Jump in food prices more about energy than ag prices

Like everything else we buy today, food costs more too. During the first quarter of ?08, food jumped a little more than 8 percent. This is the largest quarterly jump during the past 20 years.

It?s not too difficult to determine the cause of these record increases. All you have to do is look at the increase in energy prices. It costs considerably more for hauling, transporting, processing and packaging items than ever before. Consequently, that?s reflected on the grocery store shelves right now.

There are plenty of activities people can eliminate in their daily lives, however, eating isn?t one of them. Almost every day folks stop by their local grocery to pick up food items.

At the same time they?re digging deeper into their wallets, many see what?s happening with food prices and think the grocer and the farmer are both getting rich. Truth be known, the cost of operating for both the grocer and farmer, as well as the processor, are all going up.

All of these price increases begin with our energy suppliers. In reality, transporting, processing and packaging farm products cost significantly more today compared to the past several years. Meanwhile, the farmer?s share of the retail food dollar has continued to drop to about 22 percent.

One must only look at the cost of raw agricultural products compared to food that has been processed. For example, today farmers receive $5.50 per bushel of corn, while the value of corn in each box of corn flakes averages 7.9 cents. When corn flakes cost about $3.30 for an 18-oz. box at the grocery store. that translates into the farmer receiving less than 2 percent of the retail price.

The same can be seen with a loaf of bread that costs $1.78. At the end of the first quarter of ?08, farmers received 16 cents for the wheat used to produce a typical 20-ounce loaf of bread. This means the farmer receives 9 percent of the retail price for that loaf.

The adage, ?The American farmer is the only man in our economy who buys everything he buys at retail, sells everything he sells at wholesale and pays the freight both ways,? is never more true than it is today.

Farmers and ranchers have always been price takers, not price makers. Despite what some are saying, farmers are still receiving wholesale prices in a retail world. They are not reaping the benefits of higher retail prices for food products made from farm commodities, especially those that are highly processed.

Another factor influencing the higher cost of food in today?s shopping cart is the strong demand for grain, vegetable and dairy products both here at home and overseas.

The Consumer Price Index for food increased 4 percent last year. This was the highest annual increase since 1990. The inflation rate for domestic food prices (led by eggs, dairy and poultry) increased by 4.2 percent, while out-of country prices were up 3.6 percent in 2007.

So where does the average American consumer dollar spent on food go?

Here?s the current beakdown.

Profits make up 4 percent. Depreciation and repairs account for 5 percent. Interest totals 6 percent. Taxes and other costs are 6.5 percent. Labor amounts to 38.5 percent. Energy and transportation is 8.5 percent. Advertising and packaging is 12 percent and the farm value is 19.5 percent.

U.S. consumers spend less than 10 percent of their disposable income on food products they eat. We are fortunate to spend as little disposable income as we do on the food we feed our families.

Even though our price of food has gone up, it is still a great buy and without question, the wise shopper must be knowledgeable when spending her or his hard-earned dollars.

John Schlageck is a leading commentator on agriculture and rural Kansas. Born and raised on a diversified farm in northwestern Kansas, his writing reflects a lifetime of experience, knowledge and passion.

More from Hillsboro Free Press
DEATH: Dannie H. Schmidt, 91
Dannie H. Schmidt, 91, a farmer of Goessel, died June 26 at...
Read More