Reason Hit & Run: Want Cheaper Food? End the Ethanol Mandate

February 28, 2013

Peter Suderman, Feb. 27- Walmart has not had a good year so far. In an email leaked earlier this month, the company’s vice president of finance and logistics grumbled that “February (month to date) sales are a total disaster… the worst start to a month I have seen in my… 7 years with the company.”

Why is the nation’s largest retailer struggling so much? In today’s Wall Street Journal, Forbes publisher Rich Karlgaard notes the retailer’s sales problems and points to a couple of reasons why the company is having so much trouble. The expiration of the payroll tax cut, which for the last few years has reduced take home pay levels by about $80 per month for families making $50,000 annually, is probably one factor. But Karlgaard also points to the role of food price inflation:

“Food prices are rising faster than overall inflation. Inflation is the great hidden tax, especially when it hits essentials like food. Core inflation is running at about 2%, but the U.S. Department of Agriculture predicts that food prices will be up 3%-4% in 2013. This will nip at Wal-Mart customers and Wal-Mart itself, which now gets half of its U.S. revenue from groceries. Will Wal-Mart eat the inflation and hurt its profit, or will it pass it onto its customers and risk driving them away? Food inflation presents no good choices.”

Food price inflation is indeed complex, and there’s no simple way to prevent it. But there is a single step that government could take that would almost certainly significantly arrest the rapid rise in the cost of food: end ethanol energy mandates.