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Why Americans Should Have A Beef with Uncle Sam over Rising Meat Prices

Food costs have outpaced other staple items this year. It doesn’t need to be that way.

If you’ve gone to the grocery store recently and noticed that your family budget can’t afford as much beef, pork or chicken these days, the Wall Street Journal reports that you’re definitely not alone:

Food costs have outpaced other staple items during the past year, climbing 1.4% according to the consumer price index released Wednesday. But meat prices — which include beef, poultry, eggs and fish – rose 2.9%.

[P]rices for poultry and pork — in addition to beef — have been rising because the price of corn has gone up. “As the most-produced crop in the United States, corn is a major ingredient in most animal feed,” says Cohen. “Increasing corn prices are passed on to livestock farmers in the form of higher feed prices because corn is a key ingredient for cattle, swine and chicken feeds.”…

Even outside of the grocery store aisles, consumers are likely to feel the food price burden. The cost of food eaten outside of the home is up 1.9% for the year.

The WSJ should be commended for raising what has been a disappointingly underreported story over the last few years.  Reporters too often obsess over “core inflation” (which omits food and energy prices), and thus miss a problem that disproportionately hurts struggling American families who must expend an ever-increasing share of their never-increasing budgets on food.  Indeed, one industry consulting firm recently estimated that between 2006 and 2012 the typical family of four paid $2,055 more per year in food bills than it would have paid if these costs hadn’t suddenly started trending upward.  Truly painful.

However, I only wish the WSJ had dug deeper into one of the main causes of this pain: dumb U.S. government policy.  As I explained in the Investor’s Business Daily in August, agricultural protectionism has artificially inflated U.S. food prices, and other, more recent policies have them rising from this already-high perch.  First up is U.S. ethanol policy:

Perhaps the biggest offender is the government’s continued support for ethanol, particularly through the Renewable Fuel Standard (RFS) which requires refiners to add increasing amounts of biofuels to gasoline.  After the RFS became law in 2006, ethanol production capacity – and demand for corn feedstock – exploded, thus creating a domino effect of price increases from corn to other staple crops to meat, poultry and dairy, and finally to Americans’ grocery bills.

Indeed, the Congressional Budget Office concluded in 2009 that US ethanol policy was responsible for up to 15 percent of the total increase in domestic food prices, and benefited a small cabal of farmers and biofuel producers at the expense of American families and the economy more broadly.  Subsequent studies have confirmed the CBO’s findings, and, with the RFS mandating ever-larger shares of ethanol in our gas tanks, things have only gotten worse….

Second, easy money and government subsidies have led to skyrocketing farmland prices:

Rock-bottom interest rates and easy money also contribute to rising food prices by increasing energy costs and facilitating intense speculation by both farmers and Wall Street investment firms in the US farmland market.  Further encouraging these investments are ethanol-driven crop prices and the fact that farmland benefits from many federal subsidies, especially the types of crop insurance that both the House and Senate just expanded in the latest Farm Bill.

As a result, a “farmland bubble” has emerged. The Kansas City and Chicago Federal Reserve reported that in 2012 irrigated farmland in their districts climbed 30 percent and 16 percent, respectively.  Meanwhile, prices for cropland in Iowa and Nebraska have almost doubled since 2009.

Thus, although market forces like increasing global demand and recent droughts have undoubtedly helped to push food prices higher, there is also little doubt that US laws and regulations add insult to injury.  It’s about time some enterprising politician caught on to these facts and championed real, free market reforms that would not only help the U.S. economy, but also make American families’ grocery bills just a little more bearable.

In the meantime, the American people should send those bills to the following address:

1 1st Street
U.S. Capitol
Washington, DC

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The views expressed herein are Scott Lincicome’s alone and do not necessarily represent the views of his employer, White & Case, LLP.

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