What Has Caused High Food Prices and What is the Outlook for the Future?
Everyone knows that in the last year or two the cost to eat has skyrocketed. Whether going out or buying food from grocery stores, food prices have been going up across the board.
Many have been trying to figure out why the price of food has increased so much. And, with most topics when it comes to the economy, the answer is complicated as many factors have played into rising costs.
In fact, rising food prices have proved to be one major factor that has driven record-high inflation numbers and the possibility of a recession soon. And many experts say that several things would have to happen for prices to stop rising in the future.
In October, the Federal Reserve Banks of Kansas City and Minneapolis put on a seminar called “Agriculture, Food, and Inflation: Drivers and Our Path Forward” to help explain the current agriculture and food market. The virtual event started with representatives from the Federal Reserve Banks sharing statistics on how much food prices have gone up in the last couple of years.
The seminar continued with an interview with the President and CEO of Land O’Lakes Inc., Beth Ford. Then, a panel of experts in specific industries weighed in to give perspectives on the various categories that affect food prices.
Land O’Lakes President Discusses Issues Across the Food Supply Chain
Ford started her part of the presentation by saying that labor shortage issues have been a major factor that has affected all parts of the food supply chain. She said that a stall in making immigration reform laws has also affected the number of workers the agriculture industry can get.
The Land O’Lakes CEO also said that Russia’s war on Ukraine has affected the U.S. food market in ways that were unexpected. “Russia is one of the largest exporters of fertilizer in the world,” Ford explained. “So, you saw fertilizer prices elevate. I think they went up around 200 percent.”
She said that in the future, the country needs to concentrate more on agricultural research. Currently, the U.S. spends less money on research practices than other countries like Brazil and China, which can affect the global market in the future.
She also said that climate change could cause a shift in weather patterns. Therefore, some places that have good climates for growing now may not in the future. On the other hand, places like the northern part of the country could get better growing climates.
Experts Discuss Factors that Cause High Food Prices
During the event’s expert panel discussion, the Executive Vice President and Chief Financial Officer of Union Pacific Corp. Jennifer Hamann talked about how transportation issues have caused food prices to rise. “Around 10 percent of food prices are driven by transportation,” Hamann said. “So when I think about our own cost structure, certainly fuel has been a big increase for us this year. And we do have fuel surcharges on our transportation services and that is going to get passed on to those who ship with us.”
The Executive Vice President for Country Operations, CHS Rick Dusek spoke for the farming industry as a whole. “What’s happening on the farm is that literally, every input that farmers use to produce a crop has gone higher,” Dusek said. “And, these are not small increases, fertilizer, crop protection, seed, labor, fuel, equipment, repairs, and maintenance on equipment have all gone up. And now with rising interest rates, the cost of growing a bushel of corn or soybeans, or wheat has gone up significantly. And if you add the transportation costs to that, the costs of raw materials have gone up significantly. At some point, it will start putting pressure on farmer profitability.”
Then Bill Lapp, the Founder and President of Advanced Economic Solutions chimed into the discussion to represent the food retail industry. “The costs have gone up for food companies across the board whether you are a restaurant or a grocery store,” Lapp stated. “And transportation is a key part of that. Underlying commodities since February 2020 are up 60 percent. All of this has driven a much larger cost base at a time when consumers are less resistant to price increases. And that results in higher food inflation. Prices are up 11 percent year to year right now and the CPI for food.”
Sara Menker the Founder and CEO of Gro Intelligence, which specializes in research for agricultural companies, then gave her perspective. She said that set aside from rising costs in the industry, unprecedented “climate shocks” have also affected the global food market.
“When we are talking about month-on-month increases, I think it masks the bigger structural problems that our food systems are still grappling and struggling with,” Menker said. “You are also having pretty continuous climate shocks to the production side of the equation. So whether you are looking at drought in the Midwest this year, drought in China, or floods in other parts of the world, major exporters of food crops have been affected. I think on the supply side outside of what we are talking about as far as rising input costs, we have had a pretty much-unprecedented number of supply chain shocks on the climate side.”
The virtual event was one of the Federal Reserve Bank of Minneapolis’s several online events related to the U.S. economy. On Jan. 13, the bank will host its sixth annual Regional Economic Conditions Conference that will feature 3M CEO, Mike Roman.
