Why is there sticker shock at the nation's supermarkets?

By Pam Slater For Knight Ridder News Services — 01/10/2005

If you shopped at a supermarket last month, you probably experienced severe sticker shock. Prices for many items on the family dinner table continued to climb in 2004. Since 2003, butter prices have increased by 28 percent and milk is up 8 percent. One restaurant chain estimates that wholesale chicken prices are up 17 percent this year, while beef, cheese, fruit and many other foods are also more expensive. Food inflation is expected to increase by 3 percent to 4 percent in 2005.

Food is expensive for a number of reasons, some of which we can control. While we can't do anything about weather conditions and natural disasters that wreak havoc on food supplies — such as the recent tsumani, which will affect the costs of many foods imported from Asia — we can do something about price hikes that result from policies made in Washington.

One little-known reason food costs so much is that the federal government "protects" domestic farmers and growers by limiting competition from imports. For example, the U.S. levies duties on many foods from abroad before they enter the country and this ratchets up the prices paid by consumers.

Indeed, we Americans pay significantly higher prices for many food items than the rest of the world, and despite the abundance of foods in the United States we have fewer choices than more open markets would provide.

Sugar is a prime example. According to the U.S. International Trade Commission , the price of raw cane sugar in the United States is 109.3 percent higher than the world market price, while the price of butter is 60 percent higher. Cheese prices are 40 percent higher on average; ice cream and frozen desserts are 20 percent higher. These disparities are largely due to the extra costs our government forces food importers to pay.

What's worse, a new U.S. policy announced just last week will add shrimp to the list of foods that are more expensive because of trade restrictions. Right now, 90 percent of shrimp consumed in the United States comes from Asia and Latin America, Primarily because of these imports, what was a luxury item a few years ago is now affordable to Americans of every income level. But U.S. shrimpers petitioned the federal government to protect them from imports, accusing six countries of "dumping." The government agreed, and last week it slapped on a new tax on imported shrimp that probably will hike consumer prices.

Is it really fair for American families to bear the burden of what is essentially a hidden tax on food? Many consumers cannot easily afford to do so.

The food tax hits the poorest Americans the hardest — single-parent families, minorities, senior citizens — because they devote the largest share of their incomes to food.

This system, of course, has its beneficiaries and defenders. The United States and many other developed countries (especially Europe and Japan) subsidize their domestic farmers and protect them against imports of efficiently produced, low-cost food products. While reducing or eliminating such trade barriers would be a boon to all consumers, there is a risk that the additional competition from abroad would put some American farmers out of business. No one wants to see that happen.

So, what's the answer? The most likely solution for both American consumers and farmers may very well lie within the World Trade Organization, which is currently negotiating the worldwide liberalization of trade in agriculture. Because each developed nation claims it cannot change its policies unless others do so at the same time, the current round of WTO talks aims to coordinate reductions in trade restrictions.

If all WTO member nations were required to eliminate or reduce barriers to food imports, American farmers would gain access to huge markets in Europe, Japan and elsewhere while American consumers would enjoy lower prices and more food choices. While exports now account for about 25 percent of American farm income, the potential global marketplace is considerably larger.

The U.S. International Trade Commission estimates that if trade barriers on key food imports were eliminated, the U.S. economy would gain $3 billion annually, and new jobs would be created in industries that process and export food.

American consumers need to get their voices heard in Washington if the WTO negotiations are to succeed. Special interests will do everything possible to try to exclude their commodities from any agreement.

Consumers need to write to their elected officials, urging them to be an advocate for all their constituents — whether they be farmers or consumers — and support the WTO agriculture negotiations. Bringing down global barriers to food trade will benefit all Americans, more than any trade restriction could.

— Pam Slater is legislative director of Consumers for World Trade, 1001 Connecticut Avenue NW, Suite 1010, Washington, D.C. 20006.