Dollar decline, oil help drive up food prices, study says

WASHINGTON -- A diverse and complex set of factors — including biofuels production, high oil prices, a weak dollar and food consumption rates — are behind the sharply rising cost of food, according to an analysis by Purdue University agricultural economists released Wednesday.

The economists predict food prices will remain high as long as oil prices are also high and the dollar is weak.

"Lower oil and a strong dollar would bring pressure on commodity prices to fall," said economist Wally Tyner, the report's lead author.

He also said the full impact of higher corn and soybean prices haven't shown up in grocery prices yet.

The cost of food has increased 7.5% since last year, according to the most recent government figures available. The U.S. Department of Agriculture says the highest anticipated increases this year are in eggs, dairy and poultry.

The government's explanations for the increases are similar to those identified by Purdue researchers: stronger global demand, increased exports caused by both the stronger demand and weaker dollar, weather-related production problems and the increased use of corn and other food commodities for bioenergy.

The Purdue researchers said the factors are too interrelated to be able to say how much of the price increase is caused by each factor.

But they did breakdown the impact on corn, which has tripled in price since 2004. The analysts estimated that about $1 of the $4 increase in a bushel of corn is due to the U.S. subsidies of the ethanol industry. The rest was caused by the increasing price of oil.

"There's a link today between crude oil and corn that never existed in the past," Tyner said, calling that a "revolution" in global agriculture.

"Even if all the subsidies go away tomorrow, corn prices will still be high unless we choose to ban the use of corn for ethanol," Tyner said.

The biggest pull comes from increased demand for biofuels as gasoline becomes more expensive. That increases the demand for corn, as well as for petroleum-based items including fertilizer and diesel that are used to grow commodities.