Grocery Prices Are Up, But Farmers Aren’t Raising Them

Earlier this year economists began predicting retail food price increases of 2 percent to 5 percent. Prices have gone up, but the extent and causes—both domestic and global—remain topics of discussion.

In the United States, retail food prices in general are expected to increase about 4 percent this year, and beef, pork and poultry product prices are likely to increase more than that, according to Dr. Corinne Alexander, a Purdue University agricultural economist. She credited grain shortages, turmoil in the Middle East and extreme weather in critical crop-producing regions.

"We’re returning to a period of food price inflation after coming off a period where we saw food price deflation," Alexander said. "We don’t expect this to be a long-term, permanent higher food price period. We’ll see these higher food prices until we rebuild global stocks of the primary crops."

Grain shortages affect livestock prices because many grains—among them corn and soybeans—are used in animal feed.

Supply and demand are major factors, as are costs such as fuel that are associated with transporting and processing food.

"The cost of food in more developed countries has risen less than in under-developed countries where food has less processing. The underlying commodity price rise has a greater impact on the cost of food in poorer nations," said Jonah Bowles, agriculture market analyst for Virginia Farm Bureau Federation.

Americans spend about 10 percent of their annual income on food, while people in under-developed countries spend as much as 50 percent or more.

Are U.S. farmers seeing any more of what consumers spend on food? It depends on the food, Bowles said. "It’s generally established and agreed upon that less than 20 cents of each dollar consumers spend on food finds its way back to farms where that food was produced," he noted. But the prices of food products that require more processing, like breads, cereals and soda, are affected less by commodity price changes than the prices of less-processed foods like eggs, milk and carrots.

"The price of wheat has little to do with the price of a loaf of bread, but the price of Class III milk from the dairy has a lot to do with the prices of a gallon of fat-free milk," Bowles said.

He cited recently released U.S. Department of Agriculture findings from this spring that show farmers receiving an average of 15.8 cents per consumer dollar.

Based on Safeway store brand sales, the USDA found farmers receiving 2 percent of money spent on bread and cereal, 6 percent on potato chips and 10 percent on soda, while they received 13 percent on potatoes and lettuce, 23 percent on sirloin and ham, 39 percent on eggs and 42 percent on milk and carrots.

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