U.S. drought to drive up local food prices

July 27, 2012

From the print edition

The worst drought in the past 25 years in the United States is affecting prices of corn, wheat and soybeans worldwide, including Costa Rica, where the rainy season has not been rainy enough – even to generate electricity.

The lack of rainfall here is not yet enough to classify it as a drought, but it has brought worried brows to the foreheads of electrical engineers at the Costa Rican Electricity Institute (ICE), the main power company, who have had to use increasing quantities of petroleum fuels to generate electricity.

Water levels at ICE’s hydroelectric dams remain low, forcing cutbacks of electricity generation. Whether this will force more price hikes in electrical rates is not yet known.

Meanwhile, the drought in over a third of the U.S. – principally in farming areas – has already driven up grain prices by about 30 percent. 

The drought also has caused scarcities in grains for cattle, poultry and hog food and has halted the production of ethanol made from corn in the Midwest.

Economists expect prices of bread, eggs, pork and dairy products to follow increases in U.S. commodity prices. Current beef prices remain at previous levels because of steady supplies as some farmers are forced to sell off herds early. But those prices will likely increase.

Costa Rica will probably experience increasing flour prices for bread and bakery goods since the country doesn’t have any wheat farms and depends on imports, analysts said.

Indirectly, even locally produced corn has a tendency to be more costly under these circumstances. In a world of interdependent economic systems and rapid transport, export markets could drain off local corn supplies. But the price of bakery goods will affect  most Costa Ricans directly, due to large consumption of wheat flour.

The daily La Nación reported that the first consequence of increasing prices felt in this country was a 10 percent hike in bakery flour early this week. A 50-kilogram sack sold by Molinos de Costa Rica went from ₡20,835 ($41.70) to ₡22,920 ($45.88).

How prices of beef and pork will fare remains to be seen. Costa Rican beef is mostly grass-fed, with some supplements during the feedlot phase. Supplements made of grains will be pricier.

The biggest hit worldwide is expected in corn prices, because in many places in the U.S. Midwest, the crop is all but ruined. That grain has passed from costing $572.88 per metric ton as late as June 24 to its present $814.30, a 42 percent increase in just a few weeks.

As of Monday, a metric ton of wheat cost $915.50, a 30 percent increase from June. Soy has shot up 16.7 percent from its per-ton price on June 24.

Rafael Carillo, spokesman for Molinos, told La Nación that residents in Costa Rica should expect more price hikes shortly. 

But there were also grim predictions for price hikes in retail pork and eggs, as 80 percent of production prices are spent on feed.

Read more of Rod Hughes’ take on the news at Fijatevos.com.

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