Higher food prices are still a bargain

If you read The Economist in December, an article called “The end of cheap food” might have grabbed your attention.

“Food today is so cheap that the West is battling gluttony even as it scrapes piles of half-eaten leftovers into the bin,” said the magazine.

The story pointed out what a lot of American consumers enjoyed from 1974-2005: “Food prices on world markets fell by three-quarters in real terms.” Since then, “prices have jumped by 75 percent since 2005,” said the magazine.

The magazine said rising prices are due to “agflation” and that emerging economies such as China are growing wealthier, changing their diets, and pushing up demand for certain commodities.

“But the rise in prices is also the self-inflicted result of America’s reckless ethanol subsidies,” said The Economist, which took aim at other government food policies and urged that it was time to “wean rich farmers from subsidies.”

One of the people who counter the argument that encouraging ethanol has impacted food prices is Brent Searle, special assistant to Oregon Department of Agriculture’s director.

Searle said there are a lot of things that increased in price that weren’t tied to corn and ethanol. For example, fruits and vegetables: They were affected by frost, drought, increased demand and other market factors.

Dairy product prices are affected more by supply and demand: Production was having a tougher time meeting the worldwide increase for dairy products.

Searle gave specific examples of how little corn prices affect food products. For example, a box of cornflakes has 10 ounces of corn. Even at $4 a bushel, Searle said, the cornflakes has a nickel of corn. Meanwhile, a can of soda has less than two cents’ worth of corn sweetener; about 18-25 cents per pound of pork is from the corn used for feed.

The main effect on food prices has been “rising energy prices, which have led to higher expenses for processing, packing and transporting food for retail sale,” said the American Farm Bureau Federation today in a press release, as it evaluated food prices.

Even with that increase, food is still cheap in America. USDA’s Economic Research Service released at the end of January that “families spent 9.9 percent of their disposable personal income on food — as disposable personal income continues to climb, the share spent on food declines.”

The research service said Consumer Price Index “for food increased four percent in 2007, the highest annual increase since 1990. Food-at-home prices, led by eggs, dairy, and poultry prices, increased 4.2 percent, while food-away-from-home prices were up 3.6 percent in 2007.”

The latter category continues to grow: Last year, 48.9 percent of food expenditures were away from home.

Oregon Farm Bureau and Farm Bureaus in other states are celebrating Food Check-Out week from Feb. 3-9 to put into perspective what food prices mean for people.

In 37 days, the average household has earned enough disposable income to pay for its annual food supply. In 1970, a family would have needed an extra 14 days to earn income to pay for that food.

In comparison, said the Farm Bureau, as it quoted the Tax Foundation, “Americans work an average of 52 days each year to pay for health and medical insurance, 62 days to pay for housing/household operation, and 77 days to pay federal taxes.”
The Economic Research Service, in its evaluation, forecast that the Consumer Price Index for all food would increase three to four percent in the next year, “as retailers continue to pass on higher commodity and energy costs to consumers in the form of higher retail prices.”

Are food prices going up? Yes.

But it is time to appreciate how cheap food really is in this country, and understand better why the cost is increasing.

The agriculture industry needs to educate consumers so they don’t just mistakenly assume it’s bad farm policy, or that so-called “wealthy” farmers are getting a larger share of the grocery bill.