07/01/08 High Food Prices

High food prices. I'm Greg Martin with today's Line On Agriculture. We are all paying more for almost everything. Food prices have hit record highs and people are quick to lay blame, but what are the real causes of the expensive spike? DWYER: Food prices are rising largely because the costs of producing food are rising around the world at a much greater clip than the productivity of global agriculture. Higher oil prices increase production costs, once limits the profitability of agriculture. That's Agriculture Department Trade and Biofuels Analysis Division Director Michael Dwyer who says that increased global demand also boosts prices. DWYER: Every year the middle class in the developing countries are getting wealthier and wealthier, and more numerous. The implications for global food demand are huge. All the fundamentals are in place on the demand side that we should see continued upper pressure on prices. Reduced stocks, partially due to global weather situations, just makes the problem worse. DWYER: Don't expect a lot of relief from high prices, because even though we do expect a rebound in production stocks are at such low levels that there's got to be some rebuilding of inventory. And as a result, prices will stay high. Dwyer says that other countries take food more seriously than in the U.S. DWYER: When incomes grow in developing countries a large portion of any income growth is spent improving diets. You and I get raises, we spend very little of it improving our diets. This is a demand that we satisfied years ago. That's not true in a place like India. When they get a dollar raise they'll spend as much as 30 to 40 cents of that dollar either on improving the quality or the quantity of what they eat. And while they spend their money to improving their diets, the U.S. has been developing ways to grow more food. DWYER: We've implemented biotechnology all sorts of new technology to keep our yields growing at a faster than trend rate. The problem is the rest of the world didn't do that. As a result they're in a pretty poor position right now to respond in a short period of time with a pretty significant amount of new production. Agriculture really will benefit from GMO technology, it is not the problem, it's actually the solution. Meanwhile the USDA reports that U.S. farmers planted 87.3 million acres of corn and 74.5 million acres of soybeans this year. Corn acreage was down seven percent and soybean acreage was up 17 percent when compared to last year. But, thanks to June flooding USDA says farmers will only harvest 78.9 million acres of corn and 72.1 million acres of soybeans. There is speculation both up and down that these numbers won't hold. Some say farmers will still plant a large crop. Others say it's simply too late. That's today's Line On Agriculture. I'm Greg Martin on the Northwest Ag Information Network.