WSJ: Load Up the Pantry

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Load Up the Pantry

April 21, 2008 6:47 p.m.

http://online.wsj.com/article/SB120881517227532621.html

I don't want to alarm anybody, but maybe it's time for Americans to

start stockpiling food.

No, this is not a drill.

You've seen the TV footage of food riots in parts of the developing

world. Yes, they're a long way away from the U.S. But most foodstuffs

operate in a global market. When the cost of wheat soars in Asia, it

will do the same here.

Reality: Food prices are already rising here much faster than the

returns you are likely to get from keeping your money in a bank or

money-market fund. And there are very good reasons to believe prices on

the shelves are about to start rising a lot faster.

" Load up the pantry, " says Manu Daftary, one of Wall Street's top

investors and the manager of the Quaker Strategic Growth mutual fund. " I

think prices are going higher. People are too complacent. They think it

isn't going to happen here. But I don't know how the food companies can

absorb higher costs. " (Full disclosure: I am an investor in Quaker

Strategic)

Stocking up on food may not replace your long-term investments, but it

may make a sensible home for some of your shorter-term cash. Do the

math. If you keep your standby cash in a money-market fund you'll be

lucky to get a 2.5% interest rate. Even the best one-year certificate of

deposit you can find is only going to pay you about 4.1%, according to

Bankrate.com. And those yields are before tax.

Meanwhile the most recent government data shows food inflation for the

average American household is now running at 4.5% a year.

And some prices are rising even more quickly. The latest data show

cereal prices rising by more than 8% a year. Both flour and rice are up

more than 13%. Milk, cheese, bananas and even peanut butter: They're all

up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef

prices are up 4.8% and chicken by 5.4%.

These are trends that have been in place for some time.

And if you are hoping they will pass, here's the bad news: They may

actually accelerate.

The reason? The prices of many underlying raw materials have risen much

more quickly still. Wheat prices, for example, have roughly tripled in

the past three years.

Sooner or later, the food companies are going to have to pass those

costs on. Kraft saw its raw material costs soar by about $1.25 billion

last year, squeezing profit margins. The company recently warned that

higher prices are here to stay. Last month the chief executive of

General Mills, Kendall , made a similar point.

The main reason for rising prices, of course, is the surge in demand

from China and India. Hundreds of millions of people are joining the

middle class each year, and that means they want to eat more and better

food.

A secondary reason has been the growing demand for ethanol as a fuel

additive. That's soaking up some of the corn supply.

You can't easily stock up on perishables like eggs or milk. But other

products will keep. Among them: Dried pasta, rice, cereals, and cans of

everything from tuna fish to fruit and vegetables. The kicker: You

should also save money by buying them in bulk.

If this seems a stretch, ponder this: The emerging bull market in

agricultural products is following in the footsteps of oil. A few years

ago, many Americans hoped $2 gas was a temporary spike. Now it's the

rosy memory of a bygone age.

The good news is that it's easier to store Cap'n Crunch or cans of

Starkist in your home than it is to store lots of gasoline. Safer, too.

Write to Brett Arends at brett.arends@...

--

ne Holden, MS, RD

" Ask the Parkinson Dietitian " http://www.parkinson.org/

" Eat well, stay well with Parkinson's disease "

" Parkinson's disease: Guidelines for Medical Nutrition Therapy "

http://www.nutritionucanlivewith.com/