For Release December 8, 1998

The "High" Cost of Food

by Chuck Otte, County Extension Agent

I’ve had several people talk to me lately about food. Some of the conversations were about what they perceived as the high cost of food, while others were concerned about what they were paying for food at the grocery store and what they heard that the producers were getting. Before I go any further with this discussion let me sum it up in very short order. What it costs to produce the raw food products doesn’t necessarily have a lot to do with the price the farmer gets for that raw product and equally little to do with what you pay at the grocery store.

Let’s take a look at several examples. Corn flakes are a fairly common breakfast cereal to which most consumers can relate. If you have 12 ounces of corn flakes you have less than 12 ounces of corn because a few little additives have been added, but for simplicity let’s assume that it took 12 ounces of corn to make those corn flakes. If a corn producer was to sell corn for $2.00 per bushel (it’s actually a little less than that right now) then the value of 12 ounces of corn would be 2.67 cents. The price of corn could double and you’d only have about a nickel's worth of corn in that product. So when the price of corn dropped over 50% in the last 18 months, can you see why the grocery store price didn’t change much?

Let’s take a look at beef. By the time you get an average market steer processed down to sellable portions you wind up with about 425 pounds of product. At current prices, that works out to be about $1.62 per pound of farm value. That price is for the whole product, ground beef being the same "farm value" as steaks, roasts and tenderloin. In reality about half of that beef carcass will probably wind up as ground beef, the rest as specialty whole cuts. Pork? Lately you’ve been able to buy a whole hog for under $70, in fact there have been reports of slaughter weight hogs being sold for under 20 cents a pound. At those prices you’re looking at less than a buck fifty per pound farm value of marketable product.

Oh, farmer's cost to produce these products? Let’s see, the average producer in north-central Kansas can produce corn for about $1.90 per bushel for cash expenses and by the time you also include depreciation, taxes, unpaid operator labor, interest and a land charge it’s over $2.60 per bushel. It costs beef producers about 10 cents more per pound to raise that animal than they are getting today (that equals about a $114 per animal loss) and hog producers are losing about $20 per pig. And for milk drinkers the average farm value of whole milk in November was $1.42 per gallon.

So if you think you’re paying a lot for food, you may be. But you aren’t paying for farm value! If you look at the long range trend it’s scary if you’re a farmer. It varies a little from year to year, but basically for every consumer dollar spent for food the farm value is between 20 and 25 cents. Now, this is only for grocery store food. What you eat away from home is a different story. But for every dollar you spend for food, less than one fourth gets back to the farmer. The rest of the dollar is what’s called marketing cost and includes everything from processing to transportation to advertising. And if you, the consumer, wants a product that takes less work to have it ready to eat, the farm value becomes even an even smaller percentage.

Yes, it seems like food costs a lot. But it isn’t the farmer that’s getting rich, in fact nobody’s really getting fat along the way, it’s just all the steps that your food goes through before you get it. But on the other hand, you are, on the average, paying a lower percentage of your paycheck than virtually any other country for the food you eat. It may seem like a lot of money, but it’s still a bargain!


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