Rich nations have always consumed more per capita than poorer countries, and for decades Americans have led the pack. The last couple of years have provided a much needed awakening, as U.S. consumers came to expect low-cost goods to always be within their reach.
Take food for example; Americans have spent less than 10 percent of their disposable income on food for many years now. That’s about to change. Food prices are on the rise and this year will set new records for some — actually many — goods, including meat, dairy and poultry.
While the general inflation rate was nearly zero in 2010, food and fuel present another story. Predictions for 2011 food inflation range from 3 percent to 6 percent, with recent estimates pushing into double digits.
This will come at a time when gasoline and energy prices also are on the rise, which tends to increase costs of goods and services across the board. Oil is expected to exceed $100 per barrel, and by spring, gas prices are projected to average $3.75 a gallon.
While economists are already warning about the cooling effect that these rising prices could have on the U.S. and global economic recovery, the question for farmers is how will consumers respond? I don’t mean how will they respond in terms of purchases — although that is a worthy concern. Rather, how will they respond in their perception of you? Remember, there’s already a lack of understanding and trust regarding today’s farming and food systems.
Consumers will see higher prices in the supermarket and hear about record commodity prices and will perceive you as riding waves of money. After all, that sort of finger pointing even occurs within agriculture. Food-animal producers are pointing to crop growers as being flush with cash due to skyrocketing grain prices. Okay, but work through that a bit more. Add up a corn producer’s production costs with rising fertilizer, seed, fuel and land-rent prices, just to name a few, and their bottom line isn’t as richly black as it first appears.
“Dairy farmers are having it harder, while pork producers will see record prices…” was another recent comment I have heard. Yes, hog prices may set a record this year, but so will pork producers’ production costs. In the end, per-hog profits will be modest and could slip away altogether.
As has been driven home frequently and severely during the past few years, a producer’s risk-management strategy, regardless of the commodity, will determine who makes a profit and how much. Of course, those kinds of details won’t filter down to consumers or the news media.
News stories are already outlining this year’s rallying food prices. In recent days I’ve run across such reports on ABC, NBC, cable news and a National Public Radio business show. Still, nothing drives the point home like feeling it in your wallet, and while food prices are creeping higher, the real impact is yet to come. Consumers are in for some sticker shock, and they’ll wonder what the heck has happened.
They will point to “big, greedy, modern farmers.” Never mind that globally there are 1 billion more people to feed than in 1999. “There will soon be 7 million people on the planet” is the sobering statement introducing an article in the January issue of National Geographic magazine. It’s a long, but valuable read for anyone, but certainly for food suppliers. Thirteen years from now, another 1 billion people will share the planet. Meanwhile, large numbers of people have upgraded their diets, and many more want to. I know that’s not a news flash to you, but most U.S. consumers haven’t given much thought to such developments or their impact.
The point I want to emphasize is, with rising food costs on the horizon, consumers will again look at farmers with a jaundiced view. So, it’s worth your time to polish up your talking points about the reality of farming, finances and food production today and be prepared to explain the truth to consumers in a calm, thoughtful way.
Farmers of all stripes have increased food production dramatically over the decades, but that job will be only more demanding in the future with land, water and other restrictions.
There is little room for error, as we’re seeing with expanding demand. Ethanol production’s appetite for corn is not the sole reason for rising food prices, but it’s partially responsible, especially regarding meat and poultry.
Mother Nature is having her say, with a strong La Niña, which influences rainfall and causes weather extremes, such as floods in Australia and dry conditions in Argentina, Brazil, Uruguay and parts of the United States. If La Niña remains active through summer, it could have significant impact, such as a drought, on the crop-growing season.
Now, a drought doesn’t mean what it used to. Thanks to plant genetics and cropping practices, full-fledged crop failures are increasingly rare, but between such meager grain carryover supplies and growing demand, even modest per-acre bushel declines will have a big impact.
Food activist and author Michael Pollan (Food Rules, The Omnivore’s Dilemma, In Defense of Food) has argued for some time that food in the United States is too cheap. Well, he and his devotees will get a taste of what that’s like, as we enter a period of adjusting to a new “normal.”