The Causes Behind Rising Food Prices

Farm Bureau economist says strong global demand is a big part of the story.

Published on: Sep 19, 2011

The American Farm Bureau Federation has released its latest Marketbasket Survey and it reflected a 4% increase, right in line with what USDA has been predicting for several months.

Farm Bureau Senior Economist John Anderson explains that it's a classic supply/demand situation, and looks into why food prices are rising so dramatically, especially for beef, pork and dairy.

"We've had very strong global demand for those products, beef and pork exports will probably reach record levels this year," Anderson said. "It's almost certain for beef and pork is going to be right up there close. Broiler exports, poultry exports probably won't hit record levels but they'll look pretty good with their historic comparisons. So fairly strong global demand from some of the big emerging economies is still a pretty big story in that sector.  The weak dollar is also part of that story that has been an encouragement to export business this year."

Speaking specifically to the rising cost of meats, Anderson says that changes in production have been very modest over the past four or five years for livestock producers. They've been very cautious in expanding as demand has increased so with fairly stable production numbers and pretty strong demand, which sets up a situation where prices are going to go higher.

Anderson says some of the caution by livestock producers is directly related to feed prices as well as the price of energy.

"Energy prices affect everybody," Anderson said. "They affect farm level production, they affect processors, they affect transportation, they affect retailers, they affect everybody. So higher energy prices really do pretty directly relate to higher food prices."

Anderson talks about how rising food prices impact producer profits.

"Even though we've got high food prices that doesn't necessarily mean that a lot of that money is making it back to the farm level," Anderson said. "Although really it is only fair to point out that based on the preliminary numbers from USDA, we are looking at a record level of net farm income this year. I don't want to make it sound like with high food prices there is no benefit at the farm level, farm level prices have been pretty high too."