What Causes Food Prices To Rise? What Can Be Done About It?

According to the Bureau of Labor Statistics (BLS), food price levels increased 57 percent from the beginning of 1970 through 1976, including a 31-percent increase in 1973 and 1974. The Consumer Price Index shows that over the last 50 years food prices have been susceptible to wider fluctuations than the prices of other goods. Farm prices and food prices are generally generated in two different markets--the market for raw agricultural commodities and the market for finished food products.

Farm prices of raw agricultural commodities are influenced largely by such unpredictable natural forces as the weather, pests, and crop disease. Farm and food prices are influenced by other factors that affect supply such as federal programs for cropland set-aside, commodity disposal, export sales, and marketing orders; production costs; and the length of the production cycle. Higher marketing charges have accounted for 87 percent of the increase in consumer expenditures since 1973. The largest food marketing cost is labor. There are four principal reasons why food prices do not always decline when the farmer receives less for the raw commodity: (1) a drop in farm value may have little or no impact on the retail price when the farm value is a small percentage of a product's price; (2) a decrease in farm value may be offset by increases in the cost of marketing, transporting, assembling, and wholesaling; (3) retail pricing methods are based on factors other than product cost; and (4) food chains may not pass on price drops to the consumer.

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