Setting the Record Straight: Farmers Reap Little from Higher Grocery Prices

You've undoubtedly heard the bad news. Food prices at the grocery store are up, and of course, renewable fuels are to blame. Mainstream news media outlets have been raising the alarm all summer.

Like this June Washington Post article, which boldly declared that "the corn price increases flow like gravy down the food chain, to grocery stores and menus." It states "the nation's unquenchable thirst for gasoline — and finding an alternative to what's been called our addiction to oil — has produced an unintended consequence: The cost of the foods that fuel our bodies has jumped. Beef prices are up. So are the costs of milk, cereal, eggs, chicken and pork. And corn is getting the blame."

Or just read the first sentence of this Newsweek International article, published last week under the ominous title "Blame It on Biofuels." The article starts off by saying: "High food prices always hit the poor hardest, and these days there is plenty of bad news. Corn prices are nearly $4 a bushel, almost double their 2005 level."

The fact is, corn prices have been trending downward for almost eight months. Today at the Chicago Board of Trade, September corn is going for about $3.25 a bushel. But consumer food prices have not followed that downward trend.

Iowa Secretary of Agriculture Bill Northey told Iowa Independent this week that prices farmers are paid for their crops have only a minor effect on final prices at the grocery store.
"We've seen it all through history — it seems like farm prices get blamed for consumer prices going up. We've seen that constantly," said Northey, who is a corn and soybean farmer. "But we've never seen them say that things got cheaper because of farm prices. If you look at our prices, our prices are no higher now than decent prices were back in the '90s, or back even in the '70s."

A lot of people, he said, are making excuses for higher consumer food prices and they're not being altogether honest. "They're blaming the farmer when our prices aren't at all out of line. And it's usually a very tiny portion of those final consumer prices. If you look at popcorn, you look at even meat, it's not a huge portion. And each of them have their own demand-and-supply situation."
Very few farms can pass on their costs, he explained. "They just get what is the market price for their products. There may be some of those consumer prices that increased at the same time that the corn price increased, but many of those haven't gone down the way corn's gone down since January. We had $4 corn and now we have corn in the $3.15 and $3.20 range. So let's don't blame corn or ethanol for those higher prices."

A recent American Farm Bureau Federation study showed that the value of the corn that is used to make a box of corn flakes is less than a nickel. Grain prices make a difference in consumer food prices, but according to that study, only slightly.

What is more likely to affect food prices is the overall cost of energy for production and transportation of the products — and even more significantly, as stated in that Newsweek article referenced above, rising global demand for food. As that article says, in the second to last paragraph, "perhaps the most significant factor is rising wealth, particularly in the developing world. Since 2002, the combined GDP of the 24 largest emerging markets has doubled, according to Bank of America, and per capita income has risen by nearly 14 percent a year. As families get richer, they can more regularly indulge in meat and dairy products. In China, beef consumption has gone up by 26 percent since 2000, and pork, which was already popular, rose by 19 percent." 

As reported here on Iowa Independent, corn farmers have a big crop coming this fall, and a corn shortage is not expected. The U.S. Department of Agriculture has projected that 2007 will bring the second-largest corn crop in history.