Food manufacturers told to drop prices

By Sarah Hills

- Last updated on GMT

Related tags: Food prices, Biofuel

Food manufacturers should lower food prices following a significant drop in the cost of commodities and energy, according to the National Corn Growers Association’s CEO, Rick Tolman.

It is time for food companies to take a hard look at the prices they’ve increased, said Tolman who claims they are often due to smaller packages designed to look like the larger-sized packages.

He added: “Corn prices have dropped by about half since earlier this year, yet food prices have remained high and are expected by some to remain high.”

After record highs in the summer, oil prices this week dropped below $50 a barrel and corn futures have halved in just a few months to less than $4 a bushel.

However, a spokesman for the Grocery Manufacturers Association (GMA) told FoodNavigator-USA.com that retail food prices “will continue to reflect what have been and are historically high commodity prices and volatility”.

He said: “Over the last few years commodity prices have been extremely volatile.

“Until Congress facilitates the rapid development and delivery of second generation biofuels that don't pit our energy needs against our food and feed needs, this volatility will only continue.”

There is debate over whether biofuels are a major factor in rising food prices in general as land previously used for food crops is diverted to biofuel crop production at a time when food security is at risk.

However, Tolman stressed the importance of ethanol as a home-grown and renewable fuel source and that technology and improver agronomy developments meant that growers were boosting their production per acre significantly.

Input pressures

Despite drops in commodity and oil prices, input cost pressure is not expected to subside materially for at least several months for food manufacturers, according to the Fitch 2009 US Packaged Foods Outlook: Sector Stability Despite Weak Economy.

It said: “The reason for the lag is that these companies typically try to lock in a portion of their costs for the coming year, either by using exchange traded-derivatives to hedge their costs and/or by entering into contracts with their suppliers.”

However, as consumers would be aware of lower commodity and energy prices, they may be less willing to pay for further price increases.

Biofuels policy

Kraft, along with other member companies of the GMA, are working to raise awareness and petition lawmakers and regulators to adjust the biofuels policy so it is more in line with market forces.

But a recent study commissioned by the Farm Foundation concluded that biofuel subsidies should not be singled out for blame when it comes to rising corn prices, as the underlying driver is the high cost of oil.

Meanwhile the US is spearheading research into second generation biofuels, which would draw on waste cellulose material instead of diverting grain supplies from food.

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