Commentary: A high-priced lesson

News flash: Red meat prices are expected to rise faster than overall food costs in 2012, according to USDA. Retail prices began rising this spring and may increase an additional 1 percent to 3 percent this summer.

Why? Analysts say that supermarket meat prices have increased because producers have scaled back on the number of cattle, hogs and chickens they raised last year after drought and other weather issues drove up feeding costs.

According to a report by the Associated Press, a wet spring delayed corn planting in 2011. Because carryover stocks were low and demand was robust from livestock producers, ethanol processors and overseas buyers, traders drove up the price of corn futures to a high of $7.87 a bushel last June.

Cattle feeders “felt the pinch,” and producers cut back on the number of animals they raised to offset higher feed costs. Plus, a devastating drought in parts of the Southwest forced ranchers to sell off larger numbers of cattle, rather than pay high prices for forage.

The result was that by January, U.S. cattle herd numbers reached the lowest point in 60 years. Live cattle futures jumped to $131per hundredweight in February, the highest level in decades. Obviously, those costs were passed along from feedlot owners to meatpackers to retailers and eventually to consumers cooking out on their grills.

Mitigating the crisis

The bottom line is that in all of the news coverage concerning meat prices, there were solid, easily understood reasons to explain the sticker shock people are experiencing as they cruise their supermarket’s meat case.

When supply and demand affects pricing, most people don’t like it, but they get it.

That brings to mind a recent report issued by the Worldwatch Institute regarding the global food crisis that occurred in 2008 and 2009. Between 2005 and 2009, world prices for rice and wheat doubled, while corn prices rose more than 200 percent, according to the UN’s Food and Agriculture Organization. The price hikes caused food shortages and even outright starvation for millions of people in the developing world. At the very least, countries that are dependent on food imports saw their populations suffer from less-than optimal nutrition for months, even years, during that time period.

The crises was made even worse by the imposition of export restrictions—even export bans—instituted by several major exporting countries, which drove up prices and disrupted production locally. Due to panic buying and a severe lack of transparency internationally, some importing nations purchased excess amounts of basic grains in an attempt to control prices. However, that only exacerbated waste and spoilage.

On the other hand, several policies helped mitigate the global food crisis, according to our State Department, including:

• Market-based responses and targeted safety nets. Safety nets “support the purchasing power of the poor without distorting domestic incentives to produce more food.” That helps to alleviate the short-term impacts of higher food prices without disrupting pricing for farmers.
• Reduction of import restrictions. Governments that decreased tariffs and taxes on imports decreased prices for staples in their own countries. Also, by publicizing credible information on food supplies, many countries were able to mitigate price hikes.
• Emergency donor assistance. As a short-term fix, governments, NGOs and private sector organizations can provide aid assistance in emergency situations.When food prices rise, people in developing countries—especially the poorest populations—are the most vulnerable and prompt crisis responseis critical.

However, the most important factor noted by State is what was termed “long-term attention to the agricultural sector.” Countries that invest in domestic agricultural productivity “decrease their vulnerability during times of volatility” and provide protection against short-term shortages in global supplies of food commodities.

Those investments include new agricultural technologies and infrastructure in transportation, distribution and supply-chain management, plus promotion of market-based principles for agricultural sector development and regional trade.

In other words, anticipating and preparing for the inescapable impact of supply and demand.

It’s an insight that explains the relatively mild price hikes affecting our domestic meat supply, and it’s a recipe for dealing effectively with global issue of food shortages and price hikes that caused such disruptions and suffering three years ago.

Some lessons need to learned, and re-learned time and again.

Dan Murphy is a food-industry journalist and commentator

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