Rising Food Prices Hammer Small Business

Last Thursday, the House Committee on Small Business held a hearing on how the rise in food prices is hitting small businesses. Most interesting, I thought, were two witnesses who tried to give the perspectives of the small-businesspeople probably most affected by these prices: bakers and restaurant owners. Frank Formica spoke on behalf of the American Bakers Association and discussed how the experience at his own bakery in Atlantic City demonstrates some of the pressures:

The price of baker's flour had been fairly stable for well over 20 years at 14 cents a pound. As of September 2007, the price of flour began to steadily increase until it reached a peak of over 60 cents a pound in March. Today the price of flour is 40 cents. What does this mean to Formica's? A year ago we paid $7,000 a week (or $364,000 a year) for flour, but today that number has escalated to $20,000 per week ($1,040,000 a year).... Last year, Formica's successfully marketed our products to distributors and school food program manufacturers representing over 267 school districts on the East Coast. Formica's invested over $500,000 in capital investment improvements, including equipment and facilities, to support the increased volume in business. As the price of commodities escalated, especially for flour, the price point necessary to produce the products became unacceptable to school budgets, and subsequently the schools canceled the program. As a result, I had to lay off many employees and try to recoup costs associated with this lost contract which I and my employees had counted on.

Flour isn't the end of the story, of course. Geoff Tracy, owner of Chef Geoff's restaurant in D.C., represented the National Restaurant Association and testified about some of the strains that food prices are putting on restaurants.

Several individual commodities critical to the majority of restaurant operations are also posting dramatic gains this year, with flour (87 percent), eggs (73 percent), fats and oils (49 percent), cheese (27 percent), milled rice (25 percent) and milk (20 percent) rising most sharply—many coming on top of double-digit growth rates in 2007 for these commodities.

Why is this worth testifying about before Congress? Well, because there is a set of policies the federal government has adopted that many people think is making the food price problem unnecessarily worse.