I don’t think I’ve ever seen so many headlines about farming and food prices. “Food crisis,” declares a Washington Post editorial. “Why are global food prices soaring?” asks the online magazine Slate. And “Grains gone wild” is the title of Paul Krugman’s April 7 opinion piece in the New York Times.
At the same time, just as many headlines are also blasting biofuels, as evidenced by Time magazine’s “The Clean Energy Scam,” published March 27.
It seems like a lot of fingers are, once again, pointing at farmers as the root of all evil (remember when we were blamed for the nation’s obesity problems?).
You want the truth from farm country? Yes, grain prices are at historically high levels, but not all farmers are raking in the money. In fact, 2008 could be a really stressful year for producers.
(While the USDA predicts 2008 average farm operator household income will be $89,434, it also reminds us that “farm operator household income is more variable than U.S. household income, and a larger share of farm households have negative income. Over the last 10 years, 5-6 percent of farm households had negative income, compared with 1 percent of U.S. households.”)
Let’s talk inputs
As the planters are poised to hit the fields, farmers have had to figure out how to deal with dramatic increases in the costs of all inputs. Livestock farmers have had to figure out how to deal with sky-high feed costs. And all farmers are trying to figure out how to deal with diesel prices that are running approximately 50 percent higher than this time last year.
According to Gary Schnitkey at the University of Illinois (the name may be familiar because he used to be an ag economist at Ohio State), non-land costs are estimated to be $370 per acre for corn, up $50 from 2007. Since 2003, corn non-land costs have increased more than $120 per acre, most of that because of fertilizer costs.
And speaking of fertilizer, here’s what farmers are looking at: A ton of fertilizer that cost between $300 and $400 last spring will easily cost $1,000 this year — and that’s if you can get delivery.
Higher prices for land are also changing the farm economy. On one hand, land is an asset that’s rising in value; on the other hand, land is an input that’s rising in cost.
Off-farm factors
What’s really driving food price inflation? Try looking at marketing costs, which are the difference between the farm value and the amount the consumer pays for food.
Since 1950, marketing costs have grown from 59 percent of the retail food dollar to 80 percent today.
When you buy those Cheerios, you’re not only paying for the oats, you’re paying for transportation, energy use, packaging, profits, rent, advertising, depreciation, taxes, interest, repairs, other costs, farm value and labor.
Labor costs are the biggest component of the retail food dollar, at 38.5 percent. The farm value of the retail food dollar ranges between 19 1/2 and 23 cents — and that amount is less than half that of three decades ago.
We are also in a world market, and what happens in China or Brazil can impact your grocery bill, too.
You want lower food prices? Then support increases in farm management training, productivity and efficiency. Don’t blame farmers.
