An interesting article entitled “Load up the Pantry” in the Wall Street Journal by Brett Arends half jokingly asks America to start ‘hoarding food.” His logic is based on the fundamental principles of price/demand and supply.
“The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They’re all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.”
Why is this happening one might ask? The answer is fairly straightforward:
“The main reason for rising prices, of course, is the surge in demand from China and India. Hundreds of millions of people are joining the middle class each year, and that means they want to eat more and better food.
A secondary reason has been the growing demand for ethanol as a fuel additive. That’s soaking up some of the corn supply.”
Looking at the Consumer Price index, the ever increasing price of food and energy has been driving the index upward, in spite of significant declines in areas like apparel. In the last 3 months (ending Mar 2008), food prices have started to increase faster than their 12 month historical trend. Energy still remains far and away the biggest affect on the Consumer Price increase moving at an annual rate of 17 percent.
One of the real changes in a global marketplace is that shortages are a genuine concern, everywhere. Looking at the price of wheat over the past few years gives anyone a chance for pause. Some predict that this could continue for decades. On the bright side, investors looking at a market in which profitability is virtually assured are moving assets into the agricultural and select consumer food arena.
So, what and how should we buy? Clearly, nonperishable items are best , also products that are likely to be affected most by increased transportation costs. Some examples:
Canned goods
imported foods (pasta, condiments, wine)
Grains and Cereals
Paper products (computer paper, paper towels, etc.)
Of course, energy efficient freezers stuffed will seem golden if a turkey ends up costing $300.
Since the double digit inflationary period of the late ‘70’s, the best financial advice has been to keep your fixed costs low (mortgage/rent, car payments, utilities) in order to have enough cash to cover the ever increasing variable costs in one’s life (energy, food, entertainment, travel, and unforeseen expenses).
It’s an old formula that works in inflationary environments, like the one we are in right now.
Roger Freberg
I always like to hand accolades out when the media help out a socially worthwhile story.
