What Happened to the Food Surplus?

Surging demand, soaring prices, shrinking surpluses the commodities crisis, experts say, is the result of a perfect storm of changing economic and social forces. Perhaps the most sweeping is the expansion of markets in , and other large developing nations, creating new and rapidly growing demand for food products from the . The rising demand has helped push up food prices here and around the world.

At the same time, climbing fuel prices have made it far more expensive for farmers to produce food, and not just because most farm equipment runs on gasoline. Many of the fertilizers and pesticides used in conventional arming are petroleum based. As the price of a barrel of oil climbs, those costs also rise. The spiraling costs of transporting food for distribution and sale have also pushed food prices higher.

In response to soaring oil prices, the federal government has aggressively stepped in to help ramp up the production of ethanol from corn as an alternative to gasoline. Unfortunately, the strategy may have inadvertently driven grocery prices even higher by taking up agricultural resources that might otherwise have been used to produce food. Daniel Sumner, director of the University of California Agricultural Issues Center, has suggested that biofuels may be responsible for up to 50 percent of recent food price hikes, depending on the crop.

Whatever the causes, high food prices affect everyone. But in an increasingly global marketplace, Americans are being hit particularly hard because of the weakness of the U.S. dollar against foreign currencies.

“Currency prices really determine the price of food on the international market,” says Tom Buis, president of the National Farmers Union in . “Today’s food prices may seem high to us, but with the dollar at historic lows against many world currencies, they’re a bargain to overseas buyers.”

Speculation in the commodities markets, meanwhile, may be driving food prices even higher. According to government figures, investments in index funds tied to commodities increased twentyfold from 2003 to 2008. “My own conclusion,” Sen. Joe Lieberman, I-Conn., recently told a congressional hearing, “is that index speculators are responsible for a big part of the commodity price increases.”

For his part, Buis believes that commodities speculation accounts for as much as a third of food price inflation. “Believe me, when hedge fund managers start buying up corn futures, they have no plan to deliver corn to their customers,” he says. “They’re simply looking for a way to make money. That money has to come from somewhere, which means higher prices.”

All of this is good news to farmers in the , who can sell their output to new and growing international markets at top prices. Unfortunately, food banks and soup kitchens have paid a price. “The surpluses we saw five years ago, which helped stock food banks around the country, just aren’t there any longer,” says Doug O’Brien, executive director of Vermont Foodbank, which acquires and distributes food to 270 partner organizations around the state.