Short
story It’s Getting Harder to Bring Home the Bacon
C.
Larry Pope, CEO of Smithfield Foods Inc., the world's largest pork and hog producer
by volume, explains why food prices are rising and why they are likely to stay
high for a long time. Bobbie Jean Pope, his 81-year-old mother of Newport News,
Va., can't afford bacon. 'I can't afford
yawl’s meat anymore! Why is yawl’s meat so expensive?' 'Mom, you ought to
understand why it's expensive. It's 'cause our costs are so expensive.'" He doesn't mince words when it comes to
rapidly rising food prices.
The 56-year-old accountant by training has
been in the business for more than three decades, and he warns that the higher
costs may be here to stay. Courtesy of, a political policy. His senior vice
president, a lawyer by training, sits close by, ready to "kick his
leg" if his garrulous boss speaks too plainly. But politics indeed plays a
large role, as Congress subsidizes favorite industries. Given the burst of food
inflation the world is living through.
Mr. Pope is running a multibillion-dollar
business in the midst of economic turmoil. He has strong views why prices are
rising and what can be done about it. The Southerner is an old hand when it
comes to food. He graduated from William and Mary in 1975, spent a few years at
accountancy, then joined Smithfield and worked his way up the ranks. He's
something of an evangelist about his trade. He boasts that Smithfield employs
some 50,000 people, many of whom are high-school graduates and immigrants
others would consider hard to hire. It's a good business that gives people a
good start.
It's
also a business under enormous strain. Some 60 to 70% of the cost of raising a
hog is tied up in the grains. The major ingredient is corn, and the secondary
ingredient is soybean meal. Over the last several years, the cost of corn has
gone from a base of $2.40 a bushel to today at $7.40 a bushel, nearly triple
what it was just a few years ago. Which means every product that uses corn has
risen, too—including everything from cereal to soft drinks and more.
Inflation an overview of the prices
consumers really pay. What triggered the upswing? In part Ethanol. President
George W. Bush came forward with the edict to mandate 49 billion gallons of
alternative fuels by 2022, of which corn-based ethanol is a substantial part.
Companies that blend ethanol into fuel get a $5 billion annual tax credit, and
there's a tariff to keep foreign producers out of the U.S. market. 40% of the corn crop is "directed to
ethanol, which equals the amount that's going into livestock food,"
The rapidly depreciating dollar is also
sparking inflation, a hard" topic for him to discuss, trying to be
diplomatic. But he doesn't deny that money is cheap. Investment bankers are
throwing cash at the firm, a turnaround from 2009, when money was scarce, even
though Mr. Pope doesn't need it presently.
Rising prices are already squeezing food
producers' "three to five percent" earnings margins. Many of us had
our costs hedged in the commodity markets and we all took on strident measures
to control our cost structures. In the case of Smithfield, we closed six
processing plants and one slaughter plant. We also closed 15% of all our live
production business. But once those measures are done, we have no choice but to
pass those prices down to consumers.
Food price inflation is popping up across
the country. A pound of sliced bacon costs $4.54 today versus $3.59 a year ago
and $3.16 a decade ago, according to the Bureau of Labor Statistics. Ground
beef is $2.72, up from $2.27 in 2010 and $1.75 in 2002. And it's not just
Smithfield's products: You eat eggs, drink milk, you get a loaf of bread, and get
a pound of meat. Those are the four staples of what Americans eat in their
diet. All of those are based on grains.
Maybe to someone in the upper incomes
it doesn't matter what the price of a pound of bacon is, or what the price of a
ham, or the price of a pound of pork chops is. But for many of the customers,
it really does matter. Workers can share cars when the price of oil rises, but
"you can't share your food.
Dr. KARL WALLACE DDS
To read more Dr. Wallace
go to: karlwallaeblog.blogspot.com
