Why is the cost of food rising so rapidly?

Biofuel Production and Trade

This South Dakota ethanol plant turns corn into burnable fuel.
This South Dakota ethanol plant turns corn into burnable fuel.
ŠiStockphoto.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.