Rising cost of food has non-farm cause – WP editorial

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Published: September 20, 2007

AS GRAIN prices increase, so do stories of rising food prices. And if higher grain prices become the norm rather than a short-term, shortage-induced blip, we can expect more stories, more studies and more worries about the higher cost of food.

Let’s nip some of the fallout in the bud.

The rising cost of food has little to do with the cost of food production and the profit that producers might pocket. Though farmers are well aware of this, it’s going to take some public education to ensure that message is heard by the masses.

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Last week this newspaper published a story explaining that a higher wheat price makes only a tiny contribution to higher bread prices. In weeks past, it has also run stories about maltsters who complain about higher barley prices and consumers who believe boosted corn prices due to ethanol demand are causing higher prices on cereal and tortillas.

About five percent of the cost of a loaf of bread covers the wheat, or in other words, the farmer’s return.

The rest is transportation, fuel, packaging, marketing, labour, taxes and profit margins extracted by millers, bakers and retailers.

Said Graham Worden, senior manager of technical services for the Canadian Wheat Board: “It’s interesting that when the commodity prices go up, then they immediately raise the price of the consumer product, but when prices go down, the price doesn’t go down because wheat is such a small part of the price.”

Let’s take that a step further, and assert that farmers do not, cannot and should not bear any blame for rising food costs. For decades they have been receiving too little for their commodities. Moreover, years of low industry profits resulted in lower than optimum investment in research and development that would contribute to higher production.

Now that reasonable returns appear possible, farmers can accept their due without apology.

As for rising food costs, the list given earlier explains much. The U.S. Department of Agriculture calculates food cost factors thusly, and we can expect Canadian figures to be similar: labour costs account for 38 cents on every dollar a consumer spends on food. Packaging, transportation, energy, advertising and profits account for 24 cents. Only 19 cents can be attributed to the actual cost of food ingredients like grains and oilseeds.

What may be the biggest factor of all when it comes to escalating food costs is the rising cost of energy. It takes energy to produce, ship, process, package and market food. As energy prices rise, the effect on food prices is magnified because energy costs are a factor at every step in the process of getting food from the farm to the plate.

So when the level of rhetoric about food costs rises, as it inevitably will, and fingers are pointed toward rising prices at the farmgate, let’s be sure to direct the cost assessment to the appropriate areas.

Bruce Dyck, Terry Fries, Barb Glen, D’Arce McMillan and Ken Zacharias collaborate in the writing of Western Producer editorials.

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