Experts: Farmers Not to Blame for High Food Prices

Farmers and ethanol producers have braced for what they expect could be widespread criticism as corn prices are rising rapidly and other food costs are following.

A similar increase five years ago generated a storm of criticism, with many in the food industry blaming the ethanol industry for buying up corn that could be used for food and faulting farmers for capitalizing on the higher prices. Many farmers and ethanol producers worried then the complaints would force a change in agriculture and energy policies and fewer subsidies for their industries, but prices came down and that didn't happen.

Now, they're concerned again as corn prices rose even higher last week following an announcement that U.S. farmers are planting the second largest corn crop since 1944, but it won't be enough to meet growing worldwide demand. Corn has traded at more than $7 a bushel this month, more than double last summer's $3.50, and many traders say it could pass the record $7.65 set in 2008.

But experts say those prices have little to do with what shoppers pay at the grocery store, and farmers and ethanol producers aren't responsible for recent increases in the cost of groceries.

"It's a whole slew of things that have influenced that price," said Chad Hart, an agricultural economist at Iowa State University. He ticked off some of them: "When you look at the cost of our food, it is related to the cost of corn, soybeans and wheat and cattle but also the cost of oil, gas, diesel and unrest in other parts of the world."

All of those factors mean consumers may have more to complain about for a while. Corinne Alexander, an agriculture economist from Purdue University, predicted food inflation will average between 4 percent and 4 1/2 percent this year. Normal food inflation is about 2 1/2 percent, she said.

"We are going to enter that world again where folks are getting squeezed and they want an explanation for it," she said.

Rick Tolman, chief executive of the National Corn Growers Association, said his group has already begun to hear complaints aimed at farmers that are similar to those expressed in 2006 and 2007, when congressional hearings on commodity prices and market speculation were held. He said the criticism is unfounded.

"(Corn) prices went up in 2006-07 and food prices followed and corn prices came down and we see didn't see food companies lower their prices," he said.

Scott Faber, a spokesman for the Grocery Manufacturers Association, disputed that, saying food prices declined last year as a result of commodity prices falling the year before.

"Some products are much more sensitive to increases in corn prices, including meat, poultry, eggs and dairy products," he said. "For some products, you see it fairly quickly and see an equally quick decrease and for other products the lag time is longer."

Tolman said one problem is that there's more speculation in the corn market - in which people base investments on what they think the market will do in the future - than there should be. But, he said, that's not farmers' fault.

Alexander agreed, saying poor weather last year led to a smaller harvest than expected and, with demand high and reserves at their lowest level in 15 years, commodity prices rose. But farmers don't control that, she said.

"No individual farmer can control the price he receives for his crop," she said. "That's determined by global supply and demand factors."

Ethanol producers acknowledge they've increased demand for corn but say it's not enough to affect food prices.

Matt Hartwig, a spokesman for the Renewable Fuels Association, said the ethanol industry only uses about 25 percent of the nation's corn supply. He said he believes much of the criticism he has heard is because most people don't understand what goes into the prices of groceries.

"Ethanol has increased demand for corn, but the lion's share of the responsibility for rising food prices has to do with volatile energy prices," Hartwig said. "It is the price of energy, oil, gas, diesel, that makes what you buy at the store more expensive."

The U.S. Department of Agriculture report released last month that broke down where each dollar spent on groceries goes. Farmers received an average of 11.6 cents per dollar in 2008, the latest year data was available. That was down from 13 1/2 cents 10 years ago and from 14 1/2 cents in 1993, the USDA report showed.

The rest of the money goes to processing, packaging, transportation, retail trade and food service, which includes any place that prepares meals, snacks and beverages for immediate consumption including deli counters and in-store salad bars. The share going to each category has declined some, except for food service which now gets 33.7 cents of every dollar spent, the USDA reported.

"While the commodity and food prices have been going up, the share going back to the farmer has been going down," Hart said.