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Department of Economics
Food and Fuel Issues
Iowa Seed AssociationAnnual Convention
Ames, IowaNovember 18, 2008
Chad HartAssistant Professor of Economics/Grain Markets Specialist
Iowa State [email protected]
515-294-9911
Department of Economics
Item Final Final Final
2005 2006 2007
Consumer price indexes Percent change
All food 2.4 2.4 4.0
Food away from home 3.1 3.1 3.6
Food at home 1.9 1.7 4.2
Meats, poultry, and fish 2.4 0.8 3.8
Eggs -13.7 4.9 29.2
Dairy products 1.2 -0.6 7.4
Fats and oils -0.1 0.2 2.9
Fruits and vegetables 3.7 4.8 3.8
Sugar and sweets 1.2 3.8 3.1
Cereals and bakery products 1.5 1.8 4.4
Nonalcoholic beverages 2.9 2.0 4.1
Other foods 1.6 1.4 1.8
Change in Food Price Indexes, 2005-2007
Sources: Bureau of Labor Stats., USDA-ERS
Department of Economics
Corn Prices
Source: CBOT
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9/1
/2006
11/1
/2006
1/1
/2007
3/1
/2007
5/1
/2007
7/1
/2007
9/1
/2007
11/1
/2007
1/1
/2008
3/1
/2008
5/1
/2008
7/1
/2008
9/1
/2008
11/1
/2008
$ p
er
bush
el
Department of Economics
U.S. Ethanol Production
0
1
2
3
4
5
6
7
Bil
lion
Gal
lons
Source: Renewable Fuels Association
Department of Economics
U.S. Food Marketing SystemFive distinct sectors
•Agricultural production•2 million farms
•Food processing and manufacturing•25,000 food and beverage companies
•Wholesale distribution•33,000 food wholesalers
•Retail distribution•113,000 food retailers•378,000 foodservice companies
•Consumption•111 million households
Department of Economics
U.S. Food Marketing System
In 2001, government estimates showed:
23.7 million employed in the food system
12% of the nation’s gross domestic product
Food is a major component of our economy
Each step in the system adds value and costs
Department of Economics
The Food Dollar
Source: USDA-ERS
Department of Economics
Declining Farm Value in Food
Source: USDA-ERS
15%
20%
25%
30%
35%
40%
45%
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
In the 1950s, 25% of food was consumed away from home.Today, nearly 50% of food is consumed away from home.
Department of Economics
Farm to Retail Food Price Spread
Food Farm Value Share of
Retail Food Price
Food Farm Value Share of
Retail Food Price
Eggs 53 Canned Corn 22
Beef 49 Sugar 27
Chicken 48 Wheat Flour 19
Milk 34 Bread 5
Pork 31 Corn Flakes 4
Orange Juice 33 Corn Syrup 3
Source: USDA-ERS, 2001
Department of Economics
Factors Leading to Higher Commodity Prices
Source: USDA-ERS, Trostle, July 2008
Department of Economics
Commodity Price Indexes
Source: International Financial Statistics
Department of Economics
Population2008 2020 2050
(billion) (billion) (billion)World 6.678 World 7.601 World 9.393
China 1.330
China 1.431
India 1.808
India 1.148
India 1.362
China 1.424
U.S. 0.304 U.S. 0.336 U.S. 0.420Indonesia 0.238
Indonesia 0.268
Nigeria 0.357
Brazil 0.192
Brazil 0.212
Indonesia 0.313
Pakistan 0.168
Pakistan 0.204
Bangladesh 0.280
Bangladesh 0.154
Bangladesh 0.190
Pakistan 0.278
Russia 0.141
Nigeria 0.184
Brazil 0.228
Nigeria 0.138
Russia 0.132 Congo 0.189
Source: U.S. Bureau of the Census
Department of Economics
Countries Pursuing BiofuelsUSBrazilArgentinaColombiaParaguayCanadaUruguayMexico
ThailandNew ZealandSouth AfricaSouth KoreaPhilippinesIndonesiaPakistanChina
IndiaMalaysiaAustraliaJapanEURussia
Not a complete list
Department of Economics
Events in 2007Droughts:
Northern Europe, Ukraine, Russia, Northwest Africa, Turkey, Australia, and Argentina
Increased export taxes:China, Argentina, Russia, Kazakhstan,
Malaysia, and Indonesia
Export restrictions:Argentina, Ukraine, India, Vietnam, Serbia,
Egypt, Cambodia, Indonesia, and Kazakhstan
Department of Economics
Commodity Price Ratios (Sept. 2006 =1)
0.5
1.0
1.5
2.0
2.5
3.0
3.59/1
/200
6
11/1
/20
06
1/1
/200
7
3/1
/200
7
5/1
/200
7
7/1
/200
7
9/1
/200
7
11/1
/20
07
1/1
/200
8
3/1
/200
8
5/1
/200
8
7/1
/200
8
9/1
/200
8
11/1
/20
08
Corn Soybeans Wheat Rice
Department of Economics
Change in Food Price Indexes, 2005-2009Item Final Final Final Forecast Forecast
2005 2006 2007 2008 2009
Consumer price indexes Percent change
All food 2.4 2.4 4.0 5.0 to 6.0 4.0 to 5.0
Food away from home 3.1 3.1 3.6 4.0 to 5.0 4.0 to 5.0
Food at home 1.9 1.7 4.2 5.5 to 6.5 4.0 to 5.0
Meats, poultry, and fish 2.4 0.8 3.8 3.0 to 4.0 5.0 to 6.0
Eggs -13.7 4.9 29.2 13.5 to 14.5 1.0 to 2.0
Dairy products 1.2 -0.6 7.4 8.0 to 9.0 4.0 to 5.0
Fats and oils -0.1 0.2 2.9 13.0 to 14.0 3.0 to 4.0
Fruits and vegetables 3.7 4.8 3.8 6.5 to 7.5 3.5 to 4.5
Sugar and sweets 1.2 3.8 3.1 4.5 to 5.53.0 to 4.0
Cereals and bakery products 1.5 1.8 4.4 9.0 to 10.0 3.5 to 4.5
Nonalcoholic beverages 2.9 2.0 4.1 3.5 to 4.5 3.0 to 4.0
Other foods 1.6 1.4 1.8 4.0 to 5.0 3.0 to 4.0
Sources: Bureau of Labor Stats., USDA-ERS
Updated October 20, 2008
Department of Economics
Quick NotesFarm value is less than 20% of the food dollar.
Costs beyond the farm gate make up more than 80% of the food dollar. Labor, transportation, energy, advertising,
etc.
There have been a number of factors influencing food and commodity prices.
USDA Chief Economist Joe Glauber recently stated that biofuels are responsible for 10% of the inflation in food values.
Department of Economics
Thank you for your time!
Any questions?
http://www.econ.iastate.edu/faculty/hart/