Why is the cost of food rising so rapidly?

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In much of the developed world, it's all too easy to take a day's meals for granted. Breakfast is something you grab going out the door, lunch is a diversion, and dinner is an evening's entertainment. And while a trip to the grocery store may be a bit of a chore, it's far from a life-and-death situation. However, the rising cost of food threatens to change much of this.

This customer buys food at a grocery store near Frankfurt, Germany. Germany's consumer price index jumped 3.1 percent from March 2007 to March 2008, due to rising food and energy costs.

In the United States, even the poorest households spend only 16 percent of their income on food [source: The New York Times]. In other countries, especially developing nations, that figure reaches 75 percent and higher. Rising food prices may be inconvenient for some households, but in parts of southern Asia and Africa, a 25 percent rise in food costs can lead to starvation, riots and political upheaval.

According to the World Bank, food prices have risen by 83 percent in just three years and will likely continue to rise [source: Cowen]. Governments have imposed tariffs and trade restrictions in an attempt to stabilize prices. In parts of Asia and Africa, food costs are already leading to social unrest. Global organizations like the World Bank and the United Nations World Food Programme are trying to alleviate the suffering. But why are food prices rising so rapidly?

While economists and critics place a great deal of blame on the growing biofuel market, experts identify a number of other contributing factors, ranging from global weather patterns to changing dietary trends.

So will people start pouring water in their cereal because they can't afford the cost of milk? In this article, we'll examine the many factors that are contributing to the rapid rise in food costs.

Biofuel Production and Trade

This South Dakota ethanol plant turns corn into burnable fuel.
This South Dakota ethanol plant turns corn into burnable fuel.
©iStockphoto.com/Jim Parkin

Biofuel production and trade are major reasons that demand is outstripping supply. Of the various contributors to rising food prices, biofuel production often receives the most attention. After all, it's a story of conflict between rich nations and poor nations, of environmentally-friendly advancements producing unforeseen negative results. Biofuel technology involves producing fuel from renewable, biological sources such as corn, soybeans, sugar, rice and potatoes instead of nonreusable fossil fuels. The two main types of biofuel are ethanol and biodiesel.

Freedom from foreign oil and a renewable alternative to gas -- sounds like a winning concept, right? The U.S. and several European countries thought so. They promoted ethanol research and gave farmers financial incentives to sell corn and other crops for use in biofuels. The problem, however, is corn that winds up in your fuel tank isn't winding up in anyone's belly. There is suddenly less product to meet customer demands for consumable corn -- this drives up the price of the product. In the United States alone, experts estimate a third of the country's corn crop now goes to ethanol plants instead of grocery stores and feed barns.

Rising produce prices then trickle down the production line to other items, leading to an input cost increase. Want to chomp down on some pork chops? Well, those pigs were probably fed on corn, which boosts the price of pork. Hankering for a corn dog? Now you have to contend with both elevated pork and cornmeal prices. Also, biofuel incentive programs have forced farmers to cease production on other crops to better focus on the ones supplying rich ethanol payoffs.

Trade factors also complicate matters by artificially raising food prices and limiting free trade. For instance, many countries place tariffs on imported or exported goods to give domestic markets and products a competitive edge. The U.S. actually pays some farmers to keep their fields bare in order to keep supply down and prices up. As global food costs rise, many nations are limiting exports to try to keep domestic prices from rising any further and to avoid potential food shortages at home.

But it's not just a matter of the world not getting enough to eat -- we're getting hungrier and looking for ways to satisfy bigger appetites. Read on to find out how our eating habits could be affecting the price of food.

More Consumption, Less Production

At heart, trade issues always come down to the principle of supply and demand, a game of tug-of-war between the producers and consumers. While issues on the supply side have certainly played a major role in rising food prices, experts also lay a portion of the blame on countless hungry mouths in the world.

There are approximately 6.7 billion people in the world, and the population increases by 78 million each year [source: Chamie]. To complicate matters further, analysts expect much of this growth to occur in Africa and Asia, where food prices are often highest.

Food price analysts also mention China and India's recent economic growth as additional factors that are driving up the cost of food. Large populations in these areas suddenly found themselves with enough disposable income to purchase meats and other pricey foods they were previously unable to buy on a regular basis, leading to more consumption. This follows an economic principle called Engel's law, which states that the healthier a country's economy, the more food its population consumes. A rise in the demand for meat means an increase in meat prices and an increase in meat production. This also ups the demand for produce, which is used to feed farm animals.

Some critics say rising food prices shouldn't be blamed on growth in countries such as India, but rather to the excess in countries like the United States. While the average Indian consumes 2,440 calories a day, the average American gobbles up 3,770 calories [source: Timmons]. Critics argue that if the average American cut down on how much food he or she consumes every day, global prices would drop.

Rising food costs are due to more than just changes in how much we eat or what we do with the crops. In some cases, high prices are due to forces beyond human control. The recent drought in Australia (the worst in the country's recorded history) drastically reduced its rice production -- crops which normally feed 20 million people worldwide [source: Associated Press]. Droughts in Eastern Europe have similarly hurt grain and corn production. Other major harvests were disrupted by floods in West Africa and North Korea, deep frosts in China, and droughts throughout Africa. Many experts worry that these are not freak weather occurrences, but are symptoms of climate change.

Halting the global rise in food prices is no easy task with so many intertwined causes. Efforts are underway to increase the production of high-yield crops in developing nations, as well as increase wages to cope with the increased cost of living. Governments and global organizations are busy adjusting ethanol subsidies, tariffs, and trade restrictions to reduce food shortages. On the consumer end, the responsibility largely falls to the individual. Could you change your diet to help alleviate hunger, starvation and social unrest on the other side of the globe?

To learn more about biofuels, climate, global trade and other factors affecting rising food costs, explore the links on the next page.

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Sources

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