US farmers and ethanol firms blame oil for food costs, according to my pal Joe Kamalick on ICIS news.
(Disclosure: I work for ICIS: About ICIS)
Looks to me that John Block Regan’s Secretary of Agriculture has a point about speculators piling into the grains markets as Wall St hits a rocky patch, and I like the quote from Rick Tolman, chief executive of the National Corn Growers Association (NCGA). He blames a
“clever misinformation campaign that is trying to turn Bo Peep into an axe murderer”
But these arguments really only hold water in countries where food is predominantly processed.
I’m going to suggest that in the developed world there are inputs to and from granaries but also ones to and from factories where the products are made and within factories to manipulate the ingredients. Then there are movements to supermarket distribution hubs and out to the shops. In that scenario then the price of energy (oil) will almost always be a bigger part of the cost of food than the ingredients.
For example, an 18-ounce box of corn flakes contains about 12.9 ounces of milled field corn. When field corn is priced at $2.28 per bushel (the 20-year average), the actual value of corn represented in the box of corn flakes is about 3.3 cents (1 bushel = 56 pounds). (The remainder is packaging, processing, advertising, transportation, and other costs.) At $3.40 per bushel, the average price in 2007, the value is about 4.9 cents. The 49-percent increase in corn prices would be expected to raise the price of a box of corn flakes by about 1.6 cents, or 0.5 percent, assuming no other cost increases.
Most of the real difficulties arise in countries where people buy grain directly and mill it themselves into edible food. The oil input there is much less, possibly from the field to the granary and then to the market. There it is the price of grain that matters much more than the price of energy and if the price of grain goes up by a third in the course of a year, then the price to you the consumer goes up by a third. There’s nothing in the chain between the field and the bowl to cushion the blow and the price of the ingredients is a much larger part of the price to you and to the aid agencies which may be helping you out.