August 8, 2007 | By: Laura Skillman
LEXINGTON, KY.

Anyone who's bought milk, meat, fruit or other products at the grocery in recent weeks has noticed that food prices have gone up. Weather, demand and energy prices are playing a role in these increased costs.

The most recent Consumer Price Index for Food and Beverages reports food prices are rising at 4.2 percent, a full percentage point higher than this time last year. In Kentucky, the retail price of a gallon of milk has gone from an average of $2.85 per gallon in January to $3.40 in July. 

One factor playing a role in these higher prices is adverse weather in many areas of the United States, said Craig Infanger, an agricultural economist with the University of Kentucky College of Agriculture.

“Agriculture is a weather dependent industry subject to episodes like the freeze in California this past winter, flooding in the southern plains states and drought conditions in the southeast,” he said. “Adverse weather means disrupted production and higher prices.”

Strong consumer demand this year in the face of fairly tight supplies has kept beef, pork and poultry prices at high levels. But, Infanger noted, basic supply and demand conditions are affected by other factors as well. For example, with corn prices substantially up, feed costs are also pressuring meat prices this year.

Energy prices are playing a role in the rising food and beverage costs as well. Relatively high gasoline and diesel prices are increasing transportation costs and squeezing food prices. If crude oil prices stay in the $70 range through the year, transportation costs will affect food costs, he said.

The booming production of ethanol has generated the fuel-versus-food debate. While ethanol is contributing to the higher food price trends, it is getting more of the blame than it deserves, Infanger said.

This year, the amount of corn used in ethanol production will be 58 percent higher than last year and account for more than one quarter of all corn use. However, corn-derived food components like high fructose corn syrup, which are found in a myriad of food products, constitutes only a fraction of the overall cost of the food item, he said.

“When you put rising food prices together with sharply higher prices for corn, wheat and soybeans, you get folks saying the era of ‘cheap food’ is over,” Infanger said. “Whether or not you believe this era is over, one thing is clear. You cannot simply point to one factor to explain food price increases.”

Contact: 

Craig Infanger, 859-257-7274