Ethanol a big factor, among several, driving up food prices

The impact of rising food prices are especially noticeable in school lunch rooms.

In Redwood Falls, the cost of making lunch has increased more than 10 percent in the last year. That is double the increase in overall consumer food prices.

As students descend on the cafeteria for a midmorning break, the school's Food Service Director Eileen Raddatz watches students snap-up the most popular items: cookies and the breakfast bagels.

Another thing the students buy is milk - 1,200 cartoons a day. Raddatz' supervisor, Mark Brodersen, said that milk is much more expensive than a year ago.

Milk prices have increased nearly 20 percent during that time. Brodersen has worked some 17 years for a food management company, Twin Cities-based Taher, Incorporated.

He said the high cost of dairy products has lead to some adjustments in what the Redwood Falls students eat.

"We modified the lasagna recipe," said Brodersen, "because the price of cheese is a lot higher than the price of the ground beef. So, we actually put more beef in and less cheese."

Those sorts of steps help, but they can't alter a fundamental reality: food prices are rising and there's no end in sight.

"I would say in the years that I've been working with school lunch programs, this, by far, has been the most difficult and challenging in terms of trying to control and manage our costs without affecting the program," said Brodersen.

Not far from the Redwood Falls schools are mile after mile of farm fields. Many of those fields grow corn. Some of it's used to make ethanol.

U.S. Agriculture Department economist Ephraim Leibtag said ethanol production is a major factor in rising food costs.

Production of the alcohol fuel consumes about a fifth of the nation's corn crop. That heavy demand has more than doubled the price of corn in the last 18 months. Leibtag said that jump has helped push up food costs.

"If corn prices were increasing 60 percent in a given year, you might see on average about a 6 percent increase at retail for those food products," said Leibtag.

Leibtag said the majority of corn is used as animal feed. That's helped increase the cost of meat. For example, poultry prices rose more than five percent last year.

Plus, as corn prices rose, more farmers decided to plant the grain. That reduced supplies of other crops, like soybeans, resulting in higher prices for soybean and soy-containing foods.

Leibtag said higher feed costs played less of a role in rising dairy prices than another factor. He said more people on the planet want to buy dairy products.

"World demand is growing as countries move up the income scale, as standards of living rise," said Leibtag. "Demand for food and demand for higher quality food rises, leading to higher commodity costs."

Rising demand also helped increase the price of wheat.

And then there's the weather. Leibtag said drought cut world wheat production. In the U.S. some wheat acres were switched to corn, shrinking already low supplies and contributing to higher prices.

Leibtag said there's one more factor in higher food costs. "We all drive by our gas stations and see the $3 plus price per gallon, so we know that gas, oil and energy prices are up," said Leibtag. "That impacts us in terms of running any business."

That means it costs more to grow, transport, process and package food.

Could things get worse? Economists like Leibtag say, "Maybe." Ever-increasing oil prices are one worry.

The other concern is this summer's weather. A Midwest drought, or too much rain, could significantly reduce U.S. corn, soybean and wheat production.

With ethanol demand growing that could set the stage for an unprecedented leap in commodity prices, and a corresponding jump in food costs.

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