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30 December 2008

Its that New Years resolution time of the year. Since I learned years ago that Im totally incapable of keeping any resolution, Ive stopped making them for myself. But that doesnt mean Im not qualified to make resolutions for other people. So, this week, Id like to suggest a resolution for food companies. I think they should resolve, in 2009, to be a little more accurate and a little more honest when explaining their reasons for increasing food prices.

We remember 2008 when food companies told consumers they were raising prices because the price of corn, soybeans and other raw commodities moved sharply higher and they laid the blame on the bio-fuels industry for taking those products from food and turning them into ethanol and soy diesel. So, as prices moved higher, the food companies raised their prices, and you know where they placed the blame; on farmers and ranchers. They ignored the real culprit in the food price escalation, the soaring cost of crude oil.

I understand the need to make a profit; thats how capitalism works. But I wish the companies would be more honest in laying the blame for higher food prices, because if commodity prices were the sole reason for higher food prices in the spring and early summer, why havent we seen a sharp drop in food prices since late summer and fall? Because since late summer, the price of corn, soybeans and wheat dropped 50% and more. Did we see a 50% drop in food prices?...of course not!

Lets look at some food company profits through the third quarter of 2008. These numbers were compiled by the Wisconsin Corn Growers Association in their continuing campaign to inform consumers about food price increases. Here are some of the companies and their numbers... Campbells - $89-million net earnings, an increase of 45% over the previous year; General Mills - $632-million dollar operating profit; up 9% for the year; Kelloggs - $342-million dollar net earnings, up 12% from a year earlier; Kraft - $10.5-billion dollar net revenues, up 19%; and Sara Lee - $353-million dollar operating income, up 21%. Food prices in the consumer price index increased 8%, while commodity prices dropped 50%.

So again to the food companies, we understand the need to make a profit, but now say after me...We resolve to stop blaming farmers and ranchers as the sole reason for food price increases, but if we do, then when commodity prices drop, we will lower food prices at the same rate. Producers are your suppliers and if they go out of business, youre out of business; they are not the bad guys in the food price story.

My thoughts on Samuelson Sez.