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President's Ponderings: Food Costs and Fuel Costs

By Edward Luttrell - President's Ponderings Blog (5/10/11)

  MAY 18, 2011 --

I am not pleased that food and fuel costs have been rising. Of course, I haven’t talked to anyone who seemed pleased to pay more for food or gas. This week we’ve seen a slight decrease in gas prices and I’ve heard from some that costs will decrease dramatically and from others that they will be heading up again if anything happens to disrupt supply. It seems everyone has an opinion and no one really knows what will happen with fuel prices. However, I haven’t heard anyone projecting food costs to decline.

Even as food prices continue to increase, USDA studies show that farmers share of revenue has been decreasing. In 2008 farmers received just 11.6 cents out of each food dollar spent which is down from 14 cents in 1993. Data has not been compiled yet for 2009 and 10, but farmers are still seeing only a small sliver of the food dollar.

Almost 90 percent of the food dollar is consumed by processing, packaging, transportation, marketing, and the profit markup taken at each point in the trip from farm to supermarket. If fuel costs go up I would assume that each point in our food’s trip would increase the costs of that food. However, history shows that the farmer gets the blame and sometimes even gets lower prices while being blamed.

Even when farmers benefit from strong market prices they are also subject to increases in fuel, fertilizer, and other costs of growing their crops or managing their livestock. Small and large farmers face the same problem of being blamed for higher food prices while receiving a small and shrinking percentage of each dollar the consumer spends.

The cost of nearly everything, including food is directly impacted by the cost of energy, especially fuel. From my point of view the policy of our nation on energy, specifically fuels, is incomprehensible.

Our nation wants energy independence, but the federal government is restricting off-shore drilling as well as prohibiting land drilling in areas of our nation. The government wants people to use alternative fuels, but there are none ready for immediate implementation. Energy independence is said to be our goal, but we also want to tax energy to discourage people from using it.

While I realize I’ve simplified things a bit, if we care about food prices, we need to stabilize fuel costs. I care about food prices because farmers are blamed unfairly for increases and the poor are affected disproportionately by food costs increases.

It is time that Congress takes a bit of responsibility and deals with the issues that prevent us from having true energy independence.

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