The Price of Food

Rising food prices are causing a decrease in conservation practices among farmers, according to this article in the New York Times.

The article focused primarily on agronomic crops such as wheat but mentioned the overall increase in production cost. What’s production cost? Simply put it’s the amount of money a farmer has to spend to grow a crop. Production costs are typically estimated per acre. High fuel prices are a major contributor to increased production cost.

Anyone who has filled up their car or truck with gas recently has noticed the increase in gas prices. Most agricultural machinery in the United States runs on diesel fuel which has also increased in price. Diesel fuel used for agricultural equipment (tractors, combines, etc.) might seem cheaper at first glance but has also has also been subjected to the same skyrocketing prices.

Another important component in agriculture, synthetic fertilizer, has also dramatically increased in price. This coupled with the rising fuel costs means that the cost of production per acre increases also. What it all boils down to is that even though food prices are higher, it doesn’t necessarily mean farmers will be making more money.

For example say I wanted to grow an acre of sweet corn, and make money selling the corn. To figure out what I’d need to charge for that corn some things I’d need to consider cost of: fuel, corn seed, fertilizer, pesticides, and labor. Other factors such as property taxes, machinery wear, and cost of machinery. This list of costs isn’t comprehensive but hopefully illustrates growing crops isn’t free.

Let’s take the example a bit further. Say you sell your corn crop and get $500.00/acre*. Before you take that money to the bank you’ll need to figure out how much it cost to grow that corn. You look back at your production records and estimate that it cost $200 to grow that acre of corn, so you ended up making $300.00/acre. Alright $300.00/acre profit doesn’t seem too bad but say your production costs were $450.00/acre or $600.00/acre. In these cases you’d be making $50.00 or losing $100.00. Unfortunately costs of production aren’t always reflected 100% in the price of the crop, but that’s a whole different story.

*Note: I made up the price per unit. The actual price per unit (bushel, ton, etc.) would depend on the crop and were it was being sold. A roadside stand might sell sweet corn by the dozen whereas a cannery might buy it by the ton.