Drought Barely Affects Food Prices
As natural disasters go, Midwest droughts affect retail food prices only indirectly and over a longer period of time than does a freeze in Florida’s citrus groves or heavy rains in California’s salad bowl, according to agricultural economists.
“A drought does not have the same direct effect on food prices as a freeze or rain or bad weather such as you can get in California or Florida,” said Dennis Dunham, who monitors food prices for the U.S. Department of Agriculture. When heavy rain keeps farmers from harvesting a crop like lettuce, for example, consumers quickly see higher prices at retail--a direct consequence of supply and demand.
“That happens at least once a year, in some place, for some kind of fresh fruits and vegetables,” Dunham said. “But a grain is really just a raw material, and you get so much value added onto it that the (cost) effects tend to be spread out over a longer period of time. And then we have some fairly large (surplus) stocks of some of these commodities--especially corn.”
On the other hand, droughts tend to prepare consumers for higher food prices, said Frank Limacher, an economist with the California Department of Food and Agriculture.
“A farmer may get 2 cents of the $1.40 a consumer pays for a box of cereal, but if his price doubles you’ll see a lot more than a 2-cent increase at retail. Maybe 40 cents,” he speculated. “These sorts of things are not explained by economic theory.”
Added Dunham: “We usually find that commodity price increases have to be large” to have a significant effect on retail prices.
Terry Francl, an economist with the American Farm Bureau Federation in Chicago, said food prices could increase a modest 3% to 4% later this year and by 5% to 8% next year, depending on the severity of the drought.
But, Francl pointed out, food prices for meals eaten at home only account for 10% of the formula used to determine the nation’s consumer price index, and all foods just 17%. Moreover, the farmers’ share of the retail food dollar is only about 25 cents, he said. “So the effect on inflation is moderated.”
