You might be hearing in the news that commodity prices are at or near record highs, and that food prices have been climbing as a result. You might also look at the increase in food prices and think farmers are getting rich because of it. Some groups would also imply that the production of ethanol is leading to higher food prices. Let’s examine the facts about food prices:
Farmer income doesn’t increase based on what you pay at the grocery store
According to the USDA Economic Research Service, a farmer typically receives less than 10% of the price of most food items. Some estimates show that farmers are only making as little as 6 cents from the corn that goes into each box of corn flakes.
Food prices are based on post-farm factors
The food price index increased 1.5% in 2010, which is right in line with changes in the overall Consumer Price Index. That’s about a four-cent increase on a three-dollar item. And when food prices increase across the board, it’s almost always due to general business costs, not what the farmer is charging. (Incidentally, farmers don’t “charge” for their products–their prices are set by the market, and they are forced to accept them). The prices on most food items purchased in grocery stores are based on the manufacturer’s processing, packaging, shipping and advertising costs—costs that are all incurred after the raw materials leave the farm. Weather in Russia and South America has also had an effect, as have increased food demands by China and India.
Food vs. Fuel – a non-issue
You can’t blame high food prices on corn supplies being diverted to ethanol production, either. Ethanol actually has little to do with the overall price of corn. As numerous studies and statistics have shown, there is enough corn to produce both food and fuel. It is not an either/or choice, as some would have you believe. According to the U.S. Bureau of Labor Statistics, the only foods that declined in price in 2010 were non-alcoholic beverages, and cereal-based and bakery products. Where do “cereal-based” foods come from? Wheat, oats, bran, and—you guessed it—corn. In other words, CORN-BASED FOODS DECLINED IN PRICE IN 2010.
Keeping it in perspective
Americans pay the least in the world for food—only 6.9% of our household budget. Most Western Europeans pay around twice that amount; South Americans pay more than three times that amount, and the Chinese pay five times more.
It’s important to keep perspective on how much we pay for food. It’s also important to be educated about what really drives the cost of what we eat.