Record food prices cause riots, stoke U.S. farm economy

The same record food prices causing riots in Algeria and export bans in India are allowing President Barack Obama to combine the biggest-ever U.S. farm exports with the tamest inflation since the 1960s.

Global food costs jumped 25 percent last year to an all-time high in December, according to the United Nations. Countries probably spent at least $1 trillion on imports, with the poorest paying as much as 20 percent more than in 2009, the U.N. says. In the United States, the largest exporter, retail food rose 1.5 percent last year and will gain as little as 2 percent in 2011, the Department of Agriculture estimates.

Governments from Beijing to Belgrade are boosting imports, limiting sales or releasing stockpiles to curb food inflation. Higher prices will push U.S. agricultural exports up 16 percent to a record $126.5 billion this year, according to a USDA forecast. While U.S. consumers haven’t been squeezed so far, grocers from Winn-Dixie Stores to SuperValu have said they plan increases. Commodities will keep rising, according to a Bloomberg survey of more than 100 analysts and traders.

“We are absolutely spoiled,” said Jason Britt, president of Central States Commodities Inc., a research and analysis company in Kansas City, Mo. “We have the luxury that we spend a small percentage on food. But I wouldn’t be surprised to see larger bites of our incomes used.”

About 19 cents of every dollar spent on food covers raw-material costs in the United States, so retailers can limit increases by cutting spending on labor or marketing, said Ephraim Leibtag, a food economist at the USDA in Washington. The consumer price index rose 4.2 percent since the end of 2007, the smallest three-year increase since 1965, Labor Department data show.

Producer spending for processed foods rose 4.9 percent in the U.S. last year, while consumer prices increased 1.5 percent, Labor Department data show. A record 43.2 million Americans received food stamps in October. The jobless rate is running at 9.4 percent, and Federal Reserve Chairman Ben Bernanke said Jan. 7 the labor market may take five years to recover.

The farm boom is aiding Mr. Obama’s goal of doubling U.S. exports in five years, with this year’s shipments accounting for 4 percent of the $3.14 trillion needed to meet the target.

U.S. farm income last year probably exceeded the 2004 record of $87.3 billion, and cropland values gained as much as 10 percent, according to Neil Harl, an agricultural economist at Iowa State University and former adviser to the governments of Ukraine and the Czech Republic.

Products for supermarkets rose 1.8 percent in the three months ended Sept. 22, while consumer prices gained 1.6 percent, Winn-Dixie CEO Peter Lynch said on a Nov. 2 conference call. Some will probably keep increasing to cover costs, and the Jacksonville, Fla.-based company has a “relatively good” chance of passing that to consumers, he said.

Some increases may not stick as companies compete for market share. “Low price is the focus in food,” said Bill Simon, president and chief executive of U.S. stores at Wal-Mart Stores Inc., the world’s largest retailer.

While the deflation of last year will shift in 2011 to a “slightly inflationary environment” in food, Bentonville, Ark.-based Wal-Mart expects to provide as much as 20 percent savings per shopping trip compared with competitors, Mr. Simon said Oct. 13. “We’re not going to get beat.”

Wholesale costs in the U.S. rose 1.1 percent in December from November, the most in 11 months, led by rising commodities including fuel and food, the Labor Department reported Jan. 13. Food rose 0.8 percent in December from a month earlier, spurred by the biggest gain in soft drinks since January 2007 and the largest surge in fruit in three years. Energy jumped 3.7 percent.

The Standard & Poor’s GSCI Agriculture Index of eight futures climbed 52 percent in the last 12 months, led by cotton, corn and wheat, as flooding in Canada, China and Australia and drought in Russia and Europe ruined crops. The U.N. food index, which tracks wholesale costs of 55 foods, now exceeds levels seen in 2008, when violence erupted from Haiti to Egypt.

Unrest is starting again. Three people were killed and 420 injured in protests over milk and flour costs in Algeria this month. Tunisian President Zine El Abidine Ben Ali tried to end a month of protests by promising lower prices for bread, milk and sugar, before handing over power to his prime minister on Jan. 14 and leaving the country.

The Serbian government said Jan. 10 it will consider an export duty on wheat to discourage shipments. South Korea said the following day it plans to increase the supply of some food products to help damp prices.

India, home to 1.2 billion people, halted onion exports in December after prices more than doubled in a year. Opposition parties have said they plan nationwide protests.

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