Article: Editorial: Still Blessed -- September 2008
The growing, distribution of, preparation of and demands for food are undergoing rapid, long-lasting changes that will continue to increase food prices. Well-known factors include a growing middle-class in developing economies, such as India and China (they have 37% of the world’s population—more than the next 21 largest countries combined). As incomes grow, convenient, meat-rich diets are desired. Also, food acreage is being converted for fuel applications. The Government Accountability Office predicts 30% of the U.S. corn crop will be used for ethanol production by 2012. That drives the price of both plant foodstuff and grain-dependent livestock. Other factors include a complex mix of global agricultural, energy and trade policies, labor costs, weather conditions and energy-intensive processing, packaging and transporting of food. Few expect prices to significantly decline in the foreseeable future. (See William Roberts’ August ’08 editorial in Prepared Foods, “Commodity Crisis.”)
The world’s packaged foods processors face difficult decisions. One article, “Food Giants Race to Pass Rising Costs to Consumers” (WSJ, 8/8/08), reports that some companies, such as Nestle SA and Kellogg’s, have successfully increased prices, while others, such as Smithfield Foods and Tyson Foods, have seen their stock prices tumble in their difficulty to do so. Unprofitable, long-term contracts and concerns over consumers switching to private brands are just two challenges.
Despite increased food costs, Americans remain blessed. They pay a smaller proportion of their income on food than most other countries, although one 2003 thought-provoking treatise* by Ricardo Salvador and Gretchen Zdorkowski of Iowa State University points out the cost is low, because U.S. incomes are so high. For example, “An American household spending 10% of the median U.S. income of $42,228 actually spends more money on food than the Indian household that spends 51% of its $1,005 median income ($4,223 vs. $513).” They note that the food itself accounts for only 20% of the final retail cost….what consumers are paying for is “the freedom to be unconcerned about where your next meal is coming from, and increasingly about how it will be prepared and by whom (today about half of our meals are taken outside the home.)”
Consumers the world over want what they want. Prepared food companies know that raw material costs are only part of the challenge; squeezing costs out of processing, packaging and transportation will be key.
* www.foodandsocietyfellows.org/publications.cfm?refID =79154