Department of Economics Food and Fuel Issues Iowa Seed Association Annual Convention Ames, Iowa November 18, 2008 Chad Hart Assistant Professor of Economics/Grain Markets Specialist Iowa State University

Department of Economics ItemFinalFinalFinal Consumer price indexes Percent change All food Food away from home Food at home Meats, poultry, and fish Eggs Dairy products Fats and oils Fruits and vegetables Sugar and sweets Cereals and bakery products Nonalcoholic beverages Other foods Change in Food Price Indexes, Sources: Bureau of Labor Stats., USDA-ERS

Department of Economics Corn Prices Source: CBOT

Department of Economics U.S. Ethanol Production Source: Renewable Fuels Association

Department of Economics U.S. Food Marketing System Five 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 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 FoodFarm Value Share of Retail Food Price FoodFarm Value Share of Retail Food Price Eggs53Canned Corn22 Beef49Sugar27 Chicken48Wheat Flour19 Milk34Bread5 Pork31Corn Flakes4 Orange Juice33Corn Syrup3 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 Population (billion) World6.678World7.601World9.393 China1.330China1.431India1.808 India1.148India1.362China1.424 U.S.0.304U.S.0.336U.S Indonesia0.238Indonesia0.268Nigeria0.357 Brazil0.192Brazil0.212Indonesia0.313 Pakistan0.168Pakistan0.204Bangladesh0.280 Bangladesh0.154Bangladesh0.190Pakistan0.278 Russia0.141Nigeria0.184Brazil0.228 Nigeria0.138Russia0.132Congo0.189 Source: U.S. Bureau of the Census

Department of Economics Countries Pursuing Biofuels  US  Brazil  Argentina  Colombia  Paraguay  Canada  Uruguay  Mexico  Thailand  New Zealand  South Africa  South Korea  Philippines  Indonesia  Pakistan  China  India  Malaysia  Australia  Japan  EU  Russia  Not a complete list

Department of Economics Events in 2007 Droughts: 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 =1)

Department of Economics Change in Food Price Indexes, ItemFinalFinalFinalForecastForecast Consumer price indexesPercent change All food to to 5.0 Food away from home to to 5.0 Food at home to to 5.0 Meats, poultry, and fish to to 6.0 Eggs to to 2.0 Dairy products to to 5.0 Fats and oils to to 4.0 Fruits and vegetables to to 4.5 Sugar and sweets to to 4.0 Cereals and bakery products to to 4.5 Nonalcoholic beverages to to 4.0 Other foods to to 4.0 Sources: Bureau of Labor Stats., USDA-ERS Updated October 20, 2008

Department of Economics Quick Notes Farm 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?