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The Ag Agenda

May 2008

Farmers Get Wholesale in a Retail World


Bob Stallman
President
American Farm Bureau
By Bob Stallman
President, American Farm Bureau

“The American farmer is the only man in our economy who buys everything he buys at retail, sells everything he sells at wholesale, and pays the freight both ways.” I have used this quote from John F. Kennedy in the past to illustrate the economic reality that faces farmers and ranchers.

Unfortunately, with current economic conditions, including higher food costs, soaring energy prices and tumultuous transportation issues, this old adage is appropriate now more so than ever.

A Corn Flake’s Worth

There have been a lot of media coverage and opinion editorials in the past several months placing blame on various factors purportedly causing food prices to increase. Some of these news reports even go so far as to point the finger at farmers and ranchers for supposedly reaping the benefits of higher retail prices for food products.

In reality, transporting, processing and packaging farm products cost significantly more today compared to the past several years. Meanwhile, the farmer’s share of the retail food dollar has continued to hover around 25 percent since the 1970s.

One must only look at the cost of raw agricultural products compared to food that has been processed. For example, today, farmers receive $5.50 per bushel of corn, while the value of corn in each box of corn flakes averages 7.9 cents. When corn flakes cost approximately $3.30 for an 18-oz. box at the grocery store, that translates into the farmer getting less than 2 percent of the retail price.

The same can be seen with a loaf of bread that costs $1.78. As of the end of the first quarter of 2008, farmers received 16 cents for the wheat used to produce a typical 20-ounce loaf of bread, which translates into the farmer receiving 9 percent of the retail price for that loaf.

Past the Farm Gate

So, what is really driving the increase in food prices? For starters, runaway energy prices are a major contributor behind the higher retail cost of food. After many commodities leave the farm gate, high costs for energy, fuel and transportation are added and passed onto the consumer. Increased retail prices can especially be seen on highly processed foods.

Further, market demand for wheat and cheese remains strong both here at home and overseas, which has played a role in the recent increase in food prices. Such demand for these commodities is typically a significant contributing factor to the overall retail cost of food.

Farmers are price takers, not makers. This reality, coupled with higher production and transportation costs, has producers also feeling the deep economic impact of the present downturn.

Despite what the critics might say, farmers are still getting wholesale prices in a retail world.