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Monday, September 01, 2008

The REAL reason that your groceries are so expensive: You're paying for them twice!

In spite of all the articles, all the op-ed pieces, and all the tables of comparison, I've found it remarkably easy to forget that the cost of groceries has steadily risen over the last couple of years. Part of this is the fact that I moved to New York about a year ago. Prior to the move, most of my family's food came from regional groceries and the friendly, neighborhood Wal-Mart. Moving into the Bronx, I was so stunned by food prices price of food that a few pennies here and there were pretty much irrelevant. Recently, however, I was buying a box of cereal when it struck me that the price had risen by a dollar over the last year. Given that the new price was just over $5, this translated to a 25% cost increase in one year. I was stunned.

When asked about skyrocketing food prices, most pundits pin the blame on our new favorite villain: rising gas prices. While gas is partially responsible, it's worth noting that increased shipping costs haven't caused the prices of every other consumer item to soar. In truth, the biggest force driving up the cost of food has been exports; basically, European markets are filling up with cheap American foodstuffs. Over the course of 2008, Europe will have imported $110 billion worth of our produce, a 22% increase over 2007.

There are two main reasons that American produce is (comparatively) cheap. First, the dollar is very weak, which makes American exports much less expensive in Europe. Second, the U.S. subsidizes its agricultural sector, artificially lowering the price of its harvests. In the last two years, for example, the federal government gave $36 billion to American corn farmers.

So there you have it: American taxes underwrite agricultural subsidies. These, in turn, keep America's produce cheap, making it a bargain for European consumers. American consumers, meanwhile, pay taxes that fund the subsidies, then pay inflated prices because the subsidies have encouraged the price of produce to rise. In other words, you pay once to grow the corn, then pay again to buy it at European market rates.

Is anybody else starting to question the value of this system?

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