Cut to the Chase -- Commodity Prices, Food Prices, and Global Stability

COMMODITY PRICES, FOOD PRICES AND GLOBAL STABILITY

By Kelly Smith

Food is essential for all of us. Farmers produce it. Consumers purchase it. Nations have fought over it. Sounds like something from the annals of past history, but wait, people across the world are fighting for affordable food as you read this. News commentators reported high food prices were one of the contributing factors in the recent uprising and riots in Egypt. Argentina (beef), Russia (wheat), Vietnam (rice) and China (corn) have all reacted to food inflation in the last couple years by banning exports or implementing price controls for a commodity. Having enough food supply for citizens is the foundation for a strong national security program.

According to a report released by the World Bank, global food prices jumped 29% in the past year, hitting hardest in developing countries because they spend as much as 50% of their income on food. For the most part, industrialized nations like the United States are insulated from the price increases because raw ingredients account for just a fraction of the total food costs (processing, packaging, transportation, etc., are a larger portion of the U.S. food dollar). In many developing counties, the price for raw commodities is the food price.

So what is causing these higher global food prices? In simple terms, the reserves of staple crops such as corn, soybeans and wheat have drawn down in recent years due to consumer demand in developing countries, a growing biofuels industry (ethanol in the U.S. and biodiesel in Europe), and unstable growing conditions for crops in various parts of the world.

U.S. farmers compete in a global market place. As domestic and world demand increases for the crops and livestock they produce, so has the price farmers receive for these commodities. Corn futures have doubled from $3.50 to $7 a bushel. Prices of fats and oils rose 22 percent, wheat increased by 20 percent, and sugar 20 percent. Cattle and hog prices followed grain prices upward as well. Feed cost is the biggest portion of input prices for livestock farmers.

Our domestic food processors, manufacturers and retailers absorb these price increases because they know consumers do not like to have rapid price changes in the food items they buy. All of these entities either are just now passing these costs on to consumers or will in the next few months. Besides seeing increased prices at grocery stores, we can expect higher menu prices at restaurants and fast food outlets, especially for meat and poultry items.

Will these increased food prices cause social unrest with U.S. consumers as it has in other parts of the world? Probably not. The cost of food in the U.S. is a bargain costing the average consumer around 10 percent of their annual income. American consumers should be thankful our farmers are the most productive and efficient in the world. Each American farmer feeds 155 other people which allows people to pursue the vocation of their choice without worrying about growing their own food or worrying where their next meal might come from.

(Kelly Smith, of Jefferson City, Mo., is the director of marketing and commodities for the Missouri Farm Bureau, the state’s largest farm organization.)