Food Prices Soar as Government Price Controls Fail

As a political conservative for thirty five years, and an accounting professional for nearly that long, I firmly believe prices for the consumer ought to be set by a free market. Food prices are no exception. Few governments worldwide agree with me, and that includes the United States and several of the various states.

The recent change in government in Tunisia was sparked in part by the government's efforts to increase food prices to the consumer. In Tunisia, the prices of many common food stuffs are controlled by the government. They are kept artificially low through government subsidies and price controls.

Some of the current turmoil in Egypt is also provoked by food prices. Egypt is the largest wheat importing country in the world and is sixth in imports of corn (maize). Corn prices in December were up nearly 50% year over year in the U.S. Wheat prices were up 30-50% year over year as well.

Food prices have been climbing to record levels for seven months according to the UN's Food and Agricultural Organization (FAO). Demand has outstripped supply as major food exporting nations have seen crop production reduced by weather events and importing nations such as Pakistan have seen their own production efforts also diminished.

Exporters such as the United States and Argentina are reporting both lower yields and crop losses in key grains. China, which once was a major food importer but now exports, is suffering a prolonged drought and is projecting large internal price increases. Russia is one of the largest wheat exporters and it has banned the export of wheat and other grains, due to crop failures and massive wildfires in its agricultural regions.

Regulation of food prices is possible only when a steady supply and steady wholesale prices can be assured. When either factor changes, governments are unable to control food prices. Subsidy budgets are busted or prices must be increased to the general unhappiness of the population.

In the United States, the Consumer Price Index report for 2010 revealed what many of us already knew. Food prices went up during the year. Retail prices for meat, poultry, fish and eggs went up an average of 5.5% and the prices for dairy products went up 3.7%. These foods are produced by animals and the prices of feed grains went up, according to the Department of Agriculture. That's inflation and it is cutting in to my spending and that of lots of Americans. I'm considering a small garden in the back yard. That's what got my parents and our family through a few lean years in the 1960's.

Drought, flood, cold and disease are all factors that can reduce or destroy a crop. There is never any assurance that food supplies will meet demand as long as Mother Nature has a voice. As we are seeing in many countries, the price of food is a matter of life and death and the people will react to price increases. In a free market, we might see more people in these countries farming, to take advantage of rising prices. Instead, the people have come to believe that the government is responsible for keeping prices at an affordable level. That may be an impossible task.

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