Squeezed by rising food costs

The surge in food costs has been attributed to several factors, including the increasing number of American farmers who now grow corn to supply the ethanol industry instead of food companies. In turn, they have reduced the amount of land farmed for wheat and soybeans, leading to a huge strain on food processors such as ConAgra Foods, Kraft Foods, General Mills, and Kellogg.

Corn prices have soared, hitting $6 a bushel, up 50% from 2007 and triple the price of three years ago. Corn is the main ingredient in livestock and poultry feed, so prices of milk, chicken, and meat are also higher. "It is important to note the contribution of runaway energy prices to the retail cost of food," says Jim Sartwelle, an economist with the American Farm Bureau. "Transportation, processing, and packaging cost significantly more now than in prior years." According to a survey by AAA, the average price of regular unleaded gasoline was $3.365, up 20% from last year, with many expecting $4 per gallon in some places this summer.

Supplies dwindling at food pantries

In many parts of the world, extreme food price increases and shortages have led to riots. In America, while the effects of high food prices are felt widely, they are especially hard on the lowest-income consumers. Many food banks around the country are reporting empty shelves even as the ranks of hungry people coming in have risen. The BedStuy Campaign Against Hunger, a nonprofit food pantry in one of the poorest sections of Brooklyn, N.Y., is feeding as many as 6,000 people a month, up 15% from last year, with children comprising half of the visitors.

"I'm sorry to say that the families who came in to pick up food last Tuesday found that we didn't have any milk, rice, juice or pasta," says Reverend Melony Samuels, who runs the pantry and is also a pastor at the Full Gospel Tabernacle of Faith church. Samuels says it has become harder for private donors to supply food because costs have gone up. Her group also depends on the federal government, which distributes surplus commodities to thousands of food banks. However, these surpluses have dwindled. Samuels' pantry now receives only half what it did from Uncle Sam in 2007.

Those who can afford the $45-$50 annual membership fee for a warehouse club are saving their money by buying in bulk at Costco or BJ's Wholesale Club, where sales are humming. On Apr. 10, Costco reported same-store sales growth of 7% in March, while BJ's sales rose 6%. After reporting a 31% increase in profits in its last quarter, Costco Chief Financial Officer Richard Galanti noted that sales of fresh foods and deli food have helped lift sales overall. Wal-Mart saw a 0.7% increase in March sales, falling short of expectations of a 1% increase. But that didn't dampen the ebullient mood of Wal-Mart executives who raised the company's guidance for first-quarter earnings. As prices of food continue to be pressured, retail executives expect the parking lots like the one at the Wal-Mart in Monroe to remain packed.

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