Transcripts

Fighting Rising Food Prices Goes Global

PAUL KANGAS: Higher food prices are one factor behind the steady rise in consumer prices. But it's not just U.S. consumers who are feeling the pain. Jeff Yastine looks at the complex dynamics of feeding people around the world.

JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The connection seems tenuous at best. How could the price of rice, which has risen sharply in recent months and caused riots in Bangladesh, Haiti and parts of Africa have any relation to ethanol production in the United States? The U.S. is the world's fourth largest rice exporter with California and a handful of southern states accounting for most of the crop. But the U.S. acreage devoted to rice production has fallen nearly 19 percent over the past three years, a decline of 600,000 acres. That's because rice farmers are planting corn for ethanol. They're also planting wheat and soybeans to take advantage of higher prices for those crops.

BILL NELSON, GRAINS ANALYST, WACHOVIA SECURITIES: It's a small swing of acres into those crops from rice, it has a huge impact in terms of rice as a proportion. In other words, we've probably shifted 10, maybe 15 percent of traditional rice acres out of rice and into these other crops.

YASTINE: It's not just ethanol impacting global food prices. Economists say developing countries are also using more fertilizer to increase crop yields. The price of one fertilizer component, urea, has more than doubled since 2002. Then there's oil prices, which have more than doubled and labor costs, which have gone up because of an increase in the minimum wage and a crackdown on illegal immigrants working on farms. American Farm Bureau Federation economist Terry Francl says those elements are working their way into food costs, too.

TERRY FRANCL, SR. ECONOMIST, AMERICAN FARM BUREAU FEDERATION: What happens is we institutionalize the cost into the production of that food. Farmers are paying higher fuel prices, fertilizer prices, more for the machinery, land prices are going up, rents are going up. And that tends to basically become a permanent fixture as far as the cost structure is concerned.

YASTINE: And there remains one last wildcard: the weather. With supplies so stretched, an excessively dry or wet summer in the nation's heartland could cause more havoc for prices and for consumers' pocketbooks. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.