Monday, December 31, 2007
A good year for farmers doesn't necessarily drive consumer costs
by Lynda Jo Gross
When farmers have a good year, does that mean consumers pay more for agricultural products?
Turns out, the answer's a little more complicated than that.
One echoing concern across the board is high energy costs and how they impact a grower.
According to Blair Thompson, Consumer Communications Manager for the Washington Dairy Producers Commission, dairy farmers fared well this year, getting good prices for their product.
But, he said, "Even though farm prices were high this year, that doesn't necessarily mean they're making a lot of money because the cost they're bearing is also high."
In a word, he says, corn, or ethanol, is an issue.
"The average dairy cow's diet is 25 to 30 percent corn...the price of that commodity is going through the roof."
Thompson added that the country is pushing ethanol, made from corn.
"It's been a real headache for dairy farmers, as well as the high cost of fuel."
When it comes to dairy product pricing for consumers, he said, high farm gate prices drive the costs. A farm gate price is the overall cost to get the product off the farm, which does not include, say, advertising.
And even when the farm gate lowers, retail prices lag and usually stay high for some time.
The news isn't bad though, he said, adding that industry experts are predicting the prices for dairy products will ease off in 2008.
Despite the higher costs for dairy products, Thompson said consumers are still craving things like milk and butter as regular staples in the household.
When it comes to wheat products, costs for consumers are up somewhat, as well.
Glenn Squire, Vice President of the Washington Grain Alliance, said low supply and high demand is definitely having an impact on wheat farmers.
While a bushel of wheat might be going for $11 right now, that doesn't mean that's what farmers are being paid. In fact, Squire said, most wheat farmers were paid roughly half of that, which is still a good price.
Washington's number one white wheat competitor, Australia, is facing drought crop failure for the second year in a row. Australian wheat is harvested in November and December. Washington's is harvested in August.
After a poor 2006, it was predicted that Australia would grow between 20 to 25 million metric tons. Unexpectedly, that figure now looks more like 12 million.
Washington exports about 80 percent of its wheat and Australia's woes are influencing the world market.
How does this impact the consumer?
Squire said that domestic prices for wheat are impacted by the shortage in supply, but where he sees the biggest impact is for manufacturers that use wheat, like factories that make bread. And, he added, for what they're making, wheat is just a small part of the overall picture.
"Domestic manufacturers are facing high energy costs, transportation costs more to get the loaves (of bread) to market," he said, adding that those unrelated costs are passed on to the consumer.
"The cost of wheat is having some effect (on consumers), but I don't think it's a one to one relationship because there are so many other costs associated with making these products."
He added that the supply and demand problem is the same across the board for rice, coarse grains and soy beans.
"Demand is going up for everything and supply is going down," said Squire.