives or subsidies, but at some point the 
industry is going to have to realize that if they want more 
wheat, they're going to have to pay the farmers to grow it.
    But cellulosic ethanol would compete primarily on grazing 
acres around the country. I don't know if it will compete with 
wheat, unless wheat drops back to $4 a bushel, and then it 
probably would. We don't have a market yet for cellulosic. We 
don't have the technology worked out. It's not--it's energy-
efficient, but it's not economically efficient.
    Senator Klobuchar. But there are some plants in Canada. 
Part of my frustration is that I think we do need to make this 
transition, and that until this Congress has come in and has 
been pushing some of these issues, we basically have been 
dormant with a lot of the policy on energy and moving to the 
next and getting those hybrid cars moving as fast as we can and 
things like that.
    And so how close do you think we are to getting there with 
cellulosic?
    Mr. Buis. I think it's a few years away yet, but one of the 
recent developments in the Farm Bill development that, as you 
know, has been going on for way too long, is a reduction in the 
tax credit for ethanol production, the blender's credit which 
will be put into the advancement for cellulosic, an additional 
incentive. I think that's necessary to get the industry 
started.
    Senator Klobuchar. I see the Vice Chair is getting her 
gavel ready.
    Vice Chair Maloney. Your time has expired.
    Senator Klobuchar. Thank you very much.
    Mr. Buis. Thank you.
    Vice Chair Maloney. Mr. Braley, the Food Bank for New York 
City and City Harvest serve over 300,000 people per month, many 
of whom are the working poor who have to choose between food 
and utilities, between housing or healthcare, each month. And 
you noted in your testimony that there is a large gap between 
the number of people you serve who receive food stamps and the 
number who are eligible, but do not receive food stamps or 
benefits of any kind. How do you fix this gap?
    Dr. Braley. Thank you, Madam Chair. That was----
    Vice Chair Maloney. Thank you for your testimony.
    Dr. Braley. About 65 percent of the people eligible for 
food stamps, currently receive benefits under the program, so 
that leaves 35 percent who do not. They tend to be seniors, 
they tend to be recent immigrants, they tend to be the working 
poor, so there's an extensive effort on our part to try to get 
more involved in outreach to those communities.
    We feel that food banks and their agencies see a lot of 
those people and have contact with them, but we want to 
increase the level of support we give them to join the food 
stamp program--everything from referrals to application 
assistance, to providing a short-term initial benefit so that 
they can get into the program.
    But that is a huge problem. The percent of people served 
has risen slightly in the last few years, but there are still 
lots of people out there who could benefit from food stamps, 
but don't go through the process to become eligible.
    Vice Chair Maloney. Thank you. I would say that all of the 
panelists, the Members of Congress really jointly believe we 
need to bring relief to families who are feeling the squeeze of 
higher food prices, and I'd like each of you to comment on what 
you think are the most important policies Congress can pursue 
to bring down the price of food for American families. I'd like 
to begin with Mr. Reinwald and go toM Dr. Buis down there.
    What policies, specifically do you think we should pursue 
to address this challenge?
    Mr. Reinwald. Well, when we listen to the panel today, you 
can see that there's a lot of reasons that the prices have gone 
up. So we're looking for a rational policy to look at the 
entire food supply chain, so that we can bring product to 
market reasonable prices.
    I think that if it was one thing, the acreage for wheat has 
been reduced in this country for year after year after year, 
and we've heard prospects from the Department of Ag of how much 
acreage is going to be harvested this year, and we only see 
modest increases.
    You have to realize that our carryout on the wheat has been 
at a dangerously low level for the last 3 years. It has not 
been as low in 2007--projected carryout has not been as low as 
2007, I believe, since 1948.
    So, we have to protect our wheat, our wheat farmers, and we 
have to protect that food chain, so that we can bring product 
to the market at reasonable costs.
    Vice Chair Maloney. Mr. Buis.
    Mr. Buis. I outline some things in my testimony that I 
think would help immediately: One, quit filling the strategic 
oil reserve; get a moderation of oil prices. That's the bigger 
culprit.
    Two, create an international food reserve. Dr. Glauber and 
I may disagree on the benefits of that, but if we had a food 
reserve right now, we could moderate the price impact on 
people.
    Vice Chair Maloney. Since you gave us an outline in your 
remarks, let me just ask you, which policies would help the 
most, which of these policies would help the most, the families 
that are suffering now?
    Mr. Buis. Probably the one that would help the most today, 
for low-income people is, pass the Farm Bill. Four hundred 
billion of the $600 billion projected cost of the Farm Bill 
over the next 10 years goes to domestic and international food 
aid and food nutrition programs.
    It's the first time we've indexed those programs for 
inflation in I don't know, 15 years or longer, and that would 
help the most. That's on the table.
    Vice Chair Maloney. Dr. Glauber.
    Dr. Glauber. I guess I would focus first on going back to 
the causes, and there you know, I look at oil and weather, and 
there I still come back to the fact that I think the focus--if 
there is a policy focus--should be certainly on making sure 
those in need, the neediest ones who need the most in terms of 
food assistance and et cetera, are taken care of.
    I agree with the comments made on the Farm Bill. I think 
there is a good package in there on food stamps that the 
Administration has worked with Congress on, and we proposed a 
lot of that in our own Farm Bill proposals.
    Vice Chair Maloney. Dr. Braley.
    Dr. Braley. Thank you, Madam Chair. The Farm Bill is, of 
course, first on our list as well, and the investments that Tom 
talked about in terms of $400 million over the next 10 years in 
nutrition programs.
    But it's over a $10 billion increase, most of which is in 
food stamps, but a lot of which is also in emergency food 
assistance that would benefit our food bank network, and we are 
desperately in need of that.
    We also would like to see some mitigating efforts focused 
on low-income consumers, by increasing food stamp benefits and 
emergency food assistance benefits in the economic stimulus 
package or in the emergency supplemental.
    Finally, to mitigate--if we're looking at price increases 
long term, we need to find ways to mitigate the effects on low-
income consumers by maybe more frequent indexing of benefits 
and some of these kinds of things, so that the purchasing power 
of food stamps and meal reimbursements, and commodity donations 
don't erode during the course of the year.
    Vice Chair Maloney. All of you have pointed out in your 
testimony that subsidies--that prices are going up, and we all 
know that, but are subsidies going down as prices go up for 
food?
    Mr. Buis.
    Mr. Buis. Are you talking about farm subsidies to farmers?
    Vice Chair Maloney. Yes.
    Mr. Buis. Yes, they are. In fact, since 2002, the period of 
the Farm Bill--2002 until now--the projected costs of the farm 
program were $23 billion higher than what the Federal 
Government actually spent, and that's because this safety net 
for farmers that exists out there, two-thirds of it is what we 
call countercyclical. When prices go up, assistance goes down.
    In fact, this year--and maybe Dr. Glauber can tell for 
sure, USDA is not projected to pay out any assistance on those 
countercyclical programs.
    There's always the question of whether or not they go down 
enough. We have advocated in this Farm Bill, totally 
eliminating any payments other than the countercyclical target 
price, so you're only giving a safety net in times of low 
prices.
    Unfortunately, we didn't do that, but the subsidies have 
gone down probably from around $20 billion 6 years ago, down to 
a projected $7 billion to $8 billion today.
    Vice Chair Maloney. Thank you.
    Finally, Mr. Reinwald, are people being more frugal with 
their purchases, as we see the prices continue to rise? Are you 
seeing that in your bakery?
    Mr. Reinwald. What we see is that I would think that people 
come in less often. When we talk about a staple of bread--and 
you usually view bread lasting 2 days--so now they're buying 
two loaves of bread a week, instead of three.
    But the interesting thing that I have found over the last 6 
weeks is that more and more of our purchases are being bought 
with credit cards, so people are putting their food purchases 
on their credit card, and that's becoming a dangerous factor.
    Vice Chair Maloney. And you noted earlier that, to respond 
to rising food prices, you instituted across-the-board price 
increases. What other initiatives have you adopted to adjust to 
rising food prices?
    Mr. Reinwald. Well, previously, we----
    Vice Chair Maloney. Have you had to lay anyone off yet?
    Mr. Reinwald. Very luckily for me that I had two voluntary 
layoffs, two voluntary resignations, so that helped. In the 
coming weeks, we're going to have to reexamine that very 
closely.
    Vice Chair Maloney. My time has expired. This has been very 
informative. You've really given us many policy issues to 
study, and we thank you for your testimony.
    We are adjourned.
    [Whereupon, at 12:14 p.m., the hearing was adjourned.]
                       Submissions for the Record
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       Prepared Statement of Senator Charles E. Schumer, Chairman
    I would like to welcome you to the first Congressional hearing this 
year about the soaring prices of food and the impact on families here 
at home.
    For many years price increases in certain foods like cereal have 
vexed consumers, but now we are hearing from people about food prices 
going up across the board. When you walk down the street, you hear 
people complaining about food prices almost as much as gas prices. 
While gas prices seem to be the number one issue today, I believe the 
anxiety felt over higher food prices is going to be just as widespread 
and will equal or surpass the anger and frustrations so many Americans 
have about higher gas prices.
    I want to look at what's behind the rise in food prices and 
frankly, what that rise in prices looks like for average American 
families.
    My wife, Iris, and I went to Fairway last weekend, our neighborhood 
grocery store in Brooklyn, and we continue to be floored by the prices. 
From aisle to aisle, shelf to shelf, including everything from staples 
to special treats, the prices families are paying to fill their 
shopping carts have gone up--a lot. While we have been cringing at gas 
stations as gas prices have more than doubled since 2001, now it's a 
double whammy. We pay more to drive to the supermarket, and then get 
hit with higher prices when we get there.
    Our family does pretty well, but even we feel it. Like many others 
we have a family budget, and right now we are budgeting $40 more a 
month for groceries--while we feel the 40 dollars, we can afford it, 
but for many families it is a much greater struggle. They don't have 
extra income for higher food prices and have to stretch their dollars, 
or even worse, cut back on their food purchases altogether.
    The prices of milk, cheese, chicken, eggs, ground beef regular 
stuff--are way up. If you're trying to eat healthier it is even worse. 
We buy light wheat bread, which we're paying almost $4.00 for now, up 
from almost $3.00 since we started eating it a few years ago. I'm a 
meat-eater and what we buy now is largely dictated by what is on 
special that week at Fairway or Costco.
    My daughter, like many young people and families now, wants to buy 
organic chicken and other organic food. Those prices are shooting up 
even higher. At Fairway, we can buy a whole regular chicken for about 
$5; but an organic chicken is almost $12.
    Higher food prices have squeezed small businesses too. Our local 
bakeries closed recently--Uprising, which sold bread and cakes on 7th 
Avenue, and Regina's Italian Bakery. Was it because of higher grain 
prices? I don't know for sure, but it certainly wasn't because local 
bakeries are making a killing off their Brooklyn customers. Even bagels 
are over $5 for a dozen now.
    When it comes to higher food prices, even when they're not going up 
by large percentages, there isn't much room for error. Everyone has to 
buy food to feed their families and it already swallows over 12 percent 
of the average household budget. When gas prices are high, families may 
decide to drive a little less or carpool or take the subway. When food 
prices are higher, families can't just decide to not feed their 
children. And because they have less to spend on food, what they do buy 
is often much less healthy.
    Now to be clear, not every single product in the grocery store is 
more expensive than it was a year ago or even 7 years ago. Some food 
products, because of more efficient processing, less transportation, or 
just more plentiful supplies, cost consumers less or as much as they 
have for years. For instance the price of pork per pound has gone down 
about 20 percent from January 2001 to last month.
    But the prices of the staples we all depend on for a healthy diet, 
like eggs, bread, milk, fruits, are rising by eye-popping leaps and 
bounds, especially in the last year.
    For instance, between January 2007 and January 2008, egg prices 
alone went up nearly 40 percent and are up almost 80 percent since 
January 2001. Eggs are just one example in a broader trend; from 
January 2007 to January 2008, the Consumer Price Index (CPI) for all 
food grew by nearly 5 percent, the highest 12 month increase in over 17 
years. Americans are paying 5 percent more for food and the same time 
many people are seeing their paychecks shrinking.
    As we'll learn in more detail from our panel, flour prices have 
gone up at least 30 percent since January 2001. This has raised prices 
for good old processed white bread, but has also raised the costs for 
fresh baked breads, rolls, bagels, or muffins you might buy at 
Reinwald's Bakery or H&M bagels.
    Another area that is not on the radar screen just yet but will be a 
bigger problem as farmers adjust their crops is the rising costs and 
potentially dwindling supplies of fruits and vegetables. Apples, 
grapefruits, potatoes, beans and broccoli have gone up over 20 percent 
since January 2001 and peppers are almost 40 percent more expensive 
than January 2001.
    While some might be telling us to make lemonade out of the lemons 
this economy has given us--that too will be more expensive--since 
January 2001 the price of lemons have gone up nearly 50 percent.
    Let's look at some of the average prices of items we shop for in 
our grocery stores--and how much they've gone up since last March.
    As I said, fruits and vegetables have gone up a lot:
    Peppers are up almost 20 percent, tomatoes and bananas are up about 
13 percent, apples are up almost 10 percent.
    A pound of pasta is up over 13 percent, a regular loaf of bread is 
almost 12 percent higher, and a pound of beans is 17 percent higher. 
And flour is up a whopping 32 percent.
    Milk is almost 20 percent higher per gallon, and buying a dozen 
eggs is 30 percent more expensive than it was last year.
    While the economic message we are getting out of the Bush 
Administration sounds like ``let them eat cake,'' I assure you, it is a 
much more expensive cake than you were eating when President Clinton 
was in office.
    Even the foods that aren't going up as much are still going up 
beyond the level of inflation.
Energy Costs
    Two of the main culprits sending food prices higher are commodity 
and energy costs. Agricultural prices were up over 33 percent in the 
past 12 months. And between March 2007 and March 2008, inflation-
adjusted corn and soybean prices shot up 35 and 67 percent, 
respectively. To Mr. Reinwald's detriment, wheat prices increased 
unbelievably, by over 130 percent.
    Energy is a key ingredient to the food industry, both for primary 
commodities and for processing, marketing, and distributing everything 
from apples to zucchini and bread to yogurt.
      And the price per barrel of oil per barrel has rocketed 
beyond $100 and is currently $116!
      Prices for natural gas--the primary ingredient for making 
fertilizer--are up 33 percent from a year ago;
      Diesel fuel is up over 45 percent; and
      Regular unleaded gasoline prices have jumped 27 percent 
over the year.
    High gasoline prices don't just raise transportation costs; they 
increase demand for gasoline substitutes, mainly ethanol derived from 
corn.
    On top of higher gasoline prices, tax subsidies and Federal bio-
fuel mandates have boosted the amount of domestic corn crops devoted to 
producing ethanol to nearly one quarter of the crop in 2007, from less 
than 15 percent in 2005. And in 2008, over 30 percent of the corn crop 
will be going into gasoline tanks according to USDA estimates. This has 
obviously raised the price of corn and grains because farmers have 
shifted more land into corn production, squeezing domestic supplies of 
wheat, soy, and many other crops. In other words, you don't have to be 
a big corn eater to feel the result of the demand for corn. When 
farmers produce more corn, they produce less of everything else--
driving up prices across the board.
    Corn, soybean, wheat, and energy prices have gone up so much that 
consumers are seeing significant increases in the price of groceries. 
Eggs, and dairy prices are up sharply in part because the cost to feed 
animals has more than doubled since 2001. Energy costs have also helped 
drive fruit and vegetable prices higher. Highly processed foods are 
less vulnerable to higher commodity prices, but are still going up for 
many Americans because of increased energy costs. The Food and 
Agricultural Policy Research Institute predicts that continuing high 
oil prices and bio-fuel mandates from last year's energy bill will keep 
prices at historic highs across the board.
    It is also critical to remember that commodities are global and 
supply reductions in other countries are transmitted to prices paid in 
U.S. markets. Bad weather, like droughts in Australia and Eastern 
Europe and reduced production in Canada, Western Europe, and the 
Ukraine has put world grain stocks at historically low levels as demand 
has grown, especially in places like China and India.
    Beyond increasing energy prices, bio-fuel mandates, global demand, 
and weather issues, speculation emboldened by low interest rates may 
also have some role in raising prices for consumers. Low real interest 
rates increase the profitability and decrease the risk of speculating 
in commodities and also act as a hedge against inflation. Moreover the 
falling U.S. dollar has decreased consumer purchasing power and made 
these higher food costs tougher to swallow--especially among middle and 
lower income families.
    Those families are spending an even higher percentage of their 
incomes on food. According to this chart 80 percent of families spend 
more than 10 percent of the budgets on food and for the bottom 20 
percent of families making the least, almost one of every three dollars 
they earn after taxes goes toward buying food.
    Higher food prices are especially bad news for poor households. The 
share of U.S. households that receive food stamps has climbed 
dramatically from 7.5 percent in December 2001 to over 11 percent in 
December 2007, and these numbers may even understate the problem. On a 
global scale, higher food prices and scarcity are leading to civil 
unrest in many developing nations, like Haiti, that rely almost solely 
on imports for food.
    Last week, Costco and Sam's Club discount stores were limiting the 
amount of rice customers could buy per visit. Prohibiting customers 
from purchasing more than four 20-pound bags of rice is not worthy of 
rioting, but it is evidence that families, even here at home, are very 
anxious.
    Getting to the bottom of the cause of high food prices will not be 
easy, but as we consider appropriate policy responses, we need to 
understand them and hopefully our panelists will help us do that today.
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   Prepared Statement of Representative Jim Saxton, Ranking Minority
    Washington, D.C.--It is a pleasure to join in welcoming the panel 
of witnesses before us today. In recent months, a rise in commodity 
prices worldwide has led to increases in the prices of food in the 
U.S., as well as in many other nations.
    We all are concerned about the impact of food prices on the 
American family. The global food crisis has led to outbreaks of food 
riots and potential famine in other countries, which is disturbing as 
well. The global food crisis has several causes, according to objective 
analysts.
    One factor is higher demand for food from China, India, and other 
countries undergoing rapid economic development. Another factor is 
drought or dry conditions in Australia and other grain-exporting 
nations. An additional factor has been export tariffs on food imposed 
by several countries. Since many farm commodities are traded globally, 
the effects of these international factors on U.S. food prices should 
not be neglected.
    Government policy has also made a major contribution to the food 
crisis. As the respected Financial Times noted yesterday, ``Protection, 
subsidies and other such follies distort agriculture more than any 
other sector. . . The present crisis is a golden opportunity to 
eliminate this plethora of damaging interventions.''
    Unfortunately, despite high food prices, the U.S. Congress seems to 
be moving in the opposite direction. According to Democratic 
Congressman Ron Kind, the forthcoming farm bill ``looks like a 
nightmare,'' and ``Negotiators managed to avoid every opportunity to 
reform wasteful, outdated subsidies.'' Consequently, not only will 
consumers be hit with higher food prices, but they will have to pay 
again to finance billions of subsidies for farmers, a number of whom 
are already quite wealthy.
    The U.S. import tariff on ethanol is another factor contributing to 
higher food prices. This tariff provides an incentive for farmers to 
produce more corn than they otherwise would for the domestic ethanol 
industry. If the tariff were repealed, farmers would have more 
incentive to produce corn or other crops for food, increasing supply.
    Finally, to the extent that the Federal Reserve's monetary policy 
has been too easy, short-term inflation pressures may have increased, 
raising commodity prices in general. In addition, higher fuel prices, 
partly due to OPEC's restrictive policies, have contributed to the 
increase in food prices by boosting the cost of fertilizer, processing, 
and transportation.
    As consumers face higher prices in coming months, Members of 
Congress will continue to express their concern. However, what matters 
more than rhetoric is the action that Congress takes. Will Congress 
actually proceed to enact what Congressman Kind described as a 
``nightmare'' of ``wasteful, outdated subsidies'' even as food prices 
continue to rise, or will there be genuine reform? As things appear 
now, the prospects for reform don't look very promising. If this is the 
case, consumers can look forward to paying high food prices, and then 
paying again as taxpayers to finance billions in farm subsidies. 
Another opportunity for reform will have been lost.
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  Prepared Statement of Representative Carolyn B. Maloney, Vice Chair
    Good morning. I would like to thank Chairman Schumer for holding 
this hearing to examine rising food prices and the impact it's having 
on American families.
    This week, Big Oil companies are reporting record profits, but 
families are struggling to make ends meet in the face of stagnant wages 
and rapidly rising fuel and food prices. In some areas of the country, 
people are paying $4 for both a gallon of milk and a gallon of gas. 
Families are forced to cut back on meats and fresh vegetables, for 
lower-cost items such as pasta and canned foods--some are calling it 
the recession diet.
    As the price of oil sets a new record almost daily, it is clear 
that rising fuel costs are driving up the cost of food. Higher energy 
costs have driven up the cost of commodities--such as corn and wheat--
feed for livestock, and transportation to get products to market.
    As we will hear from our witnesses today, other factors have also 
contributed to rising food prices, such as growing global demand, 
severe weather in farm regions, and increased speculation in commodity 
futures markets that have caused price spikes for certain crops.
    In our quest to become less dependent on foreign oil, we face a new 
dilemma between raising crops for food or fuel.
    We will hear from a bakery owner in New York who is seeing prices 
spike for fuel and grains, on top of declining sales as consumers cut 
back. We will also hear from Second Harvest about how food banks are 
seeing an increasingly large number of people seeking help, while food 
donations are declining. The Food Bank for New York City and City 
Harvest serve over 300,000 people per month, many of whom are the 
working poor who have to choose between food and utilities, housing or 
health care each month.
    We need to find ways to bring relief to families who are feeling 
the squeeze of higher prices.
    We have taken concrete steps in the House to try to end unnecessary 
subsidies to Big Oil companies and invest in clean fuels and efficiency 
by passing the Renewable Energy and Energy Conservation Tax Act back in 
February. And last year's energy bill ensures that biodiesel and 
cellulosic sources, such as switchgrass, are key ingredients of 
renewable fuels.
    The President and Republicans in Congress blocked attempts to 
expand food stamp and Unemployment Insurance benefits as part of the 
first stimulus package. The Speaker has urged them to come back to the 
table to negotiate a second stimulus package that should include both 
of these measures for struggling families.
    Mr. Chairman, thank you for holding this hearing and I look forward 
to the testimony today.
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              Prepared Statement of Senator Sam Brownback
    Thank you, Mr. Chairman. I appreciate you scheduling today's 
hearing. Rising food prices are a real concern for American families, 
especially when combined with high gasoline prices. However, I wish 
that this hearing was focused more broadly. Rising food prices are not 
simply an American issue. Rising food costs and shortages are global 
challenges.
    Food price increases here in the United States pale in comparison 
to price increases throughout the rest of the world. Over the past 
year, the Food and Beverage component of the Consumer Price Index has 
increased by a little more than 4 percent, with the price of many 
products such as milk and eggs rising by 20 percent or more. The 
Department of Agriculture predicts that food price inflation for 2008 
will be about 4.5 percent. While a 4.5 percent increase in the food 
prices represents a near-term high for food price inflation, it is 
still low by historical standards. Since 2000, food price inflation has 
averaged 2.7 percent, compared to 2.8 percent in the 1990's, 4.6 
percent in the 1980's, and 8.1 percent in the 1970's.
    On the other hand, over the past year alone, world food prices have 
risen 57 percent, with the price of important staples such as rice and 
wheat more than doubling at times. Over the past 3 years, world food 
prices have risen 83 percent. Prior to the recent rise, world food 
prices had been on a steady decline, falling in real terms by 75 
percent from 1975 to 2005.
    As a result of the recent rise in food prices, many people in 
developing countries face severe hunger. For the approximately one-
billion people living on $1 per day, food price increases of 50 percent 
or more can mean a significant reduction in food consumption and a less 
nutritious diet. Although many developing countries have experienced 
significant reductions in poverty levels in recent years due to real 
income gains, rising food prices threaten to erode those gains. A rise 
of just 20 percent in food prices would push an additional 100 million 
people back down to the level of absolute poverty ($1/day).
    While the prices of many agricultural commodities have shot-up 
recently, U.S. consumers have been largely shielded from the type of 
large price spikes seen in less developed countries where food is often 
purchased raw or unprocessed and where farmers have less access to 
agricultural technology and virtually no capacity to borrow. And, while 
many producers of food face steep price increases, less than 20 percent 
of food prices paid at the grocery store in the U.S. reflect the actual 
cost of raw ingredients; the rest of the price is attributed to costs 
such as labor, transportation, and packaging. However, products such as 
milk and eggs, which require little processing or packaging, have risen 
more rapidly because a greater percentage of their price reflects raw 
ingredient costs.
    Although many Americans are feeling the effects of higher food 
prices, real income gains and real food price decreases over the past 
few decades have resulted in significant increases in food purchasing 
power. Although there has been a slight uptick recently in relative 
food prices (the amount of food that can be purchased with an hour's 
worth of wages), relative food prices are still historically low.
    Mr. Chairman, I look forward to testimony from our witnesses. I am 
particularly interested in their views on the causes for the recent 
spike in food prices and what we can do. I know some experts like to 
point to the trade policies of other nations as well as rising demand 
in nation's with increasing standards of living. Others like to point 
to bio-fuels policies that the United States and others nations have 
implemented.
    I can understand both sides of the ethanol issue. On the one hand, 
the increased demand for corn benefits my Kansas corn farmers, while it 
negatively impacts my beef producers. Higher grain prices benefit 
Kansas farmers, but higher fuel costs deprive them of the benefit of 
higher prices. Obviously, there is no simple answer when the need for 
food, the need for cleaner burning fuels, and the need for greater 
supplies of energy intersect.
    I want to thank each of our witnesses for taking the time to bring 
us their insights and suggestions. We need to understand how we can 
insure that there is an adequate and fairly priced food supply, farmers 
are paid a fair and profitable price for their products, and that other 
government policies do not unnecessarily distort the food market.
                               __________
Prepared Statement of Joseph Glauber, Chief Economist, U.S. Department 
                     of Agriculture, Washington, DC
    Mr. Chairman, members of the Committee, thank you for the 
opportunity to discuss recent developments and prospects for retail 
food prices. In 2007, the Consumer Price Index (CPI) for food in the 
U.S. increased by 4 percent. This was the largest annual increase in 
retail food prices since 1990. In 2008, the Department of Agriculture's 
Economic Research Service (ERS) projects retail food prices will 
increase by 4 to 5 percent. Several key factors are shaping the current 
situation, including domestic and global economic growth; global 
weather; rising input costs for energy; international export 
restrictions; and new product markets, particularly biofuels. I will 
describe recent developments in commodity markets, the effects on 
retail food prices, and the implications for food price inflation, 
family food expenditures, and domestic food assistance.
                recent developments in commodity markets
    Higher commodity prices are contributing to the increase in food 
price inflation, even though, on average, the farm value accounts for 
only about 20 cents of each dollar spent on food. For highly processed 
foods, such as cereal and bakery products, the farm component of the 
retail value is less as processing costs account for a higher portion 
of the retail value. In contrast, food products that undergo little 
processing prior to being consumed, such as eggs and fresh fruits and 
vegetables, the farm value accounts for a much larger share of the 
retail value.
    The index of prices received by farmers for all products increased 
by 18 percent in 2007, as farm prices for several major crops, beef, 
milk, broilers, and eggs either reached new record highs or posted 
large annual gains. Compared to 1 year ago, the index of prices 
received by farmers for all products was up 15 percent during the first 
quarter of 2008. During the first quarter of 2008, the prices received 
for all crops were up 20 percent, reflecting continued strong prices 
for major crops. Meanwhile, the prices received for livestock and 
livestock products, while up 10 percent during the first quarter 
compared to 1 year ago, have moderated in recent months as record large 
supplies of red meat and poultry have lowered farm prices for cattle 
and hogs.
    Wheat & Coarse Grains: The CPI for cereal and bakery products 
increased 4.4 percent in 2007, and is projected to rise 7.5-8.5 percent 
in 2008. The increase in the CPI for cereal and bakery products 
reflects higher prices for wheat, rice, corn, and other grains as well 
as higher marketing costs.
    In marketing year 2007/08, domestic food use is projected to 
account for nearly two-thirds of U.S. rice production, slightly less 
than 50 percent of U.S. wheat production, and about 10 percent of U.S. 
corn production. The remaining uses of wheat, rice, and corn include 
feed use, seed use, industrial use, primarily biofuels, and exports. 
All of these different uses form the demand for these commodities along 
with production, imports, and beginning and ending stocks to determine 
the farm prices of wheat, rice, and corn.
    The 2007/08 wheat market reflects a third straight year in which 
global production has fallen short of consumption, driving expected 
world stocks to their lowest level in 30 years. Back-to-back years of 
lower production in the major exporting countries, including Australia, 
Canada, and the European Union have combined with below-trend yields in 
the United States to reduce the availability of exportable supplies. 
Tight supplies in competitor countries and restrictions on exports in 
major producing countries such as Argentina, Ukraine, and Russia have 
boosted export demand for U.S. wheat. U.S. ending stocks are projected 
at their lowest level in 60 years. As a consequence, wheat prices have 
increased to record levels. Farm prices for 2007/08 are projected at a 
record $6.55-$6.75 per bushel, sharply higher than last year's $4.26 
and the previous record of $4.55 per bushel.
    Wheat producers indicated in March they intend to plant 63.8 
million acres in 2008, up 6 percent from 2007. Yield prospects for the 
2008 crop remain mostly favorable, but persistent dryness remains a 
concern in the southwestern portions of the hard red winter wheat belt 
in western Kansas and the panhandle areas of Texas and Oklahoma. In 
addition to higher production in the U.S., wheat production in other 
major wheat producing countries is expected to rise sharply as planted 
area is up around the world, spurred by record prices and encouraged by 
favorable fall sowing weather. If trend yields are achieved, world 
production could set a new record, rising as much as 50 million tons 
from 2007/08. Global production is expected to exceed global 
consumption for the first time in 4 years leading to some recovery in 
global wheat stocks. Nonetheless, the average farm price is projected 
to increase in 2008/09, supported by forward sales made at prices well 
above last year's level. Cash wheat prices during the first quarter of 
the marketing year are also expected to be supported by strong 
competition between domestic mills and foreign buyers.
    The U.S. corn market in 2007/08 is characterized by record 
production and farm prices driven by strong domestic and export demand, 
which is boosting use to record levels. U.S. producers planted 93.6 
million acres to corn in 2007, the largest plantings since 1944. 
Domestic use for 2007/08 is estimated at a record 10.6 billion bushels, 
up 1.5 billion or 17 percent from last year. Ethanol use, projected at 
3.1 billion bushels, is expected to surpass exports for the first time 
ever, accounting for 24 percent of total corn use. Despite high prices, 
export demand remains strong with growing world demand for animal 
protein and tight supplies of feed quality wheat, particularly in the 
European,Union. Exports are projected at a record 2.5 billion bushels, 
up 18 percent from last year. The farm-level price of corn for 2007/08 
is expected to average a record $4.10-4.50 per bushel, up substantially 
from $3.04 per bushel in 2006/07.
    Corn prices are expected to rise again in 2008/09, with the 
Department releasing an official forecast on May 9. Demand is expected 
to remain strong, supported by expanding use for ethanol. Corn area and 
production are expected to be lower in 2008/09 as record soybean prices 
and high input costs for corn encourage a rebound in soybean plantings. 
Producers indicated in March they intend to plant 86.0 million acres of 
corn in 2008, down 8 percent from last year. In addition, cool, wet 
weather has slowed planting progress, which could also contribute to 
lower corn plantings in 2008. With higher use and lower production, 
ending stocks are expected to decline, keeping upward pressure on 
prices.
    Rice: Tighter domestic rice supplies, higher global rice prices, 
and higher grain and oilseed prices have helped to boost rice prices in 
2007/08. Producers in much of the South cut back on rice area in 2007 
because they could earn higher returns by planting alternative crops 
such as wheat, corn, sorghum and soybeans. Exports in 2007/08 are 
projected to increase 23 percent to 112 million hundredweight (cwt). 
Larger exports are expected to markets in the Western Hemisphere, 
Europe, and the Middle East. Tight global supplies and self-imposed 
export bans in Egypt, Vietnam, and India are helping to support U.S. 
exports. Rice ending stocks are forecast at 21.6 million cwt, down from 
carry-in stocks of 39 million cwt. The season-average farm price is 
forecast at $12.05-$12.35 per cwt, up from $9.96 in 2006/07 and the 
highest since 1980/81. Rice prices in 2008/09 are expected to be higher 
than 2007/08 due to tighter domestic and global supplies and higher 
world prices.
    Soybeans: The CPI for fats and oils increased 2.9 percent in 2007. 
In 2008, the CPI for fats and oils is expected to increase by 8-9 
percent. The primary domestic oil in this CPI category is soybean oil. 
Strong soybean oil exports and increased use of soybean oil for 
biodiesel production have pushed up the price of soybean oil. In 
addition, higher transportation, labor, and other marketing costs are 
contributing to the increase in retail prices for fats and oils.
    U.S. soybean prices are record high this year, reflecting lower 
production and strong demand. The farm price received for soybeans is 
expected to average $10.00-$10.50 per bushel during 2007/08, compared 
with $6.43 last marketing year and the previous record of $8.73 per 
bushel set in 1983/84. Lower production was brought about by sharply 
lower planted area as producers shifted some soybean acres to corn in 
2007. Lower stocks are projected in part due to strong export demand 
for U.S. soybeans resulting from record imports by China and limited 
growth in South American supplies despite high prices.
    U.S. soybean crush is also a contributing factor to declining 
stocks as foreign demand for U.S. soybean meal remains exceptionally 
strong. Wheat shortages in many parts of the world are leading to 
strong export demand for soybean meal protein which can be used to 
replace wheat in feed rations. Soybean crush is also supported by 
growing demand for biodiesel, production of which is expected to 
account for 14 percent of total soybean oil use for 2007/08. The prices 
of both soybean meal and soybean oil are up sharply in 2007/08. The 
price of soybean meal is projected to average $315-$335 per ton in 
2007/08, up from $205 per ton in 2006/07 and the price of soybean oil 
is projected to average 50-54 cents per pound, compared with 31 cents 
per pound in 2006/07.
    U.S. producers indicated in March they intend to plant 74.8 million 
acres to soybeans in 2008, up 18 percent from last year. If these 
intentions are realized, soybean supplies for 2008/09 could increase as 
larger production more than offsets sharply lower beginning stocks. 
Reflecting the increase in projected soybean production, soybean ending 
stocks are expected to rebound in 2008/09 from this year's very low 
level. Forward sales at prices above last year's average and high corn 
prices are likely to push soybean prices higher in 2008/09.
    Fruits and Vegetables: Retail prices for fruits and vegetables 
increased 3.8 percent in 2007, as fresh fruit and vegetable prices rose 
by 3.9 percent and processed fruit and vegetable prices rose by 3.6 
percent. Price spikes in these commodities are often linked to drought 
or freeze damage. In 2008, the CPI for fruits and vegetables is 
projected to increase by 3-4 percent.
    Livestock and Poultry: The CPI for meat, poultry and fish increased 
by 3.8 percent in 2007 and is forecast to increase by 2-3 percent in 
2008. In 2007, prices were particularly strong for cattle and broilers. 
These strong prices generally reflected production adjustments made 
prior to the recent increase in feed costs. U.S. production of meat and 
poultry is expected to be a record 94 billion pounds in 2008. This 
large supply of meat is expected to limit gains in prices for cattle, 
hogs, broilers, and turkeys in 2008. In addition, the demand for red 
meat and poultry could be affected by consumers' economic concerns.
    Beef production is currently forecast to increase by 0.6 percent in 
2008 due to continued strong cow slaughter. Drought conditions in the 
Southeast led to strong increases in cow slaughter last year and, even 
with a return to normal weather in 2008, cow slaughter is expected to 
remain relatively high in 2008. The January Cattle report indicated the 
cow herd continued to contract during 2007. Beef cow numbers were 
estimated about 0.6 percent lower than a year ago, and the number of 
beef cows expected to calve was down 1 percent. In addition, the number 
of beef heifers to be retained for the breeding herd was down 3.5 
percent. Nebraska Direct steer prices averaged a record $91.82 per cwt 
in 2007 but are expected to decline slightly in 2008 to average $88-$92 
per cwt.
    Pork production in 2008 is expected to increase 7 percent due to 
expansion triggered by positive returns to producers in 2006 and 2007 
and strong productivity gains. However, the growth in production is 
expected to slow later in the year as producers respond to much higher 
feed costs. The most recent Quarterly Hogs and Pigs report indicated 
that producers farrowed 5 percent more sows during December 2007-
February 2008, but intend to farrow 2 percent fewer sows during June 
2008-August 2008. The strong increase in pork production has pressured 
hog prices in recent months. In 2008, hog prices are expected to 
decline from 2007's $47.09 per cwt to $40-42 per cwt.
    Broiler producers reacted to low returns in 2006 and pulled back 
broiler production during the last two quarters of 2006 and the first 
two quarters of 2007. As broiler prices hit record levels in mid-2007, 
broiler producers responded by expanding production. Since last fall, 
weekly estimates of chicks placed for growout were consistently 3 to 5 
percent above a year earlier, but the increase in placements has 
dropped below 3 percent in recent weeks. However, little to no 
expansion in broiler production is expected during the second half of 
2008 as producers respond to higher corn and soybean meal prices. 
Broiler prices for 2008 are forecast to average 78 to 82 cents per 
pound in 2008, compared with a record 76.4 cents in 2007.
    U.S. red meat and poultry exports are expected to reach a record 12 
billion pounds in 2008. Pork exports are again forecast to lead the 
way, increasing for the 18th consecutive year to 3.7 billion pounds 
carcass weight, which is equal to 16 percent of production.
    In 2007, broiler exports recovered from a couple of years of 
sluggish sales and reached a record 5.8 billion pounds on strong sales 
to Canada, China, and Russia. Broiler exports are expected to increase 
to 6.0 billion pounds in 2008. Beef exports are expected to increase to 
about 1.5 billion pounds in 2008, still well below the 2003 pre-bovine 
spongiform encephalopathy level of 2.5 billion pounds. A variety of 
markets expanded access to U.S. beef recently, but beef exports are 
still hampered by Japan's age limits on imported beef from the United 
States and other continuing restrictions on foreign markets.
    Eggs: The CPI for eggs rose by 29 percent in 2007 and projected to 
increase by 3-4 percent in 2008. In 2007, table-egg producers cut 
production. The decision to reduce production likely took place prior 
to the recent run-up in feed costs.
    In 2007, the wholesale price for a dozen grade A large eggs in the 
New York market averaged $1.14 per dozen, 43 cents higher than the 
previous year. The strong increase in egg prices reflected lower 
production and strong domestic demand. In 2007, table-egg production 
was down 1 percent, as producers lowered production in order to 
increase the hatching-egg flock.
    Given the current size of the table-egg flock and the number of 
birds available to add to the flock, no significant expansion in 
production is expected before the second-half of 2008. Wholesale table-
egg prices (New York area) averaged $1.59 per dozen in the first-
quarter, up 51 percent from the previous year. Prices are expected to 
decline seasonally in the second quarter and average $1.25-$1.32 per 
dozen in 2008.
    Milk: The CPI for dairy products increased by 7.4 percent in 2007 
and is projected to increase by 3-4 percent in 2008. Very strong 
international dairy product prices, robust domestic demand and modest 
expansion in domestic production in response to very low milk prices in 
2006 were the primary factors pushing up dairy product prices in 2007. 
The recent increase in feed costs probably had only a minimal effect on 
milk production in 2007.
    Although higher feed costs are expected to temper later-year 
expansion plans, milk producers are expanding herds in response to 
generally favorable returns during much of 2007. Production in 2007 
increased about 2 percent as the herd increased fractionally. Milk per 
cow increased but lagged its historical growth. Driven by strong 
domestic demand and sharply higher international prices in response to 
declining milk production in Australia due to drought and limited 
surpluses of dairy products in the European Union, the all-milk price 
averaged a record $19.13 per cwt, over $6.00 above 2006. Cow numbers 
are expected to increase further in 2008 but high feed costs may slow 
the growth in milk per cow. Milk production in 2008 is expected to 
increase 2.4 percent. Demand for dairy products, both domestically and 
for export, may lag production growth, resulting in weaker prices in 
2008. The all-milk price for 2008 is forecast to decline to between 
$17.65 and $18.15 per cwt.
         key factors behind the increase in retail food prices
    As the above discussion suggests, many factors have converged to 
increase commodity prices. I will now review some of these factors.
    Global economic growth, weather problems in some major grain 
producing countries, and depreciation in the trade weighted-dollar 
helped boost fiscal year 2008 U.S. agricultural exports. In fiscal year 
2008, the value of U.S. agricultural exports is projected to reach a 
record $101 billion, up from last year's record of $81.9 billion.
    Global economic growth is boosting global demand for food. Real 
foreign economic growth declined in 2007 to 4.0 percent from 2006's 
robust rate of 4.2 percent. Foreign economic growth is expected to be 
3.9 percent in 2008, down slightly from 2007, but well above trend, as 
has been the case beginning in 2004 (ERS). Asia, excluding Japan, will 
likely grow at over 7 percent in 2008, above trend for the fifth 
consecutive year. Higher incomes are increasing the demand for 
processed foods and meat in rapidly growing developing countries, such 
as India and China. These shifts in diets are leading to major changes 
in international trade. For example, China's corn exports are projected 
to fall from 5.3 million metric tons in 2006/07 to 0.5 million metric 
tons in 2007/08, as more corn is used for domestic livestock feeding.
    Agricultural production depends on the weather. The multi-year 
drought in Australia reduced wheat and milk production and that 
country's exportable supplies of those commodities. Drought and dry 
weather have also adversely affected grain production in Canada, 
Ukraine, European Union, and the United States. Thus, weather events 
have helped to deplete world grain stocks. With world stocks for wheat 
at a 30-year low, grain importers are increasingly turning to the U.S. 
for supplies. Furthermore, the tight stocks situation is leading to 
increasing concerns that prices could move sharply higher if this 
year's harvest falls below expectations. These concerns are causing 
some importers to purchase for future needs, pushing prices higher.
    Many exporting countries have put in place export restrictions in 
an effort to reduce domestic food price inflation. The United Nations 
FAO recently noted the cereal import bill of the world's poorest 
countries is forecast to rise by 56 percent in 2007/2008, which comes 
after a significant increase of 37 percent in 2006/2007. Exporting 
countries as diverse as Argentina, China, India, Russia, Ukraine, 
Kazakhstan, and Vietnam have placed additional taxes or restrictions on 
exports of grains, rice, oilseeds, and other products. By reducing 
supplies available for world commerce, these actions only exacerbate 
the surge in global commodity prices. Export restrictions are 
ultimately self-defeating, reducing the incentives for producers to 
increase production.
    Higher food marketing, transportation, and processing costs are 
also contributing to the increase in retail food prices. Record prices 
for diesel fuel, gasoline, natural gas, and other forms of energy 
affect costs throughout the food production and marketing chain. Higher 
energy prices increase producers' expenditures for fertilizer, 
chemicals, fuel, and oil driving up farm production costs. Higher 
energy prices also increase food processing, marketing, and retailing 
costs. These higher costs, especially if maintained over a long period, 
tend to be passed on to consumers in the form of higher retail prices. 
ERS estimates direct energy and transportation costs account for 7.5 
percent of the overall average retail food dollar. This suggests that 
for every 10 percent increase in energy costs, the retail food prices 
could increase by as much as 0.75 percent if fully passed on to 
consumers.
    In recent years, the conversion of corn and soybean oil into 
biofuels has been an important factor shaping major crop markets. The 
amount of corn converted into ethanol and soybean oil converted into 
biodiesel nearly doubled from 2005/06 to 2007/08. The growth in 
biofuels production has coincided with rising prices for corn, 
soybeans, soybean meal, and soybean oil. From 2005/06 to 2007/08, the 
farm price of corn more than doubled and the price of soybeans nearly 
doubled.
    While much of the increase in the farm prices for corn and soybeans 
can be attributed to increased biofuels production, other factors have 
also contributed to the sharp increase in prices for these commodities. 
The strength in exports resulting from global economic growth and 
drought and dry weather in some major grain producing countries has 
boosted prices for corn and soybeans. For example, corn exports are 
projected to reach 2.5 billion bushels in 2007/08, up from 2.1 billion 
bushels in 2005/06, and soybean exports are projected to increase by 14 
percent over the same period.
    The recent increase in corn and soybean prices appears to have 
little to do with the run-up in prices of wheat and rice prices. Corn 
and soybean prices began increasing during the fourth quarter of 2006. 
By this time, producers had already planted the 2007 winter wheat crop. 
Rice and spring wheat plantings could have been affected by increasing 
corn and soybean prices but weather problems, low stocks, and strong 
global demand likely had a much greater impact on wheat and rice prices 
than increasing corn and soybean prices. In 2008, U.S. wheat producers 
indicate they intend to plant more acreage to wheat while rice acreage 
is projected to remain flat, suggesting that higher corn and soybean 
prices have not greatly altered wheat and rice producers' planting 
decisions.
    It is unlikely that retail prices for milk, meat, poultry, and eggs 
were greatly affected by higher corn and soybean prices in 2007. Higher 
corn and soybean prices increase livestock and dairy producers' feed 
costs. The increase in feed costs, with no offsetting increase in 
livestock prices, reduces livestock producers' margins. Livestock 
producers react to these lower margins over time by reducing the 
breeding herd. In the short term, higher feed costs lead to an increase 
in livestock slaughter and lower livestock prices. For milk and eggs, 
higher feed costs may have lowered production somewhat 2007, partially 
contributing to the increase in retail prices for these food products. 
However, as pointed out earlier, other factors (weather, low returns, 
strong demand, etc.) contributed to the bulk of the increase in retail 
food prices for these commodities in 2007.
    In 2008, higher feed costs are likely to lead to lower prices for 
livestock as producers react to higher feed costs by reducing the 
number of breeding animals. In contrast, dairy producers react to 
higher feed costs by cutting back on the number of dairy cows and 
adjusting rations. In 2008, higher feed costs are expected to dampen 
the growth in milk production per cow but the dairy herd is expected to 
continue to expand in response to strong milk returns in 2007.
                  retail food price review and outlook
    There is a cyclical pattern to retail food price inflation. For 
example, in 2000, we were experiencing year over year monthly increases 
in the all food price index of 1.5 to 2.5 percent. During 2001 and 
early 2002, the year over year monthly increases in the all food price 
index ranged from 2.5 to 3.5 percent before falling to 1.0 to 1.5 
percent by mid 2002 through mid 2003. In the middle of 2004, the all 
food price index increased by 4 percent before dropping to less than 
2.5 percent by mid 2005. Our most recent increase in the rate of food 
price inflation began in early 2007. From March 2005 to March 2006, the 
all food price index increased by 2.6 percent. In contrast, the all 
food price index increased by 3.3 percent from March 2006 to March 2007 
and from March 2007 to March 2008, the all food price index increased 
by over 4.5 percent.
    The CPI for food away from home is projected to increase by 3.5 to 
4.5 percent in 2008, slightly higher than the 3.6-percent increase in 
2007. Prices for food away from home are largely determined by 
processing, transportation, and marketing costs which are subject to 
volatile energy costs and trend inflation.
    The CPI for food at home is projected to increase by 4 to 5 percent 
in 2008 compared to 4.2 percent in 2007. While the forecasted change in 
the price for food at home in 2008 is similar to 2007, the food 
categories contributing to food price inflation are different. In 2007, 
the retail price of eggs increased 29 percent, retail dairy product 
prices rose by over 7 percent and the retail price of poultry posted a 
more than 5 percent gain. These three product categories accounted for 
over 35 percent of the annual increase in the CPI for food at home. In 
addition, retail prices for beef, pork, cereal and bakery products, and 
nonalcoholic beverages increased by nearly 4 percent or more in 2007.
    In 2008, retail prices for only three product categories are 
projected to increase by 4 percent or more. These product categories 
include: fats and oils up 8 to 9 percent, cereals and bakery products 
up 7.5 to 8.5 percent, and nonalcoholic beverages up 3.5 to 4.5 
percent. In total, cereal and bakery products, fats and oils, and 
nonalcoholic beverages have a weight of 16 percent in the all food CPI 
and 28 percent in the food at home CPI.
    Higher corn and soybean prices have contributed to increases in the 
retail prices of cereal and bakery products and fats and oils. In 
addition, higher corn prices have increased the price of high fructose 
corn syrup, an ingredient in soft drinks and many other products. In 
2007, the CPI for these three retail food product categories increased, 
on average, by 4.1 percent and is projected to increase by 6.3 percent 
in 2008. If we assume a normal price increase in these three retail 
product categories of 2.5 percent, the food at home CPI would have been 
about 0.4-0.5 percentage points lower in 2007 and the forecast for 2008 
would be about 1 percentage point lower. These figures overstate the 
contribution of higher corn and soybean prices to the CPI for food at 
home, since higher prices for other commodities may also be 
contributing to above average increases in retail prices for cereal and 
bakery products, fats and oils, and nonalcoholic beverages.
    The Department's current long-term projections indicate that retail 
food price inflation will gradually moderate over the next several 
years. Continued expansion of biofuels production will likely maintain 
corn and soybean prices at historically high levels and livestock 
producers will adjust to the increase in feed costs by reducing 
production, leading to higher retail prices for beef and pork in the 
longer term. In contrast, future upward movements in retail dairy 
product prices may be limited following the strong increase in 2007. In 
addition, global agricultural production is expected to rebound, 
especially for wheat, relieving some of the pressure on retail food 
prices for cereal and bakery products. Of course, future increases in 
retail food prices depend heavily on energy prices and other food 
marketing costs.
                          impacts on consumers
    In 2006, consumers spent $551 billion on food consumed at home, 
almost 6 percent of their total disposable personal income. They spent 
an additional $396 billion, about 4 percent of their disposable 
personal income, on food consumed away from home. In total, consumers 
spent almost $950 billion, almost 10 percent of their disposable 
personal income on food in 2006.
    More important than the overall impact higher food prices may have 
on the share of income allocated for food expenditures are the 
distributional impacts of higher food prices. While consumers, on 
average, may spend only 10 percent of their disposable income on food, 
families with less than $20,000 in income spend over 20 percent of 
their after-tax income on food. Thus, a 4-percent increase in retail 
food prices would increase the share of income spent on food for 
families with less than $20,000 in income by about 1 percentage point.
                   impacts on domestic food programs
    The Department's food programs, including the Food Stamp Program, 
the WIC program, child nutrition programs, and purchases for food banks 
and food pantries, are affected by higher retail food prices. The 
Department is monitoring the programs closely, and at a recent Senate 
Appropriations hearing, Secretary Schafer outlined the Department's 
budget requests for these programs, which take higher food prices into 
account.
    Higher food prices are driving up costs of the Food Stamp Program, 
which is managed based on the value of the ``Thrifty Food Plan,'' a 
low-cost market basket of foods that provides a diet consistent with 
dietary guidelines. Food Stamp Program benefits are indexed to annual 
changes in the cost of the Thrifty Food Plan. Higher food costs will 
increase the average benefit, adding to program costs. In addition, the 
slowdown in the U.S. economy could increase program participation. 
Therefore, the Department has requested an additional $1.8 billion for 
the Food Stamp Program for fiscal year 2009.
    Unlike the Food Stamp Program, the WIC program is discretionary and 
spending depends on annual appropriations. WIC costs go up when food 
prices go up, regardless of the cause. If food costs go up and there is 
no corresponding increase in appropriations, program participation is 
adversely affected. WIC costs jumped in 2007 due to strong increases in 
retail prices for dairy products and eggs and are running higher each 
month in 2008 than in the same month in 2007. The Department has 
requested $6.1 billion for WIC for fiscal year 2009, the highest 
request ever.
    Federal payments for school breakfasts and lunches are indexed 
every July to food-price changes reflected in the ``Food Away From 
Home'' component of the CPI over the 12-month period ending each May. 
The increases in the index have resulted in annual increases in program 
costs of about 3 percent in recent years.
    There have also been concerns expressed about the Department's 
funding for purchases of commodities for The Emergency Food Assistance 
Program (TEFAP). Recently, The Department implemented a ``Stocks-for-
Food'' initiative, whereby the Department barters Government-owned 
commodities such as wheat, corn, and soybeans for processed foods 
suitable for distribution in domestic and international food programs. 
States are distributing these products, such as canned vegetables, 
vegetable oils, peanut butter, and canned meats, to thousands of local 
agencies, including food banks, soup kitchens and food pantries. The 
donated food products can supplement millions of meals for low income 
Americans.
                               conclusion
    Futures market prices suggest that grain and oilseed prices will 
remain high over the next few years. The rapid expansion of biofuel 
production, high input costs, and strong foreign demand will continue 
to play a major driving force in U.S. and world agriculture. Yield 
growth and supply response both in the U.S. and abroad will help 
moderate crop prices in the long run, but for the near term, tight 
supplies will keep markets volatile with much attention paid to growing 
conditions worldwide.
    Mr. Chairman, that completes my statement.
                               __________

                        Farm Prices for Crops, Livestock, and Livestock Products, 2006-08
----------------------------------------------------------------------------------------------------------------
                                                                     2006             2007            2008F
----------------------------------------------------------------------------------------------------------------
Livestock:
  Steers ($/cwt).............................................           85.41            91.82            88-92
  Hogs ($/cwt)...............................................           47.26            47.09            40-42
  Broilers ($/cwt)...........................................            64.4             76.4            78-82
  Milk ($/cwt)...............................................           12.97            19.13      17.65-18.15
  Eggs (cents/doz)...........................................            71.8            114.4          125-132
----------------------------------------------------------------------------------------------------------------
Crops:                                                             2005/06          2006/07          2007/08F
  Wheat ($/bu)...............................................            3.42             4.26        6.55-6.75
  Rice ($/cwt)...............................................            7.65             9.96      12.05-12.35
  Corn ($/bu)................................................            2.00             3.04        4.10-4.50
  Soybeans ($/bu)............................................            5.66             6.43      10.00-10.50
  Soybean Oil (cents/lb).....................................           23.41            31.02      50.00-54.00
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                       Changes in Retail Food Price Indexes, 2006, 2007, and 2008 Forecast
----------------------------------------------------------------------------------------------------------------
                                                               Relative                               Forecast
                                                              Importance      2006         2007         2008
----------------------------------------------------------------------------------------------------------------
All food...................................................       100.0          2.4          4.0    4.0 to 5.0
Food away from home........................................        44.6          3.1          3.6    3.5 to 4.5
Food at home...............................................        55.4          1.7          4.2    4.0 to 5.0
  Meats, poultry, fish.....................................        12.2          0.8          3.8    2.0 to 3.0
  Eggs.....................................................         0.9          4.9         29.2    3.0 to 4.0
  Dairy products...........................................         6.4         -0.6          7.4    3.0 to 4.0
  Fats and oils............................................         1.5          0.2          2.9    8.0 to 9.0
  Fruits and vegetables....................................         8.4          4.8          3.8    3.0 to 4.0
  Sugar and sweets.........................................         2.0          3.8          3.1    3.0 to 4.0
  Cereals and bakery products..............................         7.4          1.8          4.4    7.5 to 8.5
  Nonalcoholic beverages...................................         6.7          2.0          4.1    3.5 to 4.5
  Other foods..............................................         9.9          1.4          1.8    2.5 to 3.5
----------------------------------------------------------------------------------------------------------------

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                                       Food Spending by Income Class, 2006
----------------------------------------------------------------------------------------------------------------
                                            Income after                  Food away    Total Food    Total Food
              Income Category                   taxes     Food at home    from home    Expenditure  Expenditures
----------------------------------------------------------------------------------------------------------------
                                                $ per         $ per         $ per         $ per      % of income
                                              consumer      consumer      consumer      consumer     after taxes
                                                unit          unit          unit          unit
All.......................................       58,101         3,417        $2,694        $6,111          10.5
Less than $5,000..........................          316         1,802         1,246         3,049            na
$5,000 to $9,999..........................        8,019         1,894           966         2,860          35.7
$10,000 to $14,999........................       12,630         2,159           940         3,099          24.5
$15,000 to $19,999........................       17,411         2,476         1,155         3,631          20.9
$20,000 to $29,999........................       24,743         2,605         1,531         4,136          16.7
$30,000 to $39,999........................       33,916         2,719         1,970         4,689          13.8
$40,000 to $49,999........................       43,573         3,061         2,269         5,330          12.2
$50,000 to $69,999........................       57,358         3,603         2,892         6,496          11.3
$70,000 and more..........................      119,298         4,798         4,502         9,300           7.8
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor. Bureau of Labor Statistics. Consumer Expenditure Survey.

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   Prepared Statement of Tom Buis, President, National Farmers Union
    Good morning, Mr. Chairman and members of the committee. I 
appreciate the opportunity to testify on behalf of the farm, ranch and 
rural members of National Farmers Union (NFU). NFU was founded in 1902 
in Point, Texas, to help the family farmer address profitability issues 
and monopolistic practices while America was courting the Industrial 
Revolution. Today, with a membership of 250,000 farm and ranch 
families, NFU continues its original mission to protect and enhance the 
economic well-being and quality of life for family farmers and ranchers 
and their rural communities. We believe that consumers and producers 
can work together to promote a quality domestic supply of safe food.
    I commend the committee for holding this hearing to gather 
information about the impact of food price increases, and also to 
explore the real reasons behind these increases. I hope the hearing 
will also serve to gather input on what steps can be taken to address 
the problem for the nation's citizens most in need. Yes, American 
families are impacted by higher food prices, some more than others. 
There is no doubt that higher food prices are having a tremendous 
impact on low-income families. Families without the resources to absorb 
food price increases are struggling to put dinner on the table; those 
below the poverty level and who do not make a livable wage are most 
impacted.
    Food is not an optional commodity for anyone, regardless of income 
demographics. As a farmer from Indiana and a national farm leader, I 
find it appalling that anyone in America or the world goes to bed 
hungry. America's farmers and ranchers have almost always produced a 
surplus of food commodities year in and year out. For the most part, 
food price increases are not about the lack of production, but other 
macroeconomic factors including trade distortion, distribution and 
political decisions.
                    the causes of higher food prices
    Today's food price increases can be attributed to many factors; I 
will highlight a few within my testimony. While many like to blame the 
increases on biofuels, specifically corn ethanol, a closer examination 
will reveal that other factors beyond ethanol have played a greater 
role in higher food prices. While there is no doubt that corn ethanol 
has increased demand for corn, and thus boosted prices for corn and 
some other commodities, it is not the biggest reason for the retail 
food price increases. The more significant reasons are $120 per barrel 
of oil, the declining value of the U.S. dollar, increased demand from 
developing economies around the world, and worldwide weather related 
production shortages, especially in wheat.
Cause #1--Energy Prices
    Studies have shown that energy costs have twice the impact on 
retail food prices as the price of corn. A recent report by John 
Urbanchuk of LECG reports that a one dollar increase in corn results in 
a 0.3 percent increase in the consumer price index for food, whereas a 
one dollar increase in gasoline results in a 0.6 percent increase for 
food. With the average food item traveling more than 1500 miles before 
reaching the final consumer, it is no wonder that food costs are 
increasing when looking back the last 7 years; gasoline prices have 
increased 198 percent per gallon, diesel fuel prices have increased 
almost 250 percent per gallon and crude oil has increased 453 percent 
according to the Department of Energy's Energy Information Agency. In 
response to the distance food travels, NFU has prioritized the Buy-
Local/Eat-Fresh food movement to encourage consumers to eat food from 
their back yard. That said, increased ethanol production is actually 
keeping gasoline prices from going even higher. A Merrill Lynch analyst 
estimates the biofuels industry is reducing gasoline price by 15 
percent per gallon today. The U.S. average price per gallon would 
increase $0.50, from $3.39 to $3.89 today without biofuels.
Cause #2--Weather Related Production Shortfalls
    In 2007, most major wheat growing regions experienced weather 
related production problems. The United States, Canada, Australia and 
Europe all experienced weather related production shortfalls at the 
same time. In response, wheat prices reached record levels and export 
demand skyrocketed, as world wheat stocks reached new lows. While some 
have blamed U.S. farmers for shifting wheat acreage to corn, it should 
be noted that very little U.S. wheat acreage is suitable for corn 
production. It takes more water to grow corn than wheat and most of the 
wheat acreage that could be converted to higher value commodities, such 
as corn or soybeans, long ago made the conversion. USDA's 2008 planting 
intentions indicate an increase in wheat acreage, as the higher prices 
are more economically favorable than other commodities.
Cause #3--Weak Dollar and Export Demand by Emerging Economies
    Today, the U.S. dollar's value has fallen to a 30-year low, 
according to USDA, as compared with other major currencies, which in 
turn makes the price of U.S. commodities increasingly competitive 
abroad. Since the value of the dollar was delinked from gold, we have 
witnessed the linkage between a weak dollar and higher commodity 
prices. Last year we saw record agricultural exports in terms of volume 
and value despite record high market prices. Total agriculture exports 
in 2007 amounted to a record of nearly $90 billion, an increase of $20 
billion over 2006. At the same time, the value of agricultural imports 
is rising, on average 10 percent growth per year since 2001 according 
to USDA. With rapidly growing economies across the globe, a new demand 
has been created for food commodities. The new middle class populations 
in Asia, Latin America and Africa have demanded an improved diet 
including meat and dairy products.
Cause #4--Speculators in the Commodity Markets
    As opportunities to make profits have waned on Wall Street, with 
stocks and bonds in turmoil as a result of the mortgage crisis, 
investment firms seized opportunities in the commodity futures markets. 
Billions of dollars from pension and other investment houses poured 
into the hot commodity markets. As a result, many commercial entities 
of farm commodities have faced skyrocketing margin calls on hedge 
contracts which have for a long-time been a financial risk tool for 
farmers and grain elevators. As margin calls increase, local 
cooperatives and private grain elevators have hit credit limits, 
resulting in the elimination of this important marketing tool. The 
result, farmers cannot forward price their commodities and protect 
their risk. If farmers cannot capture higher commodity prices, while 
facing skyrocketing input expenses, we are facing a potential train 
wreck for rural America.
                             food vs. fuel
    Yellow corn is the single biggest crop in the United States, and 
contrary to popular belief it is primary used for animal feed, not 
human food. No doubt, biofuels have increased farm commodity prices for 
corn as a result of increased demand. The increased demand for corn in 
2007 resulted in, finally, profitable prices for farmers, after nearly 
two decades of below cost-of-production price levels. America's farmers 
responded to the increased demand by producing the biggest corn crop in 
history. In 2007, corn production in the United States increased by 2.6 
billion bushels (from 10.7 billion in 2006 to 13.3 billion in 2007). Of 
this 2.6 billion bushel increase, new ethanol demand only accounted for 
600 million bushels (4 percent). The total corn used for ethanol in 
2007 amounted to 2.5 billion bushels. The remaining 2 billion new 
bushels of corn was used for feed, food and exports above and beyond 
2006 levels, with record high corn exports of 2.9 billion bushels. The 
increased corn acreage primarily came at the expense of soybean acreage 
and to a smaller degree from cotton, rice and wheat. Simply put, 
America's farmers responded to the marketplace.
    Recently, there seems to be a litany of corn ethanol criticism. In 
the past year, ethanol production was blamed for the Mexican tortilla 
shortage, despite the fact that tortillas are made from white corn, and 
trade agreements limit the United States from providing Mexico with no 
more than 2 percent of their white corn needs. Corn ethanol was even 
blamed for the rising price of beer. Last year, right before the 
biggest American beer drinking holiday, the breweries announced they 
were raising beer prices because of increased ethanol production. That 
announcement made great headlines, but rice and barley make beer, not 
corn. Last week, when Costco and Sam's Club announced they were 
rationing bulk rice sales, the media was quick to blame corn ethanol, 
despite the fact that there is plenty of rice in the supply chain. The 
true cause for the run on rice turns out to be the shut off exports of 
two types of specialty rice from Thailand and India. There is ample 
rice, just limited amounts of these two specialty varieties.
    Many in the media have mischaracterized the creation of a national 
mandate on renewable fuels as the cause of rising food costs. I was 
very disappointed to hear former President Clinton blaming the 
production of ethanol on pasta riots in Italy--two totally unrelated 
issues. I was also shocked to read Texas Governor Rick Perry's 
statement last Friday that called for a 50 percent waiver from the 
renewable fuels standard (RFS), with the expectation that consumers 
would find immediate relief from their grocery bills. Not only would 
reducing ethanol consumption by 50 percent result in higher gasoline 
prices for consumers, it would have no impact on lowering corn prices. 
According to an April 10, 2008 report issued by the Agricultural and 
Food Policy Center at Texas A&M University, ``relaxing the RFS does not 
result in significantly lower corn prices.'' The report goes on to 
state the current ethanol production infrastructure has grown in excess 
of the RFS and relaxing the standard would not cause a contraction in 
the industry. The A&M study also reiterated the point that corn prices 
have had little to do with rising food costs. Staple food items such as 
bread, milk and eggs have higher prices ``largely unrelated to ethanol 
or corn prices, but correspond to fundamental supply/demand 
relationships in the world''.
    While corn ethanol it is not the singular solution to our nation's 
energy problems, it undoubtedly has reduced our dependence on foreign 
oil. For every barrel of ethanol produced (1 barrel = 42 gallons), 1.2 
barrels of petroleum are displaced at a refinery. According to an LECG 
study, more than 228 million barrels of oil were displaced by the 6.5 
billion gallons of ethanol produced in 2007. While critics will say our 
government is subsidizing and mandating the use of ethanol, the 
subsidies pale in comparison to the amount we spend subsidizing the oil 
companies and protecting the shipping lanes to import oil from the most 
unstable region of the world. According to a 2005 Government 
Accountability Office (GAO) report, the United States has spent more 
than $130 billion subsidizing the oil industry over the past 32 years; 
this does not account for the billions spent to protect our military 
interests in the Middle East.
    Because of the advanced renewable energy production, we have 
witnessed the plywood boards coming off Main Street businesses, instead 
of going up. The annual local economic impact of a 40 million gallon 
ethanol plant is without a doubt significant. The economic base is 
expanded by $110.2 million; household income increases $19.6 million; 
694 permanent new jobs are created; and an additional $1.2 million is 
created in new tax revenues. USDA estimates government payments will 
decrease to 4 percent of gross cash income for farmers, compared to 7 
percent in 2000-2005 as a result of expanded ethanol production. The 
future of renewable fuel production rests in the advancement of 
cellulosic ethanol, wind energy, solar energy, biodiesel and many 
others to be created.
              biofuel production vs. livestock production
    The primary use of U.S. corn production is for livestock feed, yet 
livestock prices have declined over the past year. Those who argue corn 
ethanol is the major contributing factor in food price inflation, have 
little to stand on in their argument linkin corn prices and livestock 
prices. Also lost in today's discussion is the fact that ethanol 
byproduct distillers grains actually reduce cattle feed costs. The U.S. 
ethanol industry is projected to produce 31 million tons of distiller's 
grains in 2008; these distillers' grains are not only a better protein 
feed for livestock but also is more economical. With corn at $5.56 per 
bushel, cattle feeders would pay $268 per ton of total digestible 
nitrogen (TDN) for corn while only paying $201 per ton of TDN for 
distiller's grains.
    I was stunned to see comments by the President/CEO of Tyson Foods, 
Inc., the world's largest processor and marketer of chicken, beef and 
pork, suggesting the U.S. ethanol policy is nothing more than a 
regressive tax on the poor. This is the same company that reported 
gross profits of $1.433 billion; $928 million; and $1.72 billion in 
2007, 2006 and 2005 respectively. This is also the same company that 
was one of the industrial livestock beneficiaries of below cost-of-
production feedstock's by the tune of $35 billion according to a 
February 2007 Tufts University report (Industrial Livestock Companies' 
Gains from Low Feed Prices'' by Timothy A. Wise and Elanor Starmer).
    The study undertook an econometric analysis, which documented that 
the broiler chicken and pork production industries have benefited 
significantly from low feedstock prices. From 1997 to 2005, soybeans 
were priced 15 percent below the average cost of production, while corn 
was priced 23 percent below. This equates to feed prices at 21 percent 
below cost of production for poultry and 26 percent below cost of 
production for the hog industry. To put it in more concrete terms, the 
Tufts study estimates that due to the low cost of production, the 
broiler chicken industry saved $11.25 billion and the industrial hog 
industry saved approximately $8.5 billion over the 9 year period.
                  farmers share of retail food dollar
    According to USDA, our farmers and ranchers receive only 20 cents 
of every food dollar that consumers spend on food at home and away from 
home. Off farm costs including marketing, processing, wholesaling, 
distribution and retailing account for 80 cents of every food dollar 
spent in the United States.
    The farmer's share of a $2.69 loaf of bread is $0.22; for a $5.05 
box of corn flakes, the farmer receives $0.16; out of a $3.99 gallon of 
fat free milk, the farmer receives $1.54 and a one pound top sirloin 
steak that costs $7.99 at the grocery store provides $0.88 to the 
farmer. Attached to my testimony is NFU's latest Farmer's Share 
document highlighting the price consumers pay for a number of food 
products and the correlating price received by the farmer for that 
retail food item.
                               solutions
Farm Bill Nutrition Programs
    The 2008 Farm Bill currently in conference between the U.S. House 
and U.S. Senate will contain $10.3 billion in new funding, in total 
over $400 billion for domestic and international nutrition programs. 
The nutrition title of the bill accounts for two-thirds of the overall 
farm bill budget and is the single biggest increase for any title in 
the new bill. According to USDA's Economic Research Service, 
approximately one in five Americans participates in at least one food 
assistance program at some point during a given year.
International Food Aid
    NFU supports the recent calls by Members of Congress to expand the 
United States' international food aid. The President's budget for 
FY2008 requests $350 million for food aid programs; while some have 
recently called for an additional $200 million to help respond to 
today's situation. Unfortunately, increased energy costs are having a 
profoundly negative impact on our food aid donations.
    According to a 2007 Government Accountability Office, 65 percent of 
expenditures of the largest U.S. food aid program are for 
``transportation to the U.S. port for export, ocean transportation, in-
country delivery, associated cargo handling costs, and 
administration.'' According to Dr. Christopher Barrett, a professor of 
development economics at Cornell University and editor of the American 
Journal of Agricultural Economics, it costs more than $2 of U.S. 
taxpayers' money to deliver $1 worth of food procured as in-kind food 
aid. Despite the negative impact of increased oil, gasoline and diesel 
expenses on our food programs, we should continue to do all that we can 
to ensure no one goes to bed hungry.
Strategic Oil Reserve
    National Farmers Union has urged the president to halt deposits to 
the Strategic Petroleum Reserve (SPR), which currently holds more than 
$80 billion worth of oil. There is precedence for this response, with 
President Bush's decision 2 years ago to temporarily halt deposits in 
order to help alleviate consumer gasoline prices. Not only would we 
like to see deposits halted, but with the price of oil reaching $120 
per barrel on Monday morning, we urge the president to open the SPR to 
help alleviate gas prices. SPR oil entering the marketplace within 
thirteen days after a Presidential directive would result in a much 
more profound positive economic impact for consumers than waiving the 
RFS or discouraging the production of biofuels.
Excessive Oil Profits Tax
    As I mentioned above, the price of fuel has twice the impact on 
retail food costs as the price of corn. While ethanol production is 
being characterized as the root of all evil, the oil and gas industry 
continue to receive billions of dollars in tax breaks from the Federal 
Government while major oil companies make record profits. Exxon Mobile 
reported its 2007 profits were the highest ever recorded; earning more 
than $1,287 of profit for every second of 2007, for a total of $40.6 
billion. Instead of cutting the ethanol mandate, maybe Congress should 
cut the big oil and gas subsidies. Some have suggested imposing an 
excessive profits tax on oil companies and direct those revenues to 
help offset any increased consumer expenses or increased livestock 
inputs as a result of oil prices. Farmers Union would fully support 
that effort.
                                summary
    In summary, rising food prices do affect American families but not 
as a result of our renewable energy policies or at the benefit of 
American farmers. The challenge of higher food prices needs to be 
evaluated in its full context and the multiple causes be studied 
including increasing energy prices, reduced production, weakened 
currency, international trade, speculators in commodity markets and 
increased world demand.
    Two short years ago, agriculture critics blamed the United States 
for low commodity prices that prevented developing nations from 
producing their own food and cheap commodities for enhancing the 
obesity epidemic. Today, the same critics are blaming higher commodity 
prices for causing hunger across the world. We cannot win. What do they 
want? It seems as though all other sectors of our economy are 
encouraged to achieve the American Dream, except for farmers. I have 
repeatedly stated that profits should not be a dirty word for 
agricultural producers.
    Thank you for the opportunity to testify and provide the American 
farmer and rancher's perspective to this debate. I would be happy to 
answer any questions committee members may have.
[GRAPHIC] [TIFF OMITTED] 44702.030

     Prepared Statement Richard Reinwald, Owner, Reinwald' s Bakery
    I would like to thank the Joint Economic Committee for holding this 
hearing today on how high food prices are affecting American families. 
I would especially like to thank my Senator from New York, Chairman 
Charles Schumer, and Vice Chairwoman Carolyn Maloney for their 
leadership on this important issue.
    My name is Richard Reinwald and I own Reinwald's Bakery in 
Huntington, Long Island, New York. I am First Vice President of the 
Retail Bakers of America (RBA) and I am also affiliated with the 
American Bakers Association (ABA).
    When we opened Reinwald's Bakery in Huntington, we continued a 
family tradition that now spans over 75 years and four generations. Our 
bakery makes everything from pies and breads to fancy cookies and of 
course, birthday and wedding cakes. We are very proud to be a part of 
people's lives in celebration and everyday life. We feel we contribute 
to the lifestyle that makes Huntington a great place to live and work.
    It is almost to the day when we opened up 20 years ago. The first 
few years were a constant struggle and my wife and I did not know if we 
would make it. It was a great relief when the stress of that time was 
over.
    Now the stress is back. In the last 12 months, we have seen 
explosive price increases on just about every commodity we use. This 
has created a perilous situation that threatens our ability to continue 
doing business in our community. For example, a one-hundred pound bag 
ofbread flour that cost $17.00 in 2006 today costs $52.00. Semolina 
flour was $21.00 per one-hundred pound bag; today it is $72.50. Soy oil 
and eggs have also doubled in the last year.
    In a matter of weeks, our cost of goods sold soared to an all time 
high. Our bowl cost, or the cost of dough coming out of the mixing 
bowl, went from twenty-two cents per pound to fifty-one cents per pound 
for rye bread. Rye flour, used to make the best part of a deli rye 
sandwich, has not only doubled but is now in short supply and we are 
beginning to import rye from Europe as long as it is available.
    How does one respond to such increases? In the past, Reinwald's 
Bakery has tried to couple small price increases with a strategy that 
enabled us to ``sell'' our way out of difficult times. The classic 
business response to rising material costs always has been to increase 
prices, cut labor, eliminate waste, seek economies of scale and 
pressure suppliers. We have been forced to do all of these things 
recently and until December of last year our strategy was working. Then 
in January the crisis came full circle--flour prices again reached new 
highs and wheat supplies plummeted to new record lows. Today I ask 
myself what strategy will we use to survive this year--what will we do 
now?
    In February, we were forced to institute dramatic price increases 
across the board. Prices on bread items in particular increased 
significantly. A one-pound loaf of rye that sold for $2.65 in April 
2007 today costs $3.45. In talking with bakers across the country, 
these kinds of increases are fairly common.
    For us, the result of these increases has been a drop in volume of 
about 5 to 7 percent. While this may not sound like much, it is the 
difference between profit and loss; staying in business or closing the 
door. Some of my colleagues have not fared so well. A baker in Tampa 
has seen a decrease in volume of 18 percent since Oct.
    I feel very fortunate to have a loyal customer base. They 
understand. that if we didn't raise prices to these levels we could not 
continue in business. However in conversations with them, my customers 
are angry and frustrated. They ask me what can I do.
    To respond to these record high prices, I, along with many other 
wholesale and retail bakers from across the U.S. came to Washington 
D.C. in March of this year to participate in the Band of Bakers March. 
ABA, in conjunction with RBA and many other food industry associations 
and their members, met with Members of Congress, the USDA and the White 
House to discuss what can be done in light of the current commodity 
crisis.
    While I and every other baker in the U.S. understand that high food 
prices have been caused in part by increased worldwide demand, a 
weakened dollar and adverse weather events such as last year's drought 
in Australia, the ethanol program, which continues to subsidize food 
for fuel, and other government programs that pay farmers not to farm 
their land, have also led to the current food crisis.
    Why are we putting food in our gas tanks instead of our stomachs? 
As bakers we have no gripe with the farmer--they are trying to make a 
living like everyone else. But it is difficult to explain to my 
customers that flour prices are increasing because farmers are choosing 
to grow crops for fuel and not for food--that the government is 
incentivizing farmers through subsidies to grow corn for ethanol and 
not corn for feed and food uses. Wheat acreage continues to dwindle 
because farmers can make more money growing government subsidized fuel 
than they can growing food. Even with current record prices for flour, 
the response to grow wheat is greatly diminished because of mandates 
for ethanol production. The U.S. has a finite number of acres to use 
for farming, and fuel crops have taken over many acres that were 
previously used to grow food. Where will the land come from to grow 
more crops to meet new ethanol mandates? U.S. cropland is already 
stretched to its limit.
    Now is the time for Congress to act on this issue. I am aware that 
the EPA can waive the renewable fuel standards (RFS) in cases when 
domestic supplies are not sufficient to meet demand or when 
implementing the RFS may severely harm the economy--I would argue that 
we are in the midst of insufficient demand and that the RFS is 
currently harming the economy. I encourage members of this committee to 
re-evaluate the ethanol program and to take necessary actions to waive 
the renewable fuel standards passed in the Energy Independence and 
Security Act of 2007.
    Before closing, I would like to mention an outcome that is 
incidental, but no less important. Often overlooked is the impact that 
price increases have on donations to food banks. We sell our fresh 
bread for only 1 day and then happily give any that is left over to our 
local food pantries. I know that I am not alone in this practice, as 
many other bakeries in the industry also do the same. With the advent 
of increased costs we are tightening our inventory and we have been 
forced to bake closer to anticipated demand, as have other bakers. The 
food pantry that has come to rely on our production overruns and 
therefore is now short of food when demand is higher. This comes at a 
time when more and more people need the relief that food pantries 
provide to help them through these tough times.
    In closing, I would again like to thank this committee, Chairman 
Schumer and Chairwoman Maloney for taking time today to discuss this 
important issue. To reiterate the problem, food prices, including baked 
goods, are reaching all times highs at a time when the economy is 
already near its breaking point. Consumers cannot afford to continue to 
pay record high prices for basic foodstuffs. I encourage this committee 
to revisit the ethanol program and ensure that there is a proper 
balance between food for American families and alternative fuels. In so 
doing all Americans might enjoy a wholesome diet and still live within 
a reasonable budget.
    Thank you.
    Rich Reinwald
                                 ______
                                 
 Prepared Statement of the American Bakers Association and the Retail 
                           Bakers of America
                            i. introduction
    The American Bakers Association (ABA) and the Retail Bakers of 
America (RBA) thank the Joint Economic Committee, and especially 
Chairman Charles Schumer, for holding this critically important hearing 
on How Are High Food Prices Impacting American Families? ABA greatly 
appreciates the opportunity to present its views to the Committee.
    The ABA is the national trade association that serves as the 
principal voice of the American wholesale baking industry. Its 
membership consists of more than 200 wholesale bakery and allied 
services firms. These companies are a variety of all sizes, ranging 
from family owned enterprises to companies affiliated with Fortune 500 
corporations. Together, these companies produce approximately 80 
percent of the nation's baked goods. The members of the ABA 
collectively employ tens of thousands of Americans nationwide in their 
production, sales and distribution operations. The ABA, therefore, 
serves as the principal voice of the American wholesale bakery 
industry.
    The Retail Bakers of American is made up of approximately 2,000 
retail bakeries, allied suppliers and other members, who are committed 
to the success of the retail baking industry. We foster the community 
of retail bakeries providing a forum for exchange of industry and 
business information, as well as networking, learning opportunities and 
mentoring among bakers, future and existing.
                          ii. commodity crisis
    ABA and RBA are extremely concerned about high food prices and low 
commodity stocks in the United States and around the world. Wheat 
availability has sharply decreased while prices have sharply increased 
since the last quarter of 2007. This has happened for multiple reasons, 
including increases in the standard of living resulting in greater 
consumption of grains and meat, the devaluation of the dollar, adverse 
weather events (such as the 2007 Australian drought), programs that 
encourage farmers to take their land out of production and the 
increased demand of alternative fuels production. While there is little 
that can be done regarding adverse weather and the weak dollar, ABA 
believes Congress and the executive branch can take action to help 
alleviate the current volatile situation.
    The Conservation Reserve Program (CRP) takes viable acres out of 
production by offering farmers incentives not to produce crops on their 
land, while the ethanol program encourages farmers through special 
subsidies and incentives to grow food crops for alternative fuel 
purposes. This combination of tightening supplies of finite arable 
land, coupled with increased incentives for biofuels, has played a key 
role in igniting the current commodity crisis.
    The USDA projects that U.S. wheat production is expected to 
increase, but any increase will be ``more than offset by increased use 
and trade prospects'' and that ``global ending stocks of wheat are 
projected to be the lowest in 30 years.'' In past years, U.S. wheat 
surplus stocks have averaged a 3-month supply. Today, these wheat 
stocks are dangerously low. Current estimates have wheat stocks at 
twenty-four days, over two-thirds lower than average supplies. For 
example, hard red winter (HRW) wheat stocksto-use ratio (carryover 
stock for any given commodity as a percentage of the total demand or 
use) is estimated at 10 percent at the end of the 2007/08 crop year. 
This means that when the wheat marketing year ends, the U.S. will have 
roughly between twenty-four and twenty-five days worth of wheat supply, 
spread out in every stage of production, from the farm to the bakery. 
The last time levels were this low was in 1946, when the United States 
exported much of its wheat crop to war torn countries in Europe and 
Asia.
                          iii. impact on food
    Food prices have dramatically increased during the first quarter of 
2008. In 2007, food inflation rose 4.9 percent, 2 percent above 
average. From January to March 2008, grocery food prices rose 5.3 
percent. Cereal and baked goods are part of this inflation, as prices 
for these products increased 15.7 percent during this same period.
    Unfortunately, ABA and RBA have reason to believe this is not the 
end of high inflation for food products. The prices of many food 
products, including baked goods, do not yet reflect show the impact of 
increased ingredient and other input costs. For example, a bakery may 
enter into a contract to purchase wheat flour for $50 per 100-pound 
bag, but may not pay for the flour until it is delivered, which could 
be three to 4 months from the date of contract. This means that baked 
goods purchased today may reflect input prices from 3 months ago; 
higher wheat prices today will translate into higher bread prices 3 
months from now. This is important to note as grocery food prices are 
rising due to high prices paid for input costs in January and February 
2008. Input costs in February and March reached record highs, which may 
indicate that consumer prices for food will also continue to reach new 
records.
                        iv. causes and solutions
    ABA and RBA strongly believe that Congress and the executive branch 
should carefully consider the needs of the domestic food industry first 
when supplies of wheat and other commodities drop to dangerously low 
levels. Not doing so places unnecessary risk on the U.S. food supply as 
well as undue burdens on consumers. Low commodity surplus stocks in the 
U.S. leave too much to chance, as even a slight weather or 
transportation problem could lead to possible serious global food 
shortages.
    It is important to note that there is no one fix for the current 
commodity crisis. ABA believes, though, that steps can be taken to help 
stabilize commodity markets, give wheat users increased confidence 
about supply availability, and most importantly, provide some relief 
for consumer concerns about escalating food prices.
Food for Fuel: A Need for Balanced Policy
    Ethanol as a gasoline additive is currently being used in the 
United States to increase gasoline's octane thereby improving vehicle 
efficiency and power. The nation's ethanol industry relies almost 
exclusively on corn-based ethanol to manufacture this ``renewable 
fuel.'' Ethanol currently constitutes only a small fraction of the 
United States' fuel supply, but domestic production capacity has more 
than doubled since 2001. This trend is likely to continue as the 2007 
``Energy Independence and Security Act of 2007'' (Act) is implemented. 
The Act mandates new requirements for production of biofuels to 36 
billion gallons in 2022 from 7.5 billion in 2012. By 2022, 
approximately 15 million gallons of the 36 billion will come from corn-
based ethanol.
    This has the potential to continue impacting the nation's commodity 
stocks and consumer food prices. USDA stated in January 2008 that the 
nation's 2007 corn crop was one for the record books, with 13.1 billion 
bushels of production eclipsing the previous high, set in 2004. 
Further, if projections are correct and there is an increased demand 
for corn-based ethanol, other grains, including wheat, may be in short 
supply.
    Unfortunately, the baking industry is already experiencing adverse 
consequences from the ethanol program, as their ability to continue 
bringing cost-effective products to the marketplace has been 
dramatically hindered because of fuel crops taking land from food 
crops. Furthermore, recent studies show that biofuel mandates will 
increase overall food prices by 7 percent in 2008 and 8 percent in 
2009. As mentioned before, consumer prices are increasing at record 
rates, with little relief in sight unless action is taken to alleviate 
the food for fuel dilemma.
    Concerns remain that the 2007 Energy Bill will do little to change 
the nation's immediate fuel and energy challenges in the next three to 
5 years, while exacerbating the current commodity crisis. For example, 
even if the entire U.S. corn crop were used to make ethanol, it would 
only replace 7 percent of national oil consumption. Taking food crops 
and turning them into fuel will not lead to U.S. independence from 
foreign fuels, but may lead to extremely tight food supplies, higher 
grocery store prices for all consumers, and dependence for food 
commodities from foreign countries--a position of concern with regard 
to food defense and national security.
Policy Solution
    ABA and RBA strongly believe that there are two policy alternatives 
to the current ethanol program which will help alleviate the commodity 
crisis.
    First, ABA, RBA and its members call on the Environmental 
Protection Agency, in consultation with the United States Department of 
Agriculture and the Energy Department, to waive renewable fuel 
standards until domestic supplies are adequate to meet standards. As 
most agricultural food stocks are at or nearing record lows, it is 
imperative that the ethanol program be postponed until food stocks are 
adequate to provide nutritious, low cost products to consumers and 
allow for further exploration and creation of alternative fuels. This 
will also require that Congress re-evaluate the corn-based ethanol 
program and include a clear mechanism to periodically evaluate the 
nation's grain situation, allowing for future waivers in cases of 
projected food shortages or drastic consumer price increases, adverse 
weather conditions leading to low commodity stocks, environmental 
challenges, infrastructure bottlenecks or other adverse consequences 
stemming from the current ethanol program.
    Second, ABA and RBA urge Congress to eliminate the domestic corn-
based ethanol credit as well as the ethanol import tariff. While it is 
important to relieve the U.S. dependence on foreign sources of oil, 
doing so at the cost of the food supply endangers consumers across the 
nation. Eliminating, or at the very least, temporarily waiving these 
credits and tariffs will send important market signals to commodity 
producers that more food crops must be grown to meet demand. 
Incentivizing ethanol production in, order to meet current mandates 
does not allow the market to react accordingly to demand.
    In summary, ABA and RBA support increasing the use and development 
of non-food based alternative fuels to improve the nation's energy 
efficiency, but such policies should ensure a balance between 
alternative fuel production and the ability to provide consumers with 
reliable and affordable food products.
Availability of Commodity Acreage
    ABA and RBA are highly alarmed about current and future wheat 
availability and the impact of high wheat prices on wheat users, 
including consumers. A major contributor to the dangerously tight wheat 
supplies is the increasing pressure on finite arable farm land in the 
US, as competition for land has increased due to ethanol mandates and 
general commodity demand.
    Wheat plantings have tumbled in the last 10 years, and the U.S. now 
harvests fewer wheat acres than it did in 1898, the same year ABA was 
founded. In most years, US production of hard red spring wheat for 
bread is insufficient to meet total usage. Bakers and other food 
producers are experiencing critical difficulties in obtaining flour, 
the key ingredient in not only baked goods but other foods as well.
    At the same time, the USDA allows up to 39.2 million acres of crop 
land to be enrolled in the Conservation Reserve Program (CRP), with 
34.6 million acres of US cropland currently left idle within the 
program. A significant portion of CRP acreage is located in large wheat 
producing states. There is reason to believe that as much as one-third 
of acres under contract in the CRP could be returned to production 
without sacrificing environmental standards, since much of this land is 
not environmentally sensitive.
Policy Solution
    ABA has held numerous meetings over the last 8 months with 
Congress, the USDA and the White House to express our mounting concerns 
regarding wheat availability.
    ABA and RBA continue to call on the USDA Secretary to immediately 
use his authority to waive penalties for farmers wishing to follow 
market signals and return land retired through the CRP to production. 
In this regard, an Environmental Impact Statement (EIS) may be required 
prior to USDA action to grant early outs from CRP contracts. Since this 
step could take months to complete, ABA is urging USDA and the White 
House to begin work immediately on this project and to give it high 
priority status.
    ABA and RBA also strongly support decreasing the total acreage 
allowed within the program by one-third. This compromise will continue 
to protect environmentally sensitive lands, increasing the focus of the 
CRP to lands that should be protected, such as waterway filter strips 
and similar areas, while at the same time allowing farmers to return to 
production viable lands that can be used to meet current commodity 
demands.
                             v. conclusion
    ABA, RBA and their respective members applaud the Joint Economic 
Committee for holding this hearing regarding the impact of food prices 
on American families, and especially thank Chairman Charles Schumer and 
Vice Chairwoman Carolyn Maloney for their leadership on these issues. 
The current commodity crisis greatly impacts American families, making 
it more difficult for consumers to put food on the table. ABA and RBA 
believe that implementing these changes to our current energy and 
agricultural policies as outlined in this statement will not only allow 
the market to correct itself, but more importantly, ease concerns 
regarding the potential threat of food shortages. Thank you again for 
the opportunity to address this important issue with each of you today.
  

                                  
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