Food producers not pocketing profits

AMES, Iowa — As America’s consumers face escalating prices at the gas pump, grocery and restaurant, a national farm organization reports food producers themselves may not realize significant profit gains in many production sectors this year.

In fact, the opposite may be true as farmers factor in sizeable input price increases.

“When consumers read and listen to reports about food costs going up, they may assume farmers are racking up big profits, but in many sectors of production agriculture, that just isn’t the case,” said National Farmers Organization President Paul Olson.

Input costs

One reason is because of skyrocketing input costs, such as diesel fuel increasing between 30 and 40 percent and fertilizer prices more than doubling in some regions of the country.

“The food price story is really about the soaring price of energy,” Olson said.

As the price of a barrel of crude oil hit a record price of $112 on futures markets recently, economists report the energy factor is pushing up food transportation and production costs. Swelling ethanol and biodiesel demands as a hedge against costly crude here and abroad is also contributing to the up tick in corn-based food costs.

A USDA Economic Research Service study has concluded higher corn prices pass through to retail prices at a rate less than 10 percent of the raw commodity price change.

Given that foods using corn make up less than a third of retail food spending, overall retail food prices would rise less than 1 percentage point each year above the normal rate of food price inflation, when corn prices increase by 50 percent.

Consumer prices in February were 4 percent above one year ago.

Livestock incomes

Although grain producers are faring better, profit forecasts for other major farm businesses specializing in livestock production predict average net cash incomes to fall below 2007 levels, with dairy (-24 percent), hog (-14 percent) and cattle operations (-14 percent) projected to have the largest declines, according to USDA.

“Although they may handle more money this year, after subtracting their escalating input costs, farmers will not enjoy the big profits consumers may think,” Olson said.

Consumer pocketbooks are feeling the rapid food price rise especially hard, because the past 17 years, food inflation had hovered around 2.5 percent, and between 1952, and 2003, the ratio of food prices to the price of all other goods had actually fallen by 12 percent.