'Squeeze' on Food Production

From the Virginia Farm Bureau:

Farmers won’t reap benefits of higher food prices

WASHINGTON—Hang onto your wallet. The U.S. Department of Agriculture forecasts an upward bump in average retail food prices this year, thanks to the recent surge in crude oil prices.

After a relatively low rate of growth averaging 2.5 percent a year over the past decade, 2004 retail food prices rose 3.4 percent, according to the USDA’s Economic Research Service. The government now projects that the effects of Hurricanes Katrina and Rita and a tight world market for oil will boost overall food prices as much as 3.5 percent this year.

Since the U.S. food supply is heavily dependent on fuel for the processing and transportation, a boost in oil prices is bound to increase upward pressure for consumer prices, said Ephraim Leibtag, USDA food-price analyst.

Sadly, the coming increase in food prices will just further squeeze American farmers already caught between the traditional jaws of higher production costs and relatively flat wholesale prices.

This fall’s huge increase in fuel prices will dramatically increase the cost of running farm equipment, buying chemicals and fertilizers, explained Tony Banks, a commodity and marketing specialist for Virginia Farm Bureau Federation.

Yet the farmers’ share of retail food prices remains low, less than 25 percent of the total average food dollar, according to Terry Francl, a senior economist with American Farm Bureau Federation. “Looking back 30 years, farmers received about one-third of consumer retail food expenditures in the 1970s,” Francl said. “That figure has dropped steadily over time and is now just 22 percent, according to USDA statistics.”

Ironically, food prices were trending lower than predicted earlier this year. The USDA reported that as of September, prices for food consumed at home were rising an average of 2 percent to 3 percent, a half-percentage point lower than expected.

And the September AFBF Marketbasket Survey found a 1-percent drop from the previous quarter in the average price of the contents of a 16-item shopping cart. The marketbasket survey checks the price of sirloin tip roast, Cheddar cheese, whole fryer chickens, bacon, white bread, vegetable oil, ground chuck, pork chops, corn oil, toasted oat cereal, potatoes, mayonnaise, a dozen large eggs, flour, a gallon of whole milk and a pound of apples.

The average national price for those goods was $39.96, 55 cents less than at the end of June. “Unfortunately, we can look for prices to head back upward in our next survey,” Francl said.

From the Wilderness recently pointed out the following article by Jimmy Westerfeld, President of the McLennan County Farm Bureau in Texas.

Agriculture today is facing a major catastrophe not experienced since the Dust Bowl days of the Great Depression. Based on expert economic projections, for the first time in decades, many U.S. farmers cannot possibly "cash flow" a crop or crops for the year 2006. Bankers are saying "No." Many of us will not be able to farm this year or the next. The doubling and tripling of fuel and petrochemical prices are the last link in a chain of bad economic events.

Since Aug. 29, the entire world has been focused on the aftermath of the terrible destruction of Hurricane Katrina. Then, to make a terrible tragedy even worse, Hurricane Rita slammed into Southeast Texas and Western Louisiana on Sept. 24.

These two storms had an impact on the nation's fuel refining capacity, increasing prices beyond an already dismal situation. In agriculture, we cannot pass these prices along as other industries do. Ultimately, it means the numbers don't add up. If we can't show positive cash flow, we won't get our operating loans.

For farmers, a Katrina-like disaster is building. It will soon swamp many family farming operations. Astronomical fuel prices, fertilizer and chemical costs have reached the point that even a modest profit is impossible.

Farmers are receiving the lowest price for commodities that myself or most farmers can remember. Farmers are a proud group, usually not willing to protest. This time, I hope someone is listening. We are literally at the end of the turn row. That's a metaphor for desperation. Agriculture is in serious trouble.

A friend of mine and long-time Central Texas farmer sums up the current crisis in a unique way: "It's a lot easier to do nothin' for nothin' than somethin' for nothin'." Why invest huge amounts, work from daylight to dark and struggle for a profit when you know you have no chance?

What if, one by one, many farmers are forced into the painful decision that they can't afford to plant this year and the next? How many such decisions will it take to produce, nation-wide, the bare grocery shelves brought about by Katrina and Rita?

Granted, food can and will be imported. If we allow American agriculture to wither and die, that will be our only choice. If this sounds familiar, it's exactly what we did with energy. Does anyone like what they are paying at the pump now? Do we really want our food supply at the mercy of producers outside our own borders?

With this dismal prospect in mind, we can begin to view the federal farm program as an investment in keeping farmers on the land and preserving the ability to feed our own people at a reasonable cost. Congress and the Bush administration have proposed drastic spending cuts in the federal farm program, while preserving lavish pork barrel spending. Are our priorities really that far out of whack?

U.S. agriculture can feed the world if the profit is there. The federal farm program is a safety net that equally protects U.S. farmers and consumers. Under the current protectionist trade policies in the world, there is no way to farm without it. Drastic cuts would take us down a policy path that is dangerous for our food security. I don't believe we really want to go there.