Department of Economics Food and Fuel Issues Iowa Seed Association Annual Convention Ames, Iowa...

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


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


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


U.S. Ethanol Production

0

1

2

3

4

5

6

7

Bil

lion

Gal

lons

Source: Renewable Fuels Association


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


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


The Food Dollar

Source: USDA-ERS


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.


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


Factors Leading to Higher Commodity Prices

Source: USDA-ERS, Trostle, July 2008


Commodity Price Indexes

Source: International Financial Statistics


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


Countries Pursuing BiofuelsUSBrazilArgentinaColombiaParaguayCanadaUruguayMexico

ThailandNew ZealandSouth AfricaSouth KoreaPhilippinesIndonesiaPakistanChina

IndiaMalaysiaAustraliaJapanEURussia

Not a complete list


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


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


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


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.


Thank you for your time!

Any questions?

http://www.econ.iastate.edu/faculty/hart/

Department of Economics Food and Fuel Issues Iowa Seed Association Annual Convention Ames, Iowa...

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