Published: May 04, 2008 10:20 am            

Food prices soaring, but that doesn't mean farmers are getting rich

BAKER CITY, Ore. — Soaring food prices have consumers grumbling, but don't blame farmers and ranchers: They're just passing along huge increases in the cost of fuel, feed and petroleum-based fertilizers and pesticides.

While some consumers have been calling for government action to rein in soaring food prices, Peggy Browne, president of the Baker County Farm Bureau, said that could force farmers and ranchers out of business.

"Energy prices drive food price increases," Browne said. "The cost of food has gone up pretty close to the amount input costs have gone up."

The American Farm Bureau Federation's April Marketbasket Survey shows the total retail cost of 16 basic grocery items in the first quarter of 2008 was $45.03, up about 8 percent from the fourth quarter of 2007.

A 5-pound bag of flour showed the largest retail price increase, up 69 cents to $2.39.

John Sartwelle, an AFBF economist, said USDA statistics show that despite retail grocery price increases, USDA statistics show the farmers' and ranchers' share of retail food prices has declined from roughly 33 percent in the 1970s to around 22 percent in the first quarter of 2008, or $9.90 of the $43.05 market-basket total.

Even farmers and ranchers sometimes get fooled into thinking they're making lots of money when food and crop prices soar, but Browne said in reality the recent rise in crop prices received by farmers and ranchers doesn't cover their escalating costs of production.

Browne said petroleum-based fertilizers and pesticides that farmers use to produce hay, wheat, potatoes and grass crops in Baker County soared 40 percent over the past year.

"It has definitely had an effect on all sections of ag in Baker County," Browne said.

For hay producers, fertilizer costs account for roughly 60 percent of input costs, while labor, diesel fuel, repair and maintenance and other items account for about 40 percent of the cost of production, Browne said.

Those cost increases circulate through the agricultural industry as higher hay production costs are passed on to cattle producers via higher hay prices, which in turn drives up the cost of beef products in the grocery stores, Browne said.

The 60-percent figure for input costs applies to fertilizer used on established hay pastures, which farmers generally don't spray for weeds. Brown said petroleum-based input costs are even higher for wheat growers, who do spray herbicides to control weeds.

"Thank goodness the price of end products (food) has gone up some, otherwise there would be a lot of farmers going out of business right now," Browne said.

Just as the housing price bubble burst at the end of 2007, Browne said prices received by wheat growers and some other crops have also tumbled over the past few months, despite continuing increases in petroleum-based inputs.

Wheat prices dropped from a peak of more than $12 a bushel a few months ago to under $9 a bushel, which is the operating loan price supported by the Farm Credit Services offices in Northeastern Oregon, according to Mark Coomer, manager of Farm Credit Services office in Baker City.

Fertilizer salesman Joe Hill, of Western Farm Service branches in Baker City and North Powder, said several factors are responsible for the dramatic increase in fertilizer prices, including higher petroleum costs and a related increase in demand for ethanol produced from wheat and other grain crops that require fertilizer and herbicides.

Hill said the increasing use of wheat, corn and barley to produce ethanol fuel created a shortage of those crops, which in turn drove up cattle feeding costs at feedlots, which has also added to the cost of beef sold in grocery stores and meat markets.

Tim Reynolds of Reynolds Custom Cut and Cure in Baker City said his cost on a half side of beef has risen roughly 30 cents a pound over the past six months.

He also blames the higher cost of sides of beef he butchers on the high cost of petroleum-based inputs and increased use of feed grains to produce ethanol.

Hill said the weak U.S. dollar compared to foreign currencies has spurred skyrocketing fertilizer exports from North America to other parts of the world, particularly China and Russia.

As China, Russia and other countries use more and more fertilizer and pesticides, they're bidding up the price of those products manufactured in North America, Hill said.

The 40-percent increase in fertilizer prices reported in Baker County has also occurred across the country, and Hill said more increases are on the horizon.

"The only reason fertilizer distributors are selling it as cheap as we are is because we bought some earlier, when the market price was lower," Hill said.

When it comes to high prices people are seeing in the grocery store, Hill reminds consumers that farmers receive a small fraction of the retail price.

"Only 20- to 30 percent of the cost of a box of cereal in the store goes to the farmer," Hill said.

Higher fuel prices also drive up the cost of transporting commodities like wheat and beef to and from processing plants, from processing plants to warehouses and finally to grocery store shelves, Hill said.

Cal Ransom, president of the Baker County Livestock Association, said last summer's severe drought decimated hay crops across much of the West, from Northeastern Oregon to Idaho, Montana, Wyoming, Nevada, Utah and Colorado.

"We had a drought situation last year in Baker County that left producers short on forage (hay) for the winter. With the late spring, grasses aren't growing and we are out of hay."

When the hay crop is short, ranchers wind up paying more, and driving further to get it, which in turn spikes transportation costs and ultimately drives up beef prices.

While the price of beef in grocery stores might seem high, Ransom said some feedlot operators, ranchers and cow-calf operators are losing money due largely to the high cost and short supply of hay and feed grains.

"Our commercial feedlots, ranchers and cow-calf operators are operating in the red right now," Ransom said.

If the weather doesn't warm up and get the grass growing soon, Ransom said more ranchers may be forced to cut their herds, which could eventually create a beef shortage and even higher beef prices.







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