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High price to pay for rising corn costs

When corn prices rise, food prices go up - not just in the US, but also all around the world.
Last modified: 9 Sep 2012 22:01

America's corn harvest is under way. It was supposed to be a bumper crop, but it won't be this year.

The summer drought that hit the US Corn Belt states has withered away much of the nation's expected yield. I know because I saw it first hand when I travelled to Iowa in August. Field after field, farmer after farmer, told the same story. America's sweltering summer temperatures had hit corn producing states hard.

I spoke with an economist from the US Department of Agriculture (USDA), about what this means for the country, and the world.

Ricky Volpe makes a living tracking food markets. He told me corn is already up from last year by as much as 40 per cent. That's a big problem given that corn is a key ingredient in everything from ketchup to soda pop and is consumed by billions around the world.

In fact, Volpe said: "Corn is either directly or indirectly in 75 per cent of the foods consumers buy in the average grocery store."

I went to see for myself and met up with Derek Clavas in Washington, DC. He's a medical student on a limited budget. He said that staying within his budget is difficult because of rising food prices.

"They’re skyrocketing these days. To cut down I need to be buying stuff I can cook a lot of for cheap," he told me.

Still, finding cheap food in the future may be a big challenge.

America's summer drought increased the price of corn, normally an inexpensive commodity, to its highest levels ever. As one of the country's biggest cash crops, corn is typically cheap to produce. That's why it's the one ingredient that's in almost every food we eat.

Corn and corn by products are in the foods most people consume every day. They have names like Aspartame, Sorbic Acid, Glucosamine and more than 100 other ingredients hiding in packaged foods that line the shelves of most grocery stores.

Still, it's not just packaged foods that are made from corn. Basics like milk, meat, eggs and cheese will also see their prices rise because of the US drought. That’s because corn is the number one ingredient in animal feed which is critical for producing those food products.

Food processors have always liked corn because it allows them to keep production costs low and profits high. That makes corn based ingredients a fast food favourite, often in the form of high fructose corn syrup used to sweeten everything from soft drinks to a hamburger patty bun. That means the price of fast food could also increase within a year.

Volpe tells me "the clock has already started". We can start to see these high corn prices affect retail prices within about two to three months for a lot of animal based products and another 10 to 12 months after that we will see the full effect of this drought work its way through the supermarket.

That isn't good news because the US is a major exporter of food. It is also the number one exporter of corn. That means that when corn prices rise, food prices go up - not just in the US, but also all around the world.

Follow Kimberly Halkett on Twitter: @KimberlyHalkett