Rich But Hungry: Pricy Food in Europe & America

Italians love their pasta. According to pollsters, more than half would prefer a good plateful of the stuff to sex. But every passion has its limits. Over the past year, the price of pasta in the country's stores has climbed nearly 20 percent, quite high enough to suppress the strongest appetites. Last year consumer groups staged a one-day boycott on pasta purchases in protest at the hikes; now shoppers have begun to seek cheaper alternatives. A recent study from the Confederation of Italian Farmers found that pasta sales fell 2.6 percent in 2007. Demand for bread had tumbled, too; down more than 6 percent. Instead, there's been a growing demand for eggs and chicken. In the words of the report: "In a time of austerity shoppers are looking for low-cost protein." (Article continued below...)

As the price of staple foods continues to soar on world markets, it's not only the developing countries that are feeling the pinch. Sure, there's little risk of starvation in North America or Europe, where less than 15 percent of the typical household budget goes on groceries (compared with 50 percent or more in the poorest parts of the world). But cost-conscious consumers in weakening economies are well aware of the doubling of the cost of wheat that makes their bread sometimes 30 percent more expensive. In the 15-nation euro zone, annual food-price inflation is running at 6.5 percent, the highest figure since record-keeping began in 1997. Across the Atlantic it's reckoned that a record 28 million Americans will need food stamps this year, up 1.5 million on last year, and everywhere, politicians are struggling to supply answers to a problem that looks set to worsen. Anthoula Madden, a consumer-affairs expert at global business consultancy Capgemini, says, "When you look across Europe and America, what you see is a gathering storm."

So far, the food industry has shielded customers from the worst effects. "The manufacturers have managed to absorb much of the extra cost," notes Madden, "but in the end we are going to see it ripple down the food chain." That means extra grief for the poorest segments of society, who spend the largest fraction of their incomes on food. Already, cash-strapped consumers are dropping old loyalties in pursuit of bargains. In Britain, where the average family is now paying $30 a week more for their food than in 2007, the cut-rate supermarket group Netto saw revenues climb 11 percent last year. It now claims to be the fastest-growing chain in the country. By contrast, shares in the upmarket U.S. grocery chain Whole Foods fell more than 10 percent last year.

In rich countries as in poor, food is a key reason behind the run-up in total inflation figures. In the euro zone, inflation hit 3.3 percent last month, far above the European Central Bank's 2 percent target, mainly due to energy and food. That's one key reason that growth forecasts for the euro zone are about 1.7 percent this year, down from 2.6 percent last year. Economists now worry that jobless rates in Europe, on the decline for several years, could once again begin to rise.

While food hasn't yet become a major U.S. election issue (candidates are pushing gas-tax cuts instead), experts say it's only a matter of time if prices continue to spike. Says Lawrence Hutter of the business-services group Deloitte: "The impact of price rises on the poorest 25 percent of the population mean they are going to become an ever-larger part of the political debate in developed countries." In the run-up to spring presidential elections in Russia, which is now a comfortably middle-income country thanks to the oil boom, the Russian government imposed a six-month price freeze on bread, milk and eggs. In the course of his successful election campaign, Italy's Prime Minister Silvio Berlusconi promised to stem rising prices for bread and food once he is back in office. Worries over food bills are one reason that President Nicolas Sarkozy of France—the self-styled "purchasing-power president" is proposing a raft of reforms that would stimulate competition among the supermarkets.

Sarkozy also once promised to help dismantle Europe's farm subsidies; now the French are talking about blocking imports, which underscores Western hypocrisy around agriculture, and the rise of the developing world.

Paradoxically, those higher food bills share a common cause with the previous prosperity of the developed world. In recent years, cheap imports of all sorts of products from China and India have helped to restrain inflation in rich countries. Now the very success of the booming Eastern economies is helping to drive up prices, as consumers raise their spending on food and develop Western tastes. "We always used to talk about these countries' positive effect on inflation through the supply side: now we are beginning to see the negative effect on the demand side," says Hans Martens, at the European Policy Centre, a Brussels-based think tank.

Even as price controls exacerbated rather than alleviated food inflation in the 1970s, it's unlikely knee-jerk protectionist policies being contemplated around the world today will help matters. "Governments really have very few levers that they can pull," says Tim Lang, professor of food policy at City University in London. Politicians would do better to contemplate free trade and investment into agricultural productivity than new ways to manipulate the market. Pasta may be easy to fix, but its price is not.

With Barbara Kantrowitz in London, Tracy McNicoll in Paris, And Barbie Nadeau in Rome