Congressional committee delves into higher food prices

by Keith Nunes
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WASHINGTON — There is consensus in Washington that food price inflation is a growing problem for consumers, but there is little agreement on the best course, if any, government officials may take to alleviate what is often being referred to as a crisis. On May 1, Senator Charles Schumer of New York convened a Congressional Joint Economic Committee hearing about how rising food prices are impacting American families and to look into possible remedies.

"While gas prices seem to be the No. 1 issue today, I believe the anxiety felt over high food prices is going to be just as widespread and will equal or surpass the anger and frustrations so many Americans have about higher gas prices," Mr. Schumer said.

Representative Jim Saxton of New Jersey addressed the hearing, stating that government policy has made a major contribution to food price inflation.

"As the respected Financial Times noted yesterday, ‘Protection, subsidies and other such follies distort agriculture more than any other sector … the present crisis is a golden opportunity to eliminate this plethora of damaging interventions.’"

Mr. Saxton said efforts to reform farm subsidy programs in the new farm bill appear to have fallen short. He added that the import tariff on ethanol is another factor contributing to the higher food prices.

Providing a food industry perspective at the hearing was Richard Reinwald, the owner of Reinwald’s Bakery in Long Island, N.Y. In his testimony, Mr. Reinwald outlined how his costs have risen in the past year.

"We have seen explosive price increases on just about every commodity we use," he said. "For example, a 100-lb bag of bread flour that cost $17 in 2006 today costs $52. Semolina flour was $21 per 100-lb bag; today it is $72.50."

In February Mr. Reinwald was forced to increase his prices across the board and, as a result, his company has seen a decline in volume of about 5% to 7%.

While saying that he understood there are a variety of factors that have led to higher food prices, Mr. Reinwald took exception with the U.S. renewable fuels policy.

"Why are we putting food in our gas tanks instead of our stomachs?" he said. "As bakers we have no gripe with the farmer — they are trying to make a living like everyone else. But it is difficult to explain to my customers that flour prices are increasing because farmers are choosing to grow crops for fuel and not for food."

Mr. Reinwald called on Congress to waive the renewable fuel standards (R.F.S.) in cases when domestic supplies are not sufficient to meet demand or when implementing the R.F.S. may harm the economy.

Tom Buis, president of the National Farmers Union, Washington, did not agree with Mr. Reinwald’s solution to easing the pressure on food manufacturers.

"Instead of cutting the ethanol mandate, maybe Congress should cut the big oil and gas subsidies," Mr. Buis said. "Some have suggested imposing an excessive profits tax on oil companies and direct those revenues to help offset any increased consumer expenses or increased livestock inputs as a result of oil prices. Farmers Union would fully support that effort."

Mr. Buis added that two years ago, people blamed the United States for low commodity prices that prevented developing nations from producing their own food and that cheap commodities were partially responsible for the increase in the incidence of obesity.

"Today, the same critics are blaming higher commodity prices for causing hunger across the world," he said. "We cannot win."

In the short term, Joseph Glauber, chief economist for the U.S. Department of Agriculture, said prices for raw materials will remain high.

"Futures market prices suggest that grain and oilseed prices will remain high over the next few years," he said. "The rapid expansion of biofuel production, high input costs, and strong foreign demand will continue to play a major driving force in U.S. and world agriculture. Yield growth and supply response both in the U.S. and abroad will help moderate crop prices in the long run, but for the near term, tight supplies will keep markets volatile with much attention paid to growing conditions worldwide."

The outlook means pressure will grow on Congress to take some form of action, and Mr. Saxton of New Jersey sees the farm bill as a good starting point.

"As consumers face higher prices in coming months, members of Congress will continue to express their concern," he said. "However, what matters more than rhetoric is the action that Congress takes. Will Congress actually proceed to enact what Congressman (Ron) Kind (of Wisconsin) described as a ‘nightmare’ of ‘wasteful, outdated subsidies’ even as food prices continue to rise, or will there be genuine reform? As things appear now, the prospects for reform don’t look very promising."

This article can also be found in the digital edition of Food Business News, May 13, 2008, starting on Page 22. Click here to search that archive.

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