[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?
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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
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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?
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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.
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* 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.*
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* Information was unavailable at time of publication.
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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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[GRAPHIC] [TIFF OMITTED] T2773.001
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.