Lots of headlines dampen the ethanol euphoria by proclaiming we’ll be paying more for our food. After all, there’s only so much corn to go around.
But at least one expert isn’t buying that claim and says corn prices due to ethanol production – or anything else that triggers a corn price hike – don’t have much effect on food prices.
And similarly, if your bill goes up at the grocery store, it’s not a given that the increase is trickling down to the farm. In fact, you can probably bet it’s not.
Most commodity farm products are sold on the open market, reminds Dave Whitson, an agricultural business specialist with the University of Missouri. Yes, some farmers will price their products under a pricing contract, but most livestock and grain farmers basically take the going rate for their product.
So just because a dairy farmer’s feed costs increase doesn’t mean the milk processor is going to pay him more for that milk.
“He only gets more for his milk when the demand for dairy products increases enough that the processor and consumers will pay more for the final product,” Whitson says.
But Whitson’s biggest argument in the corn-for-food-or-energy fight is this: The actual value of the raw farm commodity in your grocery food item is just pennies.
He tracked the value of corn in corn flake cereal as an example. In 1956, the farm value of the corn in a box of corn flakes was 2 cents when the farm value of corn was about $1 per bushel.
In 1999, when corn prices were $2.50 per bushel, the value of the corn in the corn flakes was 5 cents.
In 2007, when corn hit $3.50 per bushel, the value of the corn in the cereal box was 9 cents.
What did you pay for those corn flakes in 1955? About 37 cents per box, compared to $3 in 1999.
“The bottom line is that corn at the farm added only 7 cents to the increase in the cost of the product, while the cost of the corn flakes has increased over $2 per box in the past 50 years,” Whitson says.
Overall, the farmer’s share of the food retail food dollar is about 20 cents.
So instead of the high price of corn, what should you be blaming if you start writing bigger checks at Kroger?
Try the increased cost of labor, transportation, packaging and marketing. Whitson says higher fuel prices have a bigger influence on the price of food at the store than any higher value of corn due to ethanol production.
But don’t hold your breath that food prices will come down if both fuel and corn prices inch downward. We all know that even if the price of fuel dropped and corn prices dropped, that box of corn flakes in the grocery store is not going to go back to 1990 prices.
The silver lining? Whitson reminds us that Americans spend only between 10 percent and 11 percent of their disposable income on food, the lowest of any country in the world.
Even at $3 corn.
(Farm and Dairy Editor Susan Crowell can be reached at 800-837-3419 or at email@example.com.)