The Lowdown on Higher Food PricesBy Stewart Truelsen
Food prices which have been relatively quiet for years may be going up by as much as 6% next year. That's the most pessimistic forecast at this point.
In 1973, food prices rose by 14.5% and a New Jersey housewife, angered by what she paid for a can of tuna, became the leader of a rising tide of angry shoppers. They formed a group known as STOP ( Stop Those Outrageous Prices) and picketed supermarkets. Earl Butz was Agriculture Secretary in those days and he spent a good part of his time convincing consumers that food was a bargain.
Food was a bargain then and, guess what, food is an even bigger bargain today. According to USDA's 1996 Agriculture Fact Book, consumers are spending 11% of their disposable income on food. When all the fuss was made about food prices in the 1970s, consumers were spending about 15% of their income for food.
From 1984 to 1994, total retail food prices, which include meals served in restaurants, rose by 40 percent. By comparison, medical care jumped by 98%. It certainly makes sense to eat a healthy diet and save money on medical costs.
Periodically though consumers get upset about food prices, and next year could be one of those years. The nation's corn crop, which is used for everything from livestock feed to sweeteners, is forecast to be 8.7 billion bushels. In the 1970s that would have been a record crop. Today, demand for corn and other farm commodities is much greater, and a string of mediocre harvests has led to tight supplies. The nation could have used a larger crop, and that has led to fears of higher food prices.
A lot of consumer education has taken place since Earl Butz's timely economic lessons. One thing Butz drew attention to was the farmer's share of the food dollar, currently about 21 cents. The remaining 79 cents is for marketing the product, which includes labor, packaging and transportation.
This means that higher commodity prices should not have a huge impact on food prices. Nearly 90% of the increase in food prices that occurred during the last ten years came from higher marketing costs, not commodity prices.
Food prices making news is not all bad. For the moment at least, the agricultural community has the attention of consumers and a chance to remind them that America has the best food supply in the world at the most affordable price.
Stewart Truelsen is director of broadcast services for the American Farm Bureau Federation.