Hearing of the Joint Economic Committee - How Are High Food Prices Impacting American Families?

Interview

Hearing of the Joint Economic Committee - How Are High Food Prices Impacting American Families?

SEN. SCHUMER: Okay, the hearing will come to order, and I would like to welcome you all to our first congressional hearing this year about the soaring price of food and the impact on families across America.

For many years, price increases in certain foods, like cold cereal, have vexed consumers. But now we are hearing from people about food prices going up across the board. When you walk down the street, you hear people complaining about food prices almost as much as gas prices. While gas prices seem to be the number one issue today, I believe the anxiety felt over higher food prices is going to be just as wide-spread, and will equal, or even surpass the frustration so many Americans have about higher gas prices. I want to look at what's behind the rise in food prices, and frankly, what that rise in prices looks like for average American families.

My wife Iris and I went to Fairway last weekend, our neighborhood grocery store in Brooklyn. And we continued to be floored by the prices. From aisle to aisle, shelf to shelf, including everything from staples to special treats, the prices families are paying to fill up their shopping carts go up and up and up. And they go up a lot.

While we've been cringing at gas stations as gas prices have more than doubled since 2001, now it's a double whammy. People pay more to drive to the supermarket, and then get hit with higher prices when they get there.

Our family does pretty well, but even we feel it. Like many others, we have a family budget, and right now we're budgeting $40 more a month for groceries. While we feel the $40 dollars is something we can afford, many families just can't. They don't have the extra income for higher food prices, and have to stretch their dollars, or even worse, cut back on their food purchases altogether.

The price of milk, cheese, chicken, eggs, ground beef, regular stuff, nothing fancy, are way up. If you're trying to eat healthier, it's even worse. Now, when we buy a — when we go shopping, we buy this light wheat bread, like this loaf here. We're paying almost $4 now. That's up from $3 since we started eating it a few years ago. I'm a meat eater, and what we buy now is largely dictated by what's on special that week at Fairway or at Costco.

My daughter, like many young people in families now, wants to buy organic chicken and organic food. Those prices are shooting up even higher. At Fairway we can buy a regular chicken for about $5--that's also an increase. But an organic chicken is $12. This dozen organic eggs cost my staff about $6 this morning.

So everywhere you go, prices are higher and higher and higher. And higher food prices have squeezed small businesses, too. Our local bakeries, two of them closed recently. Uprising, which sold bread and cakes on Seventh Avenue, and Regina's Italian Bakery, which had been there for decades and decades and decades. Was it because of higher grain prices? I don't know for sure, but it certainly wasn't because local bakeries are making a killing off their local customers. Even bagels are over $5 for a dozen, now.

When it comes to higher food prices, even when they're not going up by large percentages, there isn't much room for error. Everyone has to buy food to feed their families. It already swallows about 12 percent of the average household budget. When gas prices are high, families may decide to drive a little less, or carpool, or take the subway. When food prices are higher, families just can't decide not to feed their children. That's not acceptable. And because they have less to spend on food, what they do buy is less and less healthy.

Now, to be clear, not every single product in the grocery store is more expensive than it was a year ago, or even seven years ago. Some food products, because of more efficient processing, less transportation, or just more plentiful supply costs consumers less, or as much as they have, for years. For instance, the price of pork per pound has gone down about 20 percent from January 2001 to last month.

But the prices of the staples we all depend on for a healthy diet -- eggs, bread, milk, fruits, are rising by eye-popping leaps and bounds, especially in the last year. For instance, between January 2007 and 2008, egg prices went up nearly 40 percent, and are about 80 percent higher than they were in January of 2001.

And eggs are just one example in a broader trend. From January 2007 to January 2008, the consumer price index, the CPI, for all food grew by nearly 5 percent. That's the highest 12 months increase in over 17 years. Americans are paying 5 percent more for food, and the same time, many people are seeing their paychecks shrinking.

As we'll learn in more detail from our panel, flour prices have gone up at least 30 percent since January 2001. This has raised prices for good old, processed white bread, but has also raised the cost of fresh-baked breads, rolls, muffins, things you might buy at Reinwald's Bakery or H&M Bagels.

Another area that's not on the radar screen just yet, but will be a bigger problem as farmers adjust their crops is the rising cost and potentially dwindling supply of fruits and vegetables. Apples, grapefruits, potatoes, beans, and broccoli have gone up over 20 percent since January 2001. Peppers are almost 40 percent more expensive. While some might be telling us to make lemonade out of the lemons this economy has given us, even this is going to be more expensive. The price of lemons have gone up nearly 50 percent.

Now, we have some charts here on the prices for foods, vegetables, grains, milk, and eggs. Let's look at the average-priced items we shop for in our grocery stores, and how much they've gone up since last March. As I said, fruits and vegetables have gone up a lot. This is just from last March. Peppers, 20 percent. Tomatoes and bananas, 13 percent. Apples, 10 percent. Look at the next chart. Pasta, up over 13 percent.

A regular loaf of bread, 12 percent. A pound of beans is 17 percent higher. Flour is up a whopping 32 percent. The next one, milk, a staple, 20 percent higher a gallon.

Buying a dozen eggs is 30 percent more expensive than it was last year.

So while the economic message we're getting out of this administration sounds like, "Let them eat cake," I assure you, it is much more expensive cake than you were eating when President Clinton was in office. Even the foods that aren't going up as much is still going up beyond the level of inflation.

Energy costs. Two of the main culprits sending food prices higher are commodity and energy costs. Agricultural prices were up over 33 percent in the past 12 months. And, between March 2007 and March 2008, inflation-adjusted corn and soybean prices shot up 35 percent and 67 percent respectively. To Mr. Reinwald, the baker from Long Island, to Mr. Reinwald's detriment, wheat prices increased unbelievably by over 130 percent.

Energy is the key ingredient to the food industry, both for primary commodities, and for processing, marketing, and distributing everything from apples to zucchini, and bread to yogurt. And, of course, the price per barrel of oil has sky-rocketed beyond 100 (dollars). Today it was $116. The price for natural gas, this is the primary ingredient for making fertilizer, up 33 percent. Diesel fuel, which not only trucks our goods, but most farmers use diesel fuel in their combines and tractors and other farm machinery, that's up 45 percent. And regular unleaded gasoline, of course, has gone up 27 percent. High gasoline prices don't just raise the transportation cost. They also increase the demand for gasoline substitutes, mainly, ethanol, derived from corn.

On top of the higher gasoline prices, tax subsidies and federal biofuel mandates have boosted the amount of domestic corn products devoted to producing ethanol to one-quarter of the crop in 2007. It was less than 15 percent in 2005. That's a lot of corn taken out of food production. And in 2008, over 30 percent of the corn crop will be going into gasoline tanks, according to USDA estimates.

This has obviously raised the price of corn and grains because farmers have shifted more land into corn production, squeezing domestic supplies of wheat and many other crops. In other words, you don't have to be a big corn eater to feel the results of the demand for corn. Because when farmers produce more corn, they produce less wheat and everything else. And that drives prices up across the board.

Corn, soybean, wheat, and energy prices have gone up so much that consumers are seeing significant increases in the price of groceries. Eggs and dairy prices are up sharply, in part because the cost to feed animals has doubled since 2001. Energy costs have helped drive fruit and vegetable prices higher because highly processed foods are less vulnerable to higher commodity prices, but are still going up because of increased energy costs. The Food and Agricultural Policy Research Institute predicts that continuing high oil prices and biofuel mandates from last year's energy bill will keep prices at historic highs across the board.

It is critical to remember that commodities are global, and supply reductions in other countries are transmitted to prices paid in U.S. markets. Bad weather, like droughts in Australia and Eastern Europe, and reduced production in Canada, Western Europe, and the Ukraine, have put world grain stocks at historically low levels as demand has grown, especially in places like China and India.

Beyond increasing energy prices, biofuel mandates, global demand and weather issues, speculation, emboldened by low interest rates, may also have some role in raising prices for consumers. Low real interest rates increase the profitability and decrease the risk of speculating in commodities and also act as a hedge against inflation.

Moreover, the falling U.S. dollar has decreased consumer purchasing power and made these higher food costs tougher to swallow, especially among middle and lower income families. Now, you can see on this chart the percentage of family budgets that go for food. These families are spending even a higher percentage of their income on food. And you can see the lowest quintile spends 32 cents of every dollar on food. That's a third. It goes to 16 percent to 7.2 percent for the highest, and senior citizens, of course, spend a little more, 11.8 percent.

According to this chart, 80 percent of families spend more than 10 percent of the budgets on food, and for the bottom 20 percent, families that make the least, $1 in $3 they earn after taxes goes towards buying food. So higher food prices are especially bad news for poor households. The share of U.S. households that receive food stamps have climbed dramatically, from 7.5 percent in December 2001 to over 11 percent in December 2007, and these numbers may even understate the problem.

On a global scale, higher food prices and scarcity are leading to civil unrest in many developing nations, like Haiti, that almost solely rely on imports for food. And last week, Costco and Sam's club discount stores were limiting the amount of rice customers could buy. It's another place where food prices have gone up. Prohibiting customers from purchasing more than four 20 pound bags of rice certainly isn't going to cause riots, but it's evident that families, even here at home, are anxious.

Getting to the bottom of high food prices will not be easy. There are multiple causes. But as we consider appropriate policy responses, we need to understand them, and hopefully our panelists will help us do that today.

Congressman Saxton is our next speaker, and we're going to let everybody make brief opening statements today, if you so wish.

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SEN SCHUMER: Thank you, Senator Klobuchar.

And now we're ready for our first witness, who is Dr. Joseph Glauber. He is the chief economist of the U.S. Department of Agriculture. I'm going to ask the other panelist to wait until we get -- Dr. Glauber has finished his testimony and then they can come up and join him and we'll introduce them.

Dr. Joseph Glauber is the chief economist, as I mentioned, for the U.S. Department of Agriculture. As chief economist, he is responsible for the Department's agricultural forecasts and projections and for advising the Secretary of Agriculture on economic implications of alternative programs, regulations, and legislative proposals. He is the author of numerous studies on crop insurance, disaster policy, and U.S. farm policy, and has served as Senior Staff Economist for Agricultural Natural Resources and Trade at the President's Council of Economic Advisors as well as an economist at the Economic Research Service, USDA.

Dr. Glauber, your entire statement will be read in the record. I'd ask you to confine your testimony to five minutes, and then we'll have the other witnesses.

Thank you. Dr. Glauber.

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SEN. SCHUMER: Thank you, for an informative testimony.

Now we're going to ask our other witnesses to come forward as I introduce them, and we'll hear their testimony and do questions for everybody.

First, we have George A. Braley. He is the Senior Vice President of Government Relations and Public Policy at America's Second Harvest, the nation's largest charitable hunger relief organization. Prior to joining Second Harvest last September, Dr. Braley was the associate administrator of the Food and Nutrition Service at the Department of Agriculture. As the agency's senior executive, Mr. Braley, along with the administrator had overall responsibility for the nation's food assistance programs, including food stamps, child nutrition, WIC, and food distribution.

Tom Buis?

(Group response) Buis.

SEN. SCHUMER: Buis. Thank you, Mr. Buis.

The President of the National Farmers' Union. They represent a quarter million farm and ranch families. He has been with the organization since 1998 and was elected president in 2006. Prior to joining NFU, Mr. Buis served for five years as senior agriculture policy advisor to Senate Majority Leader Tom Daschle. Before moving to Washington D.C. in 1987, he was a full time grain and livestock farmer in Putnam and Morgan counties in west-central Indiana with brothers Mike and Jeff, who continue to operate the family farm.

And finally, at the other end of the food chain, we have Mr. Richard -- or almost at the other end; I guess we're at the -- your customers are at the other end -- we have Richard Reinwald, the owner and co-founder of Reinwald's Bakery in Huntington, New York on Long Island. Mr. Reinwald opened the bakery in 1988. He's a third generation retail bakery owner and he's also first vice president of the Retail Bakers of America and has served on the RBA Executive Committee since 2004, and the Board of Directors since 1994. He also served as president of the New York State Association of Manufacturing Retail Bakers and the Nassau-Suffolk Retail Bakers Association. He works in the bakery with his wife of 30 years, Carol, and one of his three sons works in the business, making his son the fourth generation in the family bakery.

Mr. Braley, Mr. Buis, Mr. Reinwald, your entire statements will be read into the record. Please go forward and we ask you to try and stay within the five minutes.

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SEN. SCHUMER: Thank you, Mr. Reinwald.

I want to thank all the witnesses and it shows you the complexity of this issue from the different points of view, but the real sharpness of this issue is really with us now, and it's something that has not been explored. We have to understand the problem before we can give answers.

Just quickly, to follow up with you, Mr. Reinwald, just briefly; do you think you'll be forced to reduce hours or create further layoffs on your staff? Are you going to be forced to continue to raise prices? And are you worried you might ultimately go out of business?

MR. REINWALD: Fortunately, I own the real estate so I am -- my wife will tell me I'm behind on the rent. And I am. And we're looking to maybe cut down hours and also to cut a day off scheduling so that bread would only be available for five days instead of the current six.

SEN. SCHUMER: Gotcha.

Okay. And what are your customers saying when they come into your bakery?

MR. REINWALD: Customers are, I have to say are, very frustrated and to a person they were very excited and glad that this committee is holding the hearing today. Basically, they say, "Go down there and give them hell."

SEN. SCHUMER: Thank you, Mr. Reinwald.

To MR. GLAUBER: tell us, I mean, you've had -- there are a number of different causes here, I don't think there is just one. Increases in world demand, increases in fuel and diesel costs, poor crop production due to weather, increase domestic demand for corn due to ethanol and speculation in commodity markets by hedge funds. In your opinion, which of these one or two factors has most played -- has played to most significant role in driving up food costs? If you had to pick, say, two of those five?

MR. GLAUBER: I guess I would start by saying that depends on the commodity, and understand that if we're looking at, say, something like a CPI for food, that that largely depends on the weight of that commodity in the overall food basket. So it's easier to talk about --

SEN. SCHUMER: Let's talk about say, wheat and flour.

MR. GLAUBER: Okay. I think wheat I would lay most of the blame as world weather over the last two years and we've had devastating drought in Australia. Australia is a major wheat producer for two years running, and fortunately, this last year, not only did we have poor crop in Australia, but we also had a very poor crop in Canada, we had a poor crop in Europe, and a poor crop in the Ukraine. And that really shot up prices.

SEN. SCHUMER: So that should make things get better.

MR. GLAUBER: Yes, I think it --

SEN. SCHUMER: -- the weather gets better.

MR. GLAUBER: -- the weather should get better. The other thing is that world -- the world is responding to higher prices. It's unfortunate in one sense, it's probably good that it didn't occur -- the price run up didn't occur back in the fall. But if it had, or in the summer, I think we would have seen a lot more winter wheat planted here in the U.S. We are going to see an increase this year, to 64 million acres planted, which is an increase over last year.

SEN. SCHUMER: How about eggs? What would be the number one reason for the increase, dramatic increase in the price of eggs?

MR. GLAUBER: Eggs we're expecting -- you know, eggs is -- I think I mentioned in the testimony. Egg prices, retail prices, are pretty much -- if you look at the relative value or the farm value, they're pretty high.

SEN. SCHUMER: Yeah.

MR. GLAUBER: You do have some -- or some transportation. You do have some -- keeping them cool, all that. So it's really a production issue. We had a problem with layers that manifested itself in a very rapid increase. I think some -- just looking at the chart, almost a 30 percent increase last year in egg prices. We're expected -- that to moderate this year.

SEN. SCHUMER: But why did it go up so much? What's the reason?

MR. GLAUBER: Well, the problem with layers. We had -- you know, the chickens that lay the eggs.

SEN. SCHUMER: Oh, layers. Got it.

MR. GLAUBER: We -- (laughs) -- yeah, yeah. There are production problems.

SEN. SCHUMER: Mr. Reinwald thinks when you say that it's cake.

(Laughter.)

MR. GLAUBER: Yeah, that's true, and I should be careful.

SEN. SCHUMER: Yeah.

MR. GLAUBER: It was all new to me 20 years ago.

SEN. SCHUMER: So what were the problem with the layers?

MR. GLAUBER: Well, we had a reduction in numbers, and --

SEN. SCHUMER: And why?

MR. GLAUBER: Well, a variety of reasons. There were some health reasons, if I'm not mistaken. There's also -- I'm sorry. I don't know the full thing.

SEN. SCHUMER: Okay.

MR. GLAUBER: I can certainly answer that in a written question.

SEN. SCHUMER: And how much would you attribute the price in corn increase and things that use corn to the move to ethanol required by law two, three years ago?

MR. GLAUBER: Very little. The prices -- these were really production effects that hit a year ago when corn prices were just beginning to creep up, you know, and since then, again, we're seeing the production increasing on eggs with higher prices of --

SEN. SCHUMER: No, I'm asking corn now, corn price.

MR. GLAUBER: Yeah, no, I understand. There's no denial that livestock and livestock product producers have been affected by very tight margins caused by higher feed costs. There's no question about that. I'm not meaning to minimize that. And I think in particular as we look forward with these high feed costs that you could see potential problems on expansion on -- that could begin to hit that industry.

SEN. SCHUMER: Thank you.

MR. GLAUBER: I was just passed a note by one of my helpful assistants who mentioned the fact that a lot more -- instead of laying eggs, a lot more went into the broiler market and actually sold as meat because of the increased trade overseas.

SEN. SCHUMER: Right. Okay, thank you.

MR. REINWALD: Senator, could I bring a street view into this? I was in the state of Minnesota several weeks back, and I had some conversations with farmers from Minnesota and also North Dakota, and I heard today about the semolina flour mostly being grown in the North Dakota and Minnesota region, and that is true. And the anecdotal evidence that I heard from these farmers is that the corn has been GMO, genetically modified, so that -- they can now grow the corn crop further north, and a lot of the wheat farmers that used to grow semolina in Minnesota and in North Dakota are now moving to corn.

And there's a great advantage to corn. I'm sure the Department of Agriculture will notice this, is that corn yields 160 bushels per acre. Wheat yields 40. Do the math.

SEN. SCHUMER: Thank you. And we will let Senator Klobuchar when it's her turn talk about what's happening in Minnesota, too.

SEN. KLOBUCHAR: Thank you, Mr. Chairman.

SEN. SCHUMER: My time has expired. I am going to have to go -- they called an emergency leadership meeting just an hour ago and I have no control over the time, so I want to apologize to my colleagues, and I'm going to have Congresswoman Maloney continue chairing the hearing. But thank you all. This was excellent testimony, and it's going to cause a lot of food for thought. Thanks.

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