Factors%20That%20Determine%20The%20Cost%20of%20Food

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Factors That Determine The Cost of Food

20th Annual Integrated Crop Management
Conference Ames, Iowa December 11, 2008 Chad
Hart Assistant Professor/Grain Markets
Specialist chart_at_iastate.edu 515-294-9911
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Factors Leading to Higher Commodity Prices
Source USDA-ERS, Trostle, July 2008
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Commodity Price Ratios (Sept. 2006 1)
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Commodity Price Indexes
Source International Financial Statistics
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Events in 2007
Droughts Northern Europe, Ukraine, Russia,
Northwest Africa, Turkey, Australia, and
Argentina Increased export taxes China,
Argentina, Russia, Kazakhstan, Malaysia, and
Indonesia Export restrictions Argentina,
Ukraine, India, Vietnam, Serbia, Egypt, Cambodia,
Indonesia, and Kazakhstan
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World Crop Production
Rest-of-World Soybean Production Up 1076
Rest-of-World Corn Production Up 99
Rest-of-World Wheat Production Up 63
Source USDA-PSD Database
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Population
2008   2020   2050
(billion) (billion) (billion)
World 6.678 World 7.601 World 9.393

China 1.330 China 1.431 India 1.808
India 1.148 India 1.362 China 1.424
U.S. 0.304 U.S. 0.336 U.S. 0.420
Indonesia 0.238 Indonesia 0.268 Nigeria 0.357
Brazil 0.192 Brazil 0.212 Indonesia 0.313
Pakistan 0.168 Pakistan 0.204 Bangladesh 0.280
Bangladesh 0.154 Bangladesh 0.190 Pakistan 0.278
Russia 0.141 Nigeria 0.184 Brazil 0.228
Nigeria 0.138 Russia 0.132 Congo 0.189
Source U.S. Bureau of the Census
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Countries Pursuing Biofuels

• US
• Brazil
• Argentina
• Colombia
• Paraguay
• Canada
• Uruguay
• Mexico

• Thailand
• New Zealand
• South Africa
• South Korea
• Philippines
• Indonesia
• Pakistan
• China

• India
• Malaysia
• Australia
• Japan
• EU
• Russia

• Not a complete list

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Iowas Alternative Energy Sources
Ethanol 32 plants in operation 12 plants under
construction Ranked 1st in ethanol
production Biodiesel 14 plants in operation 2
plants under construction Wind Ranked 4th in
wind energy production Ranked 1st in ratio of
wind/total energy
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Iowas Agricultural Rankings
1st Corn Production Soybean Production Field
Crop Value Egg Production Hog Inventory Hog
Value on Farm Commercial Hog Slaughter Crop
Harvested Area 2nd Pig Crop Red Meat
Production Total Crop Value 3rd Number of
Farms 4th Net Farm Income Alfalfa Hay
Production Steers 500 Lbs. Over
5th Oat Production Cattle Calves on
Feed 6th Heifers 500 Lbs. Over 7th All
Cattle Calves 8th All Hay Production All
Sheep Lambs 10th Land in Farms Calf
Crop Turkeys Raised
Source USDA-NASS
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U.S. Food Marketing System

• Five distinct sectors
• Agricultural production
• 2 million farms
• Food processing and manufacturing
• 25,000 food and beverage companies
• Wholesale distribution
• 33,000 food wholesalers
• Retail distribution
• 113,000 food retailers
• 378,000 foodservice companies
• Consumption
• 111 million households

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U.S. Food Marketing System
In 2001, government estimates showed 23.7
million employed in the food system 12 of the
nations gross domestic product Food is a major
component of our economy Each step in the system
adds value and costs
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The Food Dollar
Source USDA-ERS
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Declining Farm Value in Food
In the 1950s, 25 of food was consumed away from
home. Today, nearly 50 of food is consumed away
from home.
Source USDA-ERS
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Farm to Retail Food Price Spread
Food Farm Value Share of Retail Food Price Food Farm Value Share of Retail Food Price
Eggs 53 Canned Corn 22
Beef 49 Sugar 27
Chicken 48 Wheat Flour 19
Milk 34 Bread 5
Pork 31 Corn Flakes 4
Orange Juice 33 Corn Syrup 3
Source USDA-ERS, 2001
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Changes in Food Price Indexes
Consumer price indexes Relative importance1 Final 2005 Final 2006 Final 2007 Forecast 20082 Forecast 20092
(Percent) (Percent) (Percent) (Percent) (Percent) (Percent)
All food 100.0 2.4 2.4 4.0 5.0 - 6.0 3.5 - 4.5
Food away from home 44.6 3.1 3.1 3.6 3.5 - 4.5 3.5 - 4.5
Food at home 55.4 1.9 1.7 4.2 5.5 - 6.5 3.5 - 4.5
Meats, poultry, and fish 12.2 2.4 0.8 3.8 3.0 - 4.0 3.0 - 4.0
Eggs 0.9 -13.7 4.9 29.2 13.5 - 14.5 0.0 - 1.0
Dairy products 6.4 1.2 -0.6 7.4 8.0 - 9.0 2.0 - 3.0
Fats and oils 1.5 -0.1 0.2 2.9 13.0 - 14.0 3.0 - 4.0
Fruits and vegetables 8.4 3.7 4.8 3.8 6.5 - 7.5 3.5 - 4.5
Sugar and sweets 2.0 1.2 3.8 3.1 4.5 - 5.5 3.0 - 4.0
Cereals and bakery 7.4 1.5 1.8 4.4 9.0 - 10.0 2.5 - 3.5
Nonalcoholic beverages 6.7 2.9 2.0 4.1 3.5 - 4.5 3.0 - 4.0
Other foods 9.9 1.6 1.4 1.8 4.0 - 5.0 3.0 - 4.0
1BLS estimated expenditure shares, December
2007 2Forecasts updated November 21, 2008
Sources Bureau of Labor Statistics, USDA-ERS
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Quick Notes

• Farm value is less than 20 of the food dollar.
• Costs beyond the farm gate make up more than 80
  of the food dollar.
• Labor, transportation, energy, advertising, etc.
• There have been a number of factors influencing
  food and commodity prices.
• USDA Chief Economist Joe Glauber recently stated
  that biofuels are responsible for 10 of the
  inflation in food values.

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Thank you for your time!Any
questions?http//www.econ.iastate.edu/faculty/ha
rt/