Inflation <i>Had Gadya</i>

An opinion piece in Issue 21, February 4, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Report click here. In today's globalized world, distant events have a powerful impact on people everywhere. Take food, for instance. Food prices in America, Europe and Israel have soared. Between August and November Israel's Consumer Price Index (CPI) rose at an annualized rate of 5 percent. The cause: Food and energy had become more expensive. In 2007, flour prices in Israel rose 27.6 percent. This caused the price of price-controlled bread to rise by 13.6 percent. Raw materials used in agriculture (e.g., food for animals) rose by a staggering 35 percent. Eggs rose 10.1 percent. So did electricity. And more increases are on the way in 2008. Food, water, gas and electricity prices are going up at least another 5-10 percent. This has happened all over the world. A headline in the financial weekly The Economist says: "The End of Cheap Food." Why has food become so costly? To understand the underlying reasons, I contacted the eminent economist "Dr. Had Gadya." Dr. Gadya got his nickname because he loves explaining things with long causal chains, like in the well-loved Passover song, where the ox drank the water that put out the fire that burned the stick that beat the dog that bit the cat that ate the kid... and so on. Dr. Had Gadya, why have food prices have risen so dramatically? H.G.: It's because of America. Oh no. You're going to blame President Bush for goring this ox, too? Here is what The Economist says: "The rise in world food prices is the result of America's reckless ethanol subsidies." I don't get it. It starts with rising oil prices. That is the cat that ate the kid. Please go on. America looked south to Brazil. Brazil runs more than half its cars on ethanol, made from sugar cane, instead of benzine, made from costly $100/bbl. petroleum. So America tried to do the same. Instead of importing ethanol from Brazil, America makes so-called biofuels (fuel made from organic matter) from corn. A third of America's corn crop went into fuel. A third! So? Fill up a big SUV tank with 70 liters of corn-made ethanol and you have used enough corn to feed a human being for a whole year! Farmers are switching to crops for making ethanol, because of 200 subsidy programs in America. So there is less corn and grain for food - for both people and animals. So prices rise. But this is good for the environment and for combating global warming, right? No, probably not. By the time you use energy to make the ethanol and transport the corn to the refiners, it is doubtful there is much gain. Hasn't climate change due to global warming hurt our crop yields? That is the irony. It hasn't - not yet. In 2007, some 1.66 billion tons of cereals were produced, a record. We had the biggest grain crop in history. So when food prices soar despite this, something is very wrong. The world price of wheat reached $400/ton last September, a new record. Because demand for grain grew more than supply - to make fuel. So let me get this straight. The Had Gadya here is, the corn and grain go to making ethanol, instead of human and animal food, so food prices soar? That is why some poor people in Israel cannot now afford simple dark bread? Yes. And, of course, since America is such a large grain and corn producer, what happens there impacts the entire world. By the way, the dark bread is no longer price-controlled in Israel. Industry Minister Eli Yishai gave in to pressure from the bakeries. Instead the poor are paid compensation. But it is not enough. This is probably just temporary, right? No, it is permanent. Look, between 1973 and 2005, food prices on world markets fell drastically, by 75 percent! Waistlines in the West thickened as a result. The experts say, we had better get used to expensive food - permanently. The Passover song Had Gadya has a happy end. Can you please end on a note of optimism, Dr. H.G.? In Had Gadya, father bought the kid for two zuzim. Well, Dad, I have bad news. This Pesach, it will now cost you four zuzim - because the food for the kid is expensive - and in a few months, five or more. Unless, somehow, the Holy One, Blessed Be He, slays the food inflation. Because we ordinary mortals seem unable to do so. The writer is academic director, TIM-Tel Aviv. An opinion piece in Issue 21, February 4, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Report click here.