A Pirate's Cents and a Pirate's Sense

It is on the tip of all the news media’s tongues these days: Food. The price of food is going up all over. Everything from the basic stables of wheat (and thus bread) to high value end products, like beef. At a time when American’s budgets haven’t grown in years, food prices are again spiraling upward, putting pressures on a line item that people try to not think about: Food.

But prices are still going up. The NY Times has a section of their website devoted to food price related stories because they move the world. http://topics.nytimes.com/top/reference/timestopics/subjects/f/food_prices/index.html?inline=nyt-classifier .

CNN has been commenting on how basic food stuffs have been rising out of control for the last few months and there’s no end in sight: http://finance.fortune.cnn.com/2011/02/02/how-inflation-is-turning-breakfast-into-a-luxury-item/

There’s even discussion on how the crisis in Egypt is related to food prices: http://www.scientificamerican.com/blog/post.cfm?id=are-high-food-prices-fueling-revolu-2011-02-01

How does all of this affect you? The USA is truly blessed with super cheap food in comparison to our incomes. This is, however, going to change. The government subsidizes food throughout the supply chain. The government provides subsidies to the prices of crops and provides the roads and rails for food to be shipped and provides food stamps for people to buy these groceries. Many ‘basic’ foods are not taxed or have a reduced tax on their purchase, another form of subsidy.

But prices are going to go up. Those of us that have a budget will need to reflect on the fact that our budget is going to have to change. Those of us who live without a budget have a bigger problem. We’ll run out of money sooner and may not even realize what has happened. This can quickly result in financial shocks and bills being missed, friction between spouses, false accusations about splurging, etc.

Countries around the world are trying to figure out how to address this. Some are beginning to hoard food. Others have severe price controls in place. Nations like the US subsidize on a number of levels. Some would be prone to say, “the government will fix it. They won’t let prices get too far out of control.” This is a dangerous thing to think, especially in the USA or Europe. Why? Because the governments are broke.

The governments of the USA and Europe are broke. They can’t AFFORD to increase subsidies! They’re reducing financial support on social programs, schools, health care, etc. How do you think people around the world will feel when the government tells you, “Hey, we need to raise taxes to lower the cost of food”?

Especially in the USA, where the obesity epidemic is disproportionately amongst low income (http://factoidz.com/why-lowincome-and-obesity-are-linked-together/) when taxes are disproportionately paid by high income, there will likely be push back. After all, the theory goes, why should the middle class pay more taxes so that the poor can enjoy a richer diet?

So get ready for food prices to go up. And it’s just the beginning. The USA eats food from all around the world. Whole countries have specialized economies for growing foods for export. If some of these countries convert some of this farmland to subsistence agriculture that is subsidized by the government, then the supply of foods that the US imports (think Banana’s and other cheap basics) could suddenly go up. When people can no longer buy banana’s, they’ll buy more Apples. As apple prices go up, people will buy other things. Soon, foods that didn’t have a lot of competition will start going up in price.

It could all happen faster than that, even. For example, instead of companies net exporting food to the USA, what if more become net importers? What if their governments subsidize food so much that companies make more money selling food to other countries than selling it here? Prices will go up even faster than if we just had ourselves to compete with. With our free trade agreements, other nations can take food right off our shelves.

This month, I challenge everyone to sit down and do their budgets. Figure out how much they spend on food. All food. That’s food you buy at the grocery store, at the coffee shop, at the fast food joint, for lunch, for dinner, everything. Add in the cost of getting to and from the stores. Take all of that money (which I’d imagine most of you will be surprised at how much you spend), and then double it. Can you afford all of your food doubling in price? Can you afford $7/gallon milk? Can you afford a trip to your local grocery store going from $150 to $300? If you eat out as a family three times a month and spend $150, can you afford to spend $300? Add it all up, and the money will be shocking.

Think on the cost of gas too, it’s going up. Don’t you doubt it.

And we’re not talking in some hypothetical, distant future. We’re talking this year and next year. Maybe we’ll get a little warning, maybe we won’t.

Every year for the last few years, packages have been getting smaller. How often do you find a half gallon of milk? Did you notice that Ritz cracker boxes usually come with only 3 tubes of crackers? How about OJ coming in smaller, more decorative, jugs? Eventually, it’ll get to the point where people ask, “Where’s the beef?” (or, “where’s the OJ?”) Then, you will see prices explode.

So what will you cut back on? Eating out? Will you stop going out? Will you stop having fun? Which hobbies will you have to cancel when your food bill goes up another $500/month? (assuming you earn an average income and spend an average amount on food http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/ ).

I don’t know about you, but I don’t have any hobbies that cost $500/month, but I’m going to have to start finding ways to free up that kind of my money just in case food goes up. Might help to cut down on food, get in better health, plant a victory garden, etc.

We’re seeing just the beginning of the food rush here in the USA. Prepare yourself.