October 20, 2005

Farmers won’t reap benefits of higher food prices

WASHINGTON—Hang onto your wallet. The U.S. Department of Agriculture forecasts an upward bump in average retail food prices this year, thanks to the recent surge in crude oil prices.

After a relatively low rate of growth averaging 2.5 percent a year over the past decade, 2004 retail food prices rose 3.4 percent, according to the USDA’s Economic Research Service. The government now projects that the effects of Hurricanes Katrina and Rita and a tight world market for oil will boost overall food prices as much as 3.5 percent this year.

Since the U.S. food supply is heavily dependent on fuel for the processing and transportation, a boost in oil prices is bound to increase upward pressure for consumer prices, said Ephraim Leibtag, USDA food-price analyst.

Sadly, the coming increase in food prices will just further squeeze American farmers already caught between the traditional jaws of higher production costs and relatively flat wholesale prices.

This fall’s huge increase in fuel prices will dramatically increase the cost of running farm equipment, buying chemicals and fertilizers, explained Tony Banks, a commodity and marketing specialist for Virginia Farm Bureau Federation.

Yet the farmers’ share of retail food prices remains low, less than 25 percent of the total average food dollar, according to Terry Francl, a senior economist with American Farm Bureau Federation. “Looking back 30 years, farmers received about one-third of consumer retail food expenditures in the 1970s,” Francl said. “That figure has dropped steadily over time and is now just 22 percent, according to USDA statistics.”

Ironically, food prices were trending lower than predicted earlier this year. The USDA reported that as of September, prices for food consumed at home were rising an average of 2 percent to 3 percent, a half-percentage point lower than expected.

And the September AFBF Marketbasket Survey found a 1-percent drop from the previous quarter in the average price of the contents of a 16-item shopping cart. The marketbasket survey checks the price of sirloin tip roast, Cheddar cheese, whole fryer chickens, bacon, white bread, vegetable oil, ground chuck, pork chops, corn oil, toasted oat cereal, potatoes, mayonnaise, a dozen large eggs, flour, a gallon of whole milk and a pound of apples.

The average national price for those goods was $39.96, 55 cents less than at the end of June. “Unfortunately, we can look for prices to head back upward in our next survey,” Francl said.

Contact Francl at 202-406-3621 or Norm Hyde, VFBF video producer, at 804-290-1146.