As if a housing crisis, rising energy costs and a soft labor market weren't enough to cause economic anxiety for the average American, now consumers are feeling the pinch of rapidly escalating food costs. The United States has long prided itself in being the breadbasket of the world, and Americans have traditionally paid a smaller share of their income on food than citizens of other developed countries. But the days of cheap milk, bread, beef and poultry may well be over -- and Uncle Sam is partly to blame.
In 2007, the cost of a gallon of milk increased 26 percent; eggs went up 40 percent; and a loaf of white bread went from $1.05 to $1.28 from 2006 to 2008. Steep increases in the price of oil have contributed to these higher costs, but the federal government has played a pernicious role as well. By mandating that oil companies increase the amount of ethanol they blend with gasoline, the government has not only artificially increased the cost of corn, which is what most U.S. ethanol is made of, but has driven up the cost of other grains as well.
Inflated corn prices encourage farmers to divert more acreage to corn, which means they plant less soy and wheat, which, in turn, drives the prices of those commodities up as well. The aggregate price of wheat, corn, soy oil and soy meal in the U.S. will be $61.7 billion higher in the 2007/2008 crop year than it was in 2005/2006.
Corn prices affect a host of other food prices as well. If you've ever looked at the ingredient labels on everything from bologna to canned tomato soup, you'll see that corn syrup is a common ingredient of many processed foods. Corn is also a common grain used in feed for cattle, poultry and hogs. As a result, prices for meat and poultry are going up, but even with higher prices, some companies in the meat industry still can't make a profit, and many are being forced to cut jobs and close plants. I've seen this firsthand as a member of the board of directors of Pilgrim's Pride, the nation's largest chicken producer, where we have already had to shut down one plant and close six distribution centers to cope with record losses directly attributable to soaring feed costs.
But what is most galling about the impact of government mandated ethanol production is that it does little or nothing to solve our energy problems. Ethanol proponents argue that it is cleaner than petroleum -- which improves air quality -- and that it and other alternative fuels will reduce U.S. dependence on foreign oil. Both claims are dubious.
Linda Chavez is chairman of the Center for Equal Opportunity and author of Betrayal: How Union Bosses Shake Down Their Members and Corrupt American Politics .
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