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Putting higher food prices into context

Published Mar. 23, 2011 | Discuss this article on Facebook
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Questions about higher food costs can provide an opportunity to examine the complex food production system.

Buckeye Farm News

Food prices will be higher this year and that means farmers have an opportunity to help politicians, the media and the public understand more about the complex task of putting food on the table.

While nobody is denying that prices are rising and will create a burden for some consumers, there are some facts about food prices that aren’t getting attention:

 

 

  • Last year’s Consumer Price Index (CPI) for food was up eight-tenths of 1 percent, the lowest annual increase since 1962, according to the USDA Economic Research Service (ERS).
  • This year’s expected 2 to 3 percent increase in food prices is a return to the historical average rate of inflation, according to the USDA ERS.
  • The United States is in comparatively good shape: World food prices were up 3.4 percent in January alone, according to the United Nations Food and Agriculture Organization.
  • Between 1974 – 2005, world food prices declined 75 percent (adjusted for inflation), according to The Economist magazine.
  • Food price increases are expected higher in other countries, for example Canada 5 percent and India 17 percent, according to various economic forecasts.
  • Despite expected higher prices, Americans will still spend approximately 10 percent of their disposable income on food; many other nations spend 25 – 50 percent on food, according to the American Farm Bureau Federation (AFBF).
  • Americans will work an average of 36 days to pay their annual food bill, compared to 52 days for health and medical bills, 62 days for housing and household operations and 77 days for federal taxes, according to AFBF.

There are multiple factors that influence the price of food.

The supply is down. Major grain producing regions of Russia, South Africa, Argentina and others experienced crop-reducing droughts. Australian farms were destroyed by flooding. Parts of the United States experienced poor crops. U.S. meat producers reduced production in response to a lack of profitability. Simply put, when there’s less of something, it tends to cost more.

At the same time, demand is up.

Each day 200,000 more people are added to the world food demand. The world’s human population has increased near fourfold in the past 100 years, according to a United Nations population report. Global food production has to rise 70 percent by 2050 as the world population expands to 9.1 billion people from about 6.8 billion people now. Higher incomes around the world result in more demand for higher quality food. World per capita meat consumption will rise 40 percent between 2000 and 2050. China has gone from exporting 15.2 million tons of corn in 2003 to buying 1.2 million tons from the United States this year.

The International Business Times reported that Federal Reserve Bank actions aimed at increasing consumer spending result in food price inflation.

In addition to farm prices there are other significant components of food prices.

Food prices factors, according to the U.S. Bureau of Labor Statistics Consumer Price Index, are:

  • 44 percent fuel, transportation and energy
  • 29 percent raw farm products
  • 19 percent labor costs
  • 8 percent other expenses

Inflation-adjusted grain prices have declined by 60 percent since 1924, according to the University of California. And over the past 30 years annual food inflation has averaged 2 to 3 percent; the largest gain of 15 percent, in 1973, coincided with the oil embargo.

 

Photo by Galen Harris



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