Many factors at work in high food prices

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March 5, 2011

Many factors at work in high food prices

Anonymous By Mariane Kiraly The Daily Star Sat Mar 05, 2011, 02:24 AM EST

Consumers will be paying more for food in 2011 for a variety of reasons linked to domestic and international factors. One of the most significant factors is that commodities such as corn and soybeans have experienced increased demand from abroad and prices to U.S. farmers are at record highs. This constricts meat and milk production as farmers try to minimize input costs and results in lower supplies of meat and milk products. Russia has experienced a long drought and is importing more grain, along with China, where a growing population and a poor wheat crop mean that it must import a record amount of grain from the U.S.

The situation is upbeat for grain farmers, who can take advantage of the market since ethanol production along with growing exports consumes the current and future supply of grain. This hurts domestic meat growers as they try to feed beef, pork and chicken in a cost-conscious way until prices for those commodities catch up with input costs.

Bread and cereal will also be affected, along with eggs and anything else that is dependent on grain. Other groceries such as produce will increase due to escalating fuel prices. Fresh produce comes from Florida or California this time of year and the cost of bringing produce to the Northeast will go up.

In the quest by the U.S. to become more independent of foreign oil, ethanol production now consumes more than 25 percent of our domestic corn crop. Ethanol production is subsidized by the federal government and, since gasoline is composed of 15 percent ethanol, that creates more demand for corn. There are ethical discussions on the merit of using food for fuel, but the reliance on foreign oil weighs heavily in the discussion.

Dairy and meat farmers will not be getting rich since the increased cost of grains will reduce any increased margin that they receive. Farmers who graze livestock are able to mitigate costs once spring comes and grass is available. However, farmers who are heavily reliant on purchased commodities will not fare as well. In the Northeast, most farmers harvest hay and corn silage to feed during the winter. Grains are used as a supplement to the on-farm forages. In the West, farmers rely more heavily on grain and purchase hay and forages. Luckily, we have adequate water and grass here to reduce reliance on purchased grain.

What is a consumer to do about all of this? Realize that the factors behind increasing food prices are due to domestic and international issues. We are in a global marketplace and we sell commodities to the highest bidder. As long as commodities such as corn and soybeans are in demand for fuel and food, there will be less food produced at higher prices. It is the simple concept of supply and demand at work.

Mariane Kiraly is an educator for the Delaware County Cornell Cooperative Extension.