ARLINGTON, Va. — When Tim Hammonds addressed the Food Marketing Institute Show in Chicago last year, he spoke about a long-term “repricing” of food as a result of increasing global demand and the diversion of corn for the manufacture of ethanol.
He plans to again remind attendees of those market dynamics at this week's show, he told SN.
“This is not a short-time bounce in prices that is going to come down anytime soon, because there are lots of reasons for it,” Hammonds, president and chief executive officer of FMI, told SN in a recent interview.
Those reasons, he said, include improving diets in other parts of the world, and increasing costs for fuel.
“There are lots of contributing factors, which would include ethanol, but not solely ethanol,” he said. “I do believe we have repriced food, and it's not going to go back to prior levels in the foreseeable future — and that's going to cover several years.”
His comments follow widespread reports of soaring food costs around the globe, sparking riots and protests in developing nations where the spending on food encompasses a much larger percentage of per-capita income than it does in the United States.
“In America we spend less than 10% of our income on food at home and food away from home combined, so increasing food costs by a few percentage points is a problem for people,” he said. “If you are in a country where you are spending 50% or more of your income on food, it is a crisis, and that I think is going to be very difficult for the world to deal with.”
Last month Robert Zoellick, president of the World Bank, said the pressures on the global food supply, including those from improving diets and the increasing use of biofuels, “have reduced world food stocks to a level bordering on an emergency.”
“Rising food prices, which have caused social unrest in several countries, are not a temporary phenomenon, but are likely to persist for several years,” he said.
In an interview with SN, Jeff Noddle, chairman and CEO of Supervalu, Minneapolis, said he believes some pricing pressures will be relieved eventually as farmers plant crops that are most in demand, although it could take time.
“I think the world will respond,” he said. “As long as we don't have any severe crop failures or anything, I think things will continue to improve, but the economics take time. In the meantime, you've got a lot of pressure on food prices. The challenge for retailers and distributors is to try to be as efficient as possible to help people out in their food costs, and that's what we're trying to do.”
Some retailers have already been forced to react to the global food crisis — in recent weeks Costco and Sam's Club have both placed restrictions on the amount of rice customers can buy as they anticipate supply pressures from countries that have restricted exports. Other food retailers also were said to be placing restrictions on rice sales.
Ed Schafer, secretary of the U.S. Department of Agriculture, said in a speech last month that although there may be some short-term relief in food prices as farmers plant needed crops, overall prices are expected to “remain higher for much of the next decade.”
Noting that some economists have referred to recent food-cost pressures as “the perfect storm” of issues, Schafer said the factors impacting the phenomenon of rising food prices are complex. They include the growth in demand for food in developing nations; a reduction in commodity stocks among export nations; the “global push for biofuels”; and higher oil prices.
“Energy is the real issue here, not biofuels,” he said. “Biofuels are a factor, but currently under the price situation not ‘the’ factor.”
Still, Hammonds said pressure on food prices could be eased if more ethanol production were derived from sugar cane rather than corn.
“We have tariffs now on sugar cane coming in from Brazil, and sugar cane ethanol is more efficient than corn ethanol,” he said. “So if we are really looking to help with our dependence on oil, opening the doors more freely to sugar cane ethanol would be a step in the right direction.”
Cal Dooley, CEO of the Grocery Manufacturers Association, called on the U.S. government to “reexamine” its policies supporting ethanol production and to act quickly.
“These ‘food-to-fuel’ mandates have caused a massive increase in the price of corn and other food staples, with ripple effects that are now being seen across the globe,” he said in a prepared statement.
The corn-to-ethanol controversy has begun causing some governments to take a closer look at their biofuel policies. Last week, reports said the European Union was considering a range of options to restrict subsidies on biofuel imports as it “seeks to distance itself from charges that its push for biofuels is creating hunger around the world,” London's Financial Times reported.
In the U.S., some states also have begun to reexamine their policies that support ethanol production.
Missouri, for example, last week began considering pulling back on its support for corn-based ethanol production, and Texas has asked for a partial waiver of U.S. mandates for ethanol production, according to reports.
Hammonds said other legislative remedies might also be available to assist in reducing food costs in the U.S., such as making it easier to drill and explore for oil.
“There are ample opportunities to rethink a broad range of policies,” he said.
Hammonds said other legislative remedies could include easing tariffs on sugar imports. He also suggested that encouraging the use of genetically modified crops could increase production in developing countries.