Although the recent surge in agricultural commodity prices has caused some concern about a potential increase in food costs, an overall increase likely will be “modest,” according to economists with the Texas AgriLife Extension Service.
“Commodity prices reached record or near-record highs in 2008, but weakened in 2009 and most of 2010,” says Jose G. Pena, AgriLife Extension economist-management at the Texas AgriLife Research and Extension Center in Uvalde, Texas. “Food prices increased in 2008 just as the U.S. was entering into what many economists describe as the worst recession since the Great Depression.”
Pena and other AgriLife Extension economists recently assessed the effect rising farm commodity prices might have on retail food prices and whether those increases would result in increases similar to those experienced in and beyond 2008.
“Farm commodity prices fell sharply in 2009 and 2010 after reaching record levels in 2008,” Pena says. “However, food prices continued to rise in 2009 and 2010 even as farm commodity prices returned to 2007 levels.”
Pena says the USDA recently forecasted the consumer-price index for food will rise between 0.5 percent and 1.5 percent this year and between 2 percent to 3 percent for 2011.
“From 1990 to 2006 the average annual food price increase was 4 percent and the increase in 2010 will be the smallest since 1992,” he adds. “While prices for basic commodities like corn and wheat are higher than they were in 2007, they remain well below the record highs of 2008.”
Pena says adverse weather, a weaker U.S. dollar, increased exports, higher crude-oil prices and heavy commodity contract buying by speculative investor funds have contributed to increasing commodity prices.
“Although the agricultural producer is sometimes vilified because of the increasing price of agricultural commodities, the lion’s share of that increase is due to factors beyond the producer’s control,” he says. “USDA data shows farmers get less than 20 cents of every dollar spent on food. So the majority of the increase comes from the elevation of production and post-production costs, including the costs of energy, labor, advertising, packaging and transportation.”
Source: Texas AgriLife Extension Service