Looming Price-Hikes On Food Set To Hit Americans Even Harder This Fall
Authored by Kevin Stocklin via The Epoch Times,
In its effort to contain inflation, the Federal Reserve has launched what many expect to be an ongoing series of interest rate increases, which are already taking a toll on stock and housing markets, with job losses likely to follow. As weary as Americans have become from paying record high gas and grocery prices, however, another round of price hikes is making its way through the food supply chain and is expected to reach consumers this fall.
“People don’t realize what’s fixing to hit them,” said Texas farmer Lynn “Bugsy” Allen.
“They think it’s tough right now, you give it until October. Food prices are going to double.”
The 8.8 percent increase in food prices that Americans have already seen does not take into account the dramatic cost increases that farmers are now experiencing. This is because farmers pay their costs upfront and only recoup them at the point of sale, months later.
“Usually, what we see on the farm, the consumer doesn’t see for another 18 months,” said John Chester, a Tennessee farmer of corn, wheat, and soybeans. But with the severity of these cost increases, consumers could feel the effects much sooner, particularly if weather becomes a factor.
Lorenda Overman, a North Carolina farmer who raises hogs and grows corn, soybeans, and sweet potatoes, said the spike in fuel costs has put her farm into the red this year. “Nothing that consumers are paying is going to bridge the gap for farmers right now,” she said. “The prices now have not hit the grocery stores yet,” but she expects they will start to by the end of summer.
Much of the cost of food hinges on the price of oil.
“They have no electric trucks delivering that food and there are no electric tractors,” Allen said.
“It takes diesel to run all this.”
Chester said that fuel and fertilizer together make up 55 percent of his total costs. The price of diesel fuel has more than doubled, from $2.50 per gallon at the end of 2020 to more than $5 per gallon today. Farmers say the cost of fertilizer, an oil derivative, has tripled and in some cases quadrupled.
“When you look at the machinery that uses diesel, it’s farm equipment, it’s railroads, and it’s truckers,” said Daniel Turner, Executive Director of Power the Future, an energy advocacy group. Diesel “moves all of our goods, it grows our food. From cargo ships arriving from overseas to trucks or trains getting those goods across the country. All those things now have added costs that will get sent to the consumer.”
“That surge in food and energy costs is very demand destructive for U.S. households,” said Joseph Lavorgna, Chief Economist at Natixis, a European bank. “If you have to pay a lot more money for your food, to heat or cool your home, or put gasoline in your vehicle to get to work, there’s less money available elsewhere.” Price hikes in gas and food will leave Americans with less money to spend on other goods, which will reduce demand and have a knock-on effect on the wider economy.
Economic reports are indicating that Americans are already unable to keep up with inflation. Household savings fell to the lowest rate in 14 years, as people struggle to maintain their standard of living. Credit card debt is hitting record highs, and retailers say they are preparing for more consumers to limit their spending to the “bare-bones basics.”
While it is possible that Americans’ loss of spending power may help to reduce inflation, some economists fear a return of 1970s-era “stagflation,” rising prices coupled with economic stagnation and increasing unemployment. That period of inflation was ultimately tamed by the Fed raising interest rates to nearly 20 percent.
In contrast to the Carter-era energy crisis, which was sparked by an embargo from foreign oil producers at a time of declining American oil output, today’s energy shortages are largely the result of domestic U.S. government policies, as the Biden administration attempts to force Americans to switch from fossil fuels to wind, solar, and electric. This effort has included shutting down pipelines, suspending oil and gas leases, and putting up regulatory roadblocks—all of which has reduced new investment in American oil and gas production.
Last week, Biden stated that the spike in oil prices was “an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels.”
Energy Secretary Jennifer Granholm said last week that rising oil prices were “an exclamation point” for the need to transition to wind and solar and “build homegrown clean energy.” Granholm previously stated that “if you drive an electric car, this would not be affecting you.”
With natural gas prices now hitting a 14-year high, Biden’s Department of Energy recently posted “a few tips on how you can prepare your home and office to safely navigate a blackout.”
Samantha Power, head of Biden’s Agency for International Development, said the solution to rising fertilizer prices is “natural solutions like manure and compost, and this may hasten transitions that would have been in the interest of farmers anyway. Never let a crisis go to waste.”
“That’s not the real world,” Overman said. “We are in the highest density for hog production in the nation and there’s not enough hog manure or turkey manure or chicken manure to fertilize our crops. We tried this fall to lock in some chicken and turkey litter to spread on our crops and there’s none to be had. There’s just not enough animals to produce the amount of fertilizer we need.”
“Energy is a very capital intensive business and we’re basically down to about half the level of cap-ex within energy that we had a couple years ago,” Lavorgna said. “A lot of that has to do with the fact that oil companies are not tone-deaf to what shareholders want, or more importantly what the regulators and politicians want.”
Gasoline prices are posted at a gas station in Washington on May 26, 2022. (Nicholas Kamm/AFP via Getty Images)
“It’s incredibly curious that of all [Biden’s] rhetoric, I have yet to hear anything along the lines of ‘we will do everything to increase production in America.’” Turner said.
“They are comfortable with the current state because of their green philosophy, and we’re just necessary casualties.”
Together with ruptures in global supply chains, oil and food prices are a key reason why many economists think the Fed will have a particularly hard time taming inflation. “There is a real risk the price [of gas] could reach $6 a gallon by August,” Natasha Kaneva, head of global oil and commodities research at JPMorgan Chase, told the press. “U.S. retail price could surge another 37% by August.”
The higher prices climb, the more aggressive the Fed will need to be to contain inflation.
“We think the risks are skewed towards a much more significant recession, as inflation proves more persistent than is generally expected … the moves from the Fed currently envisioned by markets will be too slow to restrain inflation,” stated economists from Deutsche Bank in a research report titled “Why the coming recession will be worse than expected.”
“A mild recession would be a relatively small increase in the unemployment rate,” Lavorgna said. “If, however, the Fed feels that it needs to compress demand further, then we are looking at a much deeper recession, with the unemployment rate perhaps doubling, if not more.”
One of the unique features of the current economic crisis is the extent to which it is driven by government actions, as opposed to a market failure. This includes trillions of dollars in federal spending to prop up an economy reeling from draconian government lockdowns that now appear to have had little success in containing the coronavirus. This spending was compounded by the Federal Reserve holding interest rates near zero while expanding its balance sheet to $9 trillion, flooding America with cash. These problems were then further exacerbated by the Biden administration’s re-regulating of the economy and its antipathy toward America’s fossil fuel industry, together with a western boycott of Russian oil and fertilizer exports following Russia’s invasion of Ukraine.
Inflation is the result of too many dollars chasing too few goods, and, in this case, it has been a “perfect storm” on both sides of the equation. As the Fed works to cool demand by raising rates, some economists say the Biden administration must reverse the policies it has put in place that are undermining productivity and holding back supply.
“If you want to address the inflation problem, you do it through the painful way of Federal Reserve action and higher interest rates and borrowing costs,” said Jonathan Williams, Chief Economist at the American Legislative Exchange Council. But simultaneously, “you do it through the supply side, which reduces taxes and gets productivity back up across the United States.”
Given the federal government’s reluctance thus far to take the necessary steps, some states have stepped up with their own solutions, Williams said. Since March, four states—Iowa, Mississippi, Georgia, and Arizona—have gone from progressive income tax rates as high as 8 percent to flat tax rates in the range of 2–4 percent. North Carolina eliminated business income tax, and nine other states currently have no state income tax at all.
On May 17, Sen. John Barrasso (R-Wy.) and other GOP Republicans introduced the ONSHORE Act, which would give states the power to manage oil and gas production on federal lands within their borders. They simultaneously introduced the Lease Now Act, which would require the Department of Interior to resume the sale of oil and gas leases.
Asked what Biden could do to help farmers, Allen said “lower the fuel prices. It will save the middle-class people. It will help them when it comes to buying food.”