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Several Factors
Contributing to Higher Food Costs
By
Laura Skillman
 LEXINGTON,
Ky., (Aug. 8, 2007) – Anyone who's bought milk, meat, fruit or
other products at the grocery in recent weeks has noticed that
food prices have gone up. Weather, demand and energy prices are
playing a role in these increased costs.
The most recent Consumer Price Index for Food and Beverages
reports food prices are rising at 4.2 percent, a full percentage
point higher than this time last year. In Kentucky, the retail
price of a gallon of milk has gone from an average of $2.85 per
gallon in January to $3.40 in July.
One factor playing a role in these higher prices is adverse
weather in many areas of the United States, said Craig Infanger,
an agricultural economist with the University of Kentucky
College of Agriculture.
“Agriculture is a weather dependent industry subject to episodes
like the freeze in California this past winter, flooding in the
southern plains states and drought conditions in the southeast,”
he said. “Adverse weather means disrupted production and higher
prices.”
Strong consumer demand this year in the face of fairly tight
supplies has kept beef, pork and poultry prices at high levels.
But, Infanger noted, basic supply and demand conditions are
affected by other factors as well. For example, with corn prices
substantially up, feed costs are also pressuring meat prices
this year.
Energy prices are playing a role in the rising food and beverage
costs as well. Relatively high gasoline and diesel prices are
increasing transportation costs and squeezing food prices. If
crude oil prices stay in the $70 range through the year,
transportation costs will affect food costs, he said.
The booming production of ethanol has generated the
fuel-versus-food debate. While ethanol is contributing to the
higher food price trends, it is getting more of the blame than
it deserves, Infanger said.
This year, the amount of corn used in ethanol production will be
58 percent higher than last year and account for more than one
quarter of all corn use. However, corn-derived food components
like high fructose corn syrup, which are found in a myriad of
food products, constitutes only a fraction of the overall cost
of the food item, he said.
“When you put rising food prices together with sharply higher
prices for corn, wheat and soybeans, you get folks saying the
era of ‘cheap food’ is over,” Infanger said. “Whether or not you
believe this era is over, one thing is clear. You cannot simply
point to one factor to explain food price increases.”
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Contact: Craig Infanger, 859-257-7274
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