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Professor Tim Woods on Agricultural Economics and Food Prices

Aug. 8, 2012
Personal Finance
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Our efforts to save you money and promote financial education have brought us to some very interesting fields before. This one, however, has literally brought us to the fields as we try to learn more about food markets and prices. We spoke with Professor Tim Woods of the Agricultural Economics department at the University of Kentucky College of Agriculture to get some insights on current events in the food industry. We can all learn more about this one area that everyone can save from.

Food factors

Food prices, much like every other good that is traded internationally, are affected by currency exchange rates. According to Woods, “Our food economy is increasingly global. For the first time since data has been recorded, the U.S. has become a net importer of fresh tomatoes… international sourcing has been ramping up steadily for quite some time. Much of this is relative labor costs.” Additionally, “there is more processing, more large-scale production, and greater concentration in production,” all of which contribute to a more co-dependent food production chain. This makes food prices more vulnerable across the board (when grain prices go up, chances are you see an increase in meat, dairy, bread, and beverage prices as well, as these things all rely on market grain). “Food safety/quality assurance management also has become a significant cost component.”

The geography of food is also a factor in the price equation, but maybe not in the way that you might believe. “Some people think that locally produced food must have cost advantages, at least in things like freight. Not necessarily. It only costs about 4.5 cents to truck a pint of strawberries from the Salinas Valley in California to our backyard in Cincinnati by refrigerated trunk. Shipping grapes here from Chile by boat is even cheaper.” Don’t think that you will be saving just by shopping for in-state or domestic food.

Geography does, however, make an impact on food prices from the demand side of the equation. “Blueberries may sell for $2.50/pint in a rural market as opposed to $5.00/pint in a city farm market… Relative income plays a part, but orientation toward buying in bulk, freezing, canning, cooking, etc. is more predominant in rural markets.” Woods also notes that the cost of things like space, insurance, and wages are all higher in cities. These are all contributing factors to higher prices (and a willingness to pay higher prices) for food in cities.

Current events

“Food prices have trended steadily higher (up 3.4% from a year ago). This is especially for lower income consumers and those on fixed incomes,” says Woods. “Higher processed foods can still be delivered to market very cheaply (McD double cheeseburger has been available for $1 for a long time).  Fresh and more nutritious foods have moved much higher.  Consumer food price index covers all types of food.  The index for all food (1982/84=100) to date is 233.  Fresh produce is 322.5.  Sugars and sweets 215.5.  Processed fruits and veg 158.  Carbonated drinks 159.” Many people today are also lobbying for consumers to buy local (the Farm to School project being just one example). Food cooperatives, farmers markets, and CSAs have become the food fad. These local foods will often carry extra nutrition and certainly be more fresh, but they will also carry a higher price tag. Advocates like to counter this point by suggesting that the extra money spent on local food will stimulate the local economy. Woods and fellow agricultural economist Jayson Lusk suggest that this really isn’t really the case, as it violates economic principles of comparative advantage and reduces the savings of local consumers, which would stimulate the economy in other ways.

Buying locally grown food does have undeniable advantages in freshness, nutrition, and often quality as well. You should shop your local markets for good deals and seasonal scores, but for the most part your savings will be found elsewhere. “Pushing local doesn’t always help here,” says Woods.” But there is great value in increasing the students’ awareness of their local food community, getting them thinking critically about their own food choices and local ag (agriculture) economy, and encouraging healthy lifestyle choices that are readily folded in to food geography/community discussions.”

There are also political actions at work to keep and eye out for in the coming months. According to Woods, “Many in agriculture are watching the food vs fuel tensions. Subsidies for grain ethanol continue to tip the scales toward fuel, raising food prices. The share of total grain to fuel continues to climb at a frightening pace.” Labor also continues to be a major issue. Agricultural and food production in general relies on labor, and changes in wages or the supply of labor will both ultimately affect food prices. As a result, Woods advises to “also watch laws impacting migrant workers.  Fresh produce and other parts of ag that are very labor dependent worry about this a lot.  Rigid migrant worker laws will raise grower costs that will be passed along to food shoppers and/or accelerate dependence on foreign food producers.” These may be things to keep in mind when planning your food budget or on your trip to the voting polls.

His savings recommendation?

“Learn how to process food in bulk quantities.  Cook and eat at home.  Get a freezer.  Use coupons.  Shop several stores where possible.  Buy in bulk.”