Excerpt from the introduction:

In the summer of 2007, higher prices at supermarket checkout lines have drawn the attention of consumers, the media, and politicians. During the first half of 2007, food prices rose by 6.2 percent and contributed to almost one-fifth (17 percent) of the total increase in consumer prices. Prices at the grocery store rose almost a third faster than food prices overall (both at restaurants and retail outlets), growing by 8.0 percent in the first half of the year. These trends are likely to continue. USDA estimates that consumer price increases for red meat, poultry, milk and eggs will stay above the general inflation rate from 2008 to 2010.

Consumer anxiety over higher grocery prices is heightened by more modest wage and economic growth. During the first half of the year wages grew only a third as fast as food prices – 1.9 percent.   Overall economic growth was also relatively flat, at under 1 percent in the first quarter of 2007. Consumers are legitimately nervous when the cost of eating is rapidly outpacing the means of paying for food.

The food industry has been capitalizing on these fears by focusing on higher costs for one of their key ingredients: corn. Food and meat processing companies have blamed the increase in food prices on the increased price of corn, which is used as a basic ingredient in livestock feed and processed food. They claim that higher demand for corn by ethanol refineries is contributing to the increased corn prices.  This summer’s protracted congressional debates over energy policy and the automotive industry’s relentless “Live Green, Go Yellow” advertising campaign may lend credence to these allegations in the minds of consumers.

These claims contain some truth that shields several decades of deception when it comes to the link between the price of corn and retail food prices. Although corn prices have risen over the past year in part as a result of increased ethanol demand, the correlation between crop prices and retail grocery prices remains elusive. The prices farmers receive for corn have risen this year, but over the past decade, the real price of corn has been extremely low.  During that period, livestock producers, slaughterhouses, and grocery manufacturers benefited from artificially low corn prices but did not pass these savings on to consumers. Now, food and meat processors are using the ethanol smokescreen to justify grocery price increases that are unlikely to decline when corn’s historically volatile price falls.

The reality is less simplistic than agribusiness interests suggest. Pundits and food and meat processors have lamented this year’s rise in corn prices with little attention to the long-term declining trends in the real price of corn. The implication that rising corn prices warrant grocery price hikes ignores the historical grocery price insensitivity to corn prices. Over the past three decades, grocery prices have steadily trended upwards regardless of significant price volatility for corn.