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Global wealth costs U.S. consumers

Published on May 4, 2012 3:01AM

Last changed on June 1, 2012 8:10AM

Carol Ryan Dumas/Capital Press
The Gonzalez family loads groceries into their vehicle at Winco Foods in Twin Falls, Idaho. They can expect food prices to keep rising in 2012 but at a lesser rate than 2011, according to USDA's Economic Research Service.

Carol Ryan Dumas/Capital Press The Gonzalez family loads groceries into their vehicle at Winco Foods in Twin Falls, Idaho. They can expect food prices to keep rising in 2012 but at a lesser rate than 2011, according to USDA's Economic Research Service.

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Farmers share of final retail price continues to fall


Capital Press

U.S. consumers blame processors, increased ethanol production and higher fuel prices for the rising cost of food, but experts say the real culprit is growing prosperity in developing countries.

Growing purchasing power abroad is the leading factor in rising food prices, said Ricky Volpe, a research economist with USDA Economic Research Service.

That purchasing power is relatively strong and was even stronger in 2011, especially in Southeast Asia, he said.

The U.S. is exporting large quantities of food, which decreases domestic supply and pushes prices higher. A weak dollar, which makes imports more affordable for foreign countries, has also helped U.S. exports.

A weak U.S. dollar has been a major factor for beef, pork, and milk prices, largely due to exports to nations in Southeast Asia, Volpe said.

"Prices were up almost across the board in 2011. Prices are expected in 2012 to come back down to earth," he said.

That doesn't mean they won't rise. They will, but not as much as in 2011. Food prices rose 3.7 percent in 2011 and are projected to rise 2.5 to 3.5 percent in 2012, which is a normal price increase. Historically, prices rise 2.8 percent year over year, he said.

"Food prices are up there. We don't expect them to come down. The global economy has expanded, so we're going to see food prices continue to rise and that's normal," he said.

Fuel prices, starting with crude oil and including transportation, represent about 10 percent of the food dollar at retail, and are 10 times more volatile than food prices. The Consumer Price Index tracks consumer spending on goods and services, including the influence fuel has on prices.

"If that kicks up, everything goes up. The difference is the extent to which it goes up," Volpe said.

While U.S. ethanol policy -- seen by consumers as a major factor -- has restricted acreage for food corn, ERS doesn't consider its effects on food prices to be a major factor.

But ethanol does affect the price of all corn indirectly through its effect on supply, he said.

The growing global population and purchasing power has also pushed up farm prices.

"Farm prices certainly have gone up in the last year for certain commodities, but by and large, farmers are price takers," he said.

Farmers received only 11.6 cents of the food dollar in 2008 and 10.1 cents in 2010, according to the latest ERS data. That compares with just over 18 cents in the early '90s.

ERS' latest Food Dollar Series concluded that the decrease in the farm share of the food dollar is due to the increase in consumers eating out.

"The more we spend on paying others to cook and clean up behind us, the smaller the portion of our total food dollar that goes to the farmer" the authors stated.

At 34 cents, food service for food eaten away from home claimed the biggest chunk of the food dollar in 2010. Food processing represented 21.7 cents, and retail claimed 12.8 cents.

Looking at the data differently, salary and benefits across all sectors from farm to plate took 50.4 cents of the 2010 food dollar.

What's ahead?

The good news for consumers is year-over-year increases in food prices are expected to be more normal in 2012. For example, some of the highest price increases in 2011 were in red meat, fats and oils, eggs, fish and seafood, and dairy. The average increase of those foods was 8.24 percent. The average increase of those same foods in 2012 is projected at 3.3 percent.

The bad news is that farmers will realize even less of the food dollar going forward, as spending on food away from home is forecast to outpace at-home expenditures.

Farmers realize less of the food dollar in food consumed away from home, because consumers are paying for meal preparation and cleanup.

The farm share of food at home was 22.7 cents in 1998 and 24.3 cents in 2008. The farm share for food away from home was 8.2 cents in 1998, dropping to 4.7 cents in 2008.

The statistics present a compelling case that the growing costs and expenditures of eating out are behind the downward trend in the farm share value, ERS stated.

While farmers get the same price for their product whether food is eaten at home or away from home, the more consumers have to pay for food, the less they're going to eat, said Pat Canning, ERS senior economist.

"That could potentially translate to farmers selling less," he said.

Consumer views

While USDA credits growing purchasing power abroad as the biggest factor in rising food costs, consumers Capital Press talked with didn't even mention it.

"I think (it's) the fuel, honestly, cost of delivery," said Walter Blakley, a long-haul trucker from Richfield, Idaho.

"Everything touched has been transported by truck. Fuel prices affect everything," he said.

High corn prices due to the national ethanol policy is behind higher food costs, said David Stone, who owns an auto service business in Sun Valley.

His wife, Lara, said food prices are going up, but food is still affordable. Anytime the family is in Twin Falls, however, they make a grocery stop because food costs so much more in Sun Valley, she said.

Food prices are definitely going higher, said Mike Greenwell of Oakley, Idaho.

"Every few weeks, it seems like it goes up," he said.

Everything in the baking sector -- sugar, spices and flour -- has seen a huge increase, said his wife, Georgia.

Fuel, transportation and availability are the biggest factors of rising food costs, especially corn-based products, Mike Greenwell said.

"We're transferring food into fuel. And people expect variety. For retail to meet that, they have to go farther and farther," he said.

To save costs, the Greenwells get an installment of fruits and vegetables from a local growers' co-op and order meat online.

Gas prices and processing costs are the biggest factors, said Marcia Schwinn, a courier for St. Luke's Medical Center in Twin Falls.

Retired Twin Falls school teacher Linda Dennis said rising food costs are not the result of just one factor.

"For dairy, meat, and eggs, it costs more for feed because of the competition for grains with the biofuel companies," she said exports to other countries and the cost of fuel are also factors, she said.

When asked how much of the food dollar ends up with the farmer, consumers weighed in mostly lower than USDA's 11.6 cents.

Schwinn thought the farmer probably gets under 15 cents. Dennis said no more than 10 percent. Stone thought about 5 cents, and the Greenwells said 6 cents to 8 cents.


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