What is in this article?:
- Rising food prices not the fault of farmers
- American food dollar
- Wholesale food prices rose last month by the most in 36 years, and experts can't say how high they'll ultimately go. As the effects appear everywhere from the supermarket to fast food restaurants, an economist in Penn State's College of Agricultural Sciences said farmers probably won't be reaping much of the increase.
- James Dunn, professor of agricultural economics, said prices for corn, wheat, soybeans and just about all large-production crops are higher than they were one year ago. He points to a long-term increase in global demand as the most salient of several factors.
American food dollar
"The fact that corn prices are doubled doesn't mean that foods made from corn will double," he said. "In fact, the basic commodities are a relatively small portion of retail food prices. Labor, packaging, transportation and processing represent the majority of your food prices, and those don't change as rapidly as farm commodities.
"The actual food-cost increase will vary, first according to what percentage of the retail price the farm value represents, and second, how much the commodity price has gone up, because all commodities haven't risen equally," he said. "So we're going to see particular items in our market basket cost more. Some of them, like milk, have a fairly large component in the retail price, and so if milk prices are higher, the consumers will notice that."
Most products have a fairly small agricultural component, but Dunn says some manufacturers won't let these facts hinder their pricing strategies.
"Sometimes the processor will use the excuse of higher farm prices to recoup some profit that slipped away because of other input costs," he said. "We've seen cereal companies cite high corn prices when raising their prices much higher than the value of the corn in the flakes.
"Sometimes you can increase the palatability of a price increase with an argument that sounds better than it actually is."
Internationally, the specter of high food prices is much more threatening. Dunn explained that for countries with lower standards of living than the United States, high commodity prices could bring serious hardship. And it may not be limited to nations that traditionally struggle with poverty.
"For example, in Ukraine, which seems like a relatively prosperous country, about 50 percent of their income is spent on food," he said. "So, when food prices go up quite a bit, their real income goes down sharply. Americans only spend 10 percent of their income on food, so the doubling of commodity prices is less important.
"And if you're spending half your income on food, you're not buying a lot of processed product. You're buying unprocessed ingredients, and they're more like the commodities -- they'll go up and down more than pizzas and things that have a lot of marketing in them already. But for onions and potatoes, the farm value is a big part of the retail price."