July 31, 2007

Food costs slightly reflect higher corn prices

The recent rise in corn prices is partly to blame for higher food costs, but the increase isn't as severe as some might think, according to Iowa State University research.

A move toward biofuel energy and ethanol in the face of dwindling oil supplies has in turn, caused considerable price increase in corn and other biofuels. As food prices have increased, many have blamed the increase on corn prices.

However, recent research at ISU's Centre for Agricultural and Rural Development argues that the increase in corn prices is only being slightly reflected in the increase of food costs.

All food products consumed are estimated at having an increase of 1.1 percent in prices, compared to the 30 percent increase in corn prices, the research found. While corn products are used in many different food products either as ingredients or feed for livestock, it is still a small part of costs involved in food production, according to an article about the research in the summer edition of Iowa Ag Review.

"Food prices are largely determined by costs and profits after commodities leave the farm," the article said, referring to production and service costs calculated into food prices.

However, the foods requiring less production and service costs such as eggs, poultry, pork and beef have higher price percentage increases than the average increase of all food consumed. The research estimated that with the increase in corn and associated grain price increases in wheat and soybeans, egg prices would increase by 8.1 percent, poultry by 5.1 percent, pork by 4.5 percent and beef by 4.1 percent.

The article stated while there are increases being passed along from higher corn prices, the impact is not great enough to account for the historically higher milk, meat and egg prices seen currently. Other factors such as an increased demand and economic growth in Asian countries are also playing a role in increased food prices, the article said.