Farm share of food prices
Date posted: March 1, 2011
Increases in commodity and energy prices worldwide have been factors for unrest in some countries. Americans spend a small share of their income — about 13 percent — on food. N.C. State University economist Mike Walden addresses the concern that the rise in food input prices might increase the amount.
“The point here … is that many of the raw food ingredients that bakers use, that people who are processing meat use, etc., have been going up. For example, if you look at wheat prices, they have gone up quite a bit over the last year. Energy prices of course are going up, and I think the concern … is, ‘Gosh, won’t we see that at the supermarket by seeing significantly higher prices for food?’
“Well one reason we won’t is because … Americans spend relatively little of their income on food. But a second reason is that, out of every dollar that you and I and our fellow consumers spend for food in the supermarket, only 19 cents go to cover farm costs. Another 3 cents goes to cover energy costs. So we could see an enormous increase in those two costs, and yes we would see it show up at the supermarket counter — but not dramatically.
“The biggest component of food costs are non-farm labor — people who are involved in processing the food items and packaging them and delivering them and selling them to you and me; 39 cents out of every food dollar goes for those non-farm labor costs. Packaging adds another 8 cents; transportation, advertising, also 8 cents.
“So, for example, farm costs … could go up 100 percent, and we would see the share that we spend out of our income on food go up only from 13 percent to 16 percent.”
Category: Economic Perspective