Ethanol and organic...

Despite claims to the contrary, rising corn prices - which have been loudly ascribed to ethanol production - do raise food prices eventually. Ask the meat industry. Or dairy. [And stop trotting out the corn flakes.]

The rising food costs fueled by ethanol demand are also affecting U.S. consumers. "All things that use corn are going to have higher prices and higher cost, to some extent, that will be passed on to consumers," says Wally Tyner, professor of agriculture economics at Purdue University. The impact of this is being felt first in animal feed, particularly poultry and pork. Poultry feed is about two-thirds corn; as a result, the cost to produce poultry--both meat and eggs--has already risen about 15 percent due to corn prices, says Tyner. Also expect corn syrup--used in soft drinks--to get more expensive, he says. [More]

So, what will food inflation mean for the nascent agrarian (organic, local, free-range, etc.) food industry and the premiums they need for profitability?

One speaker in particular championed this concept, suggesting that the opportunities for premiumisation were almost limitless. Now don't get me wrong, I am well aware that the likes of Whole Foods and Tesco and brands like Rachel’s Organic and Green & Black’s have successfully travelled down this road in recent years. But something about his unqualified optimism didn't sit well.

I realised it was my own shopping habits that were causing my doubts. Increased inflation and rising interest rates here in the UK have without doubt blunted my own personal spending power, causing me to think twice before I drop the premium sausages into the basket, or reach for organic salad, rather than standard products.

The question must be asked then, how does this theory of unlimited premiumisation sit if we enter a sustained period of economic recession? In the UK and US, this question has been largely academic in recent years. [More]

As Dean Best points out, the answer depends on how the economy fares, or at least the personal economies of those who are likely to favor agrarian food - i.e. the well-to-do.

So far that group is doing very well, thank you. But their numbers may have trouble growing, since the bulk of income growth in the US seems to wind up with the already wealthy. And should recession loom, that tiny group of consumers won't be swelling, I'd bet.

Agrarian producers have more at stake in the fiscal decisions of the government than the farm bill, I think. I mean, it's not like they are getting much government help now, and agrarian production is growing. What this sector has to fear is 1) continued income gain concentration and 2) slow or negative GDP growth.