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Sunday, April 22, 2012

High grocery prices mean farmers and ranchers are rich, correct?

Not quite so fast. While it is logical to think that the higher prices the consumers are paying at the checkout register means the farmers and ranchers are just lining their pockets with all the profit they are making. However, it is not quite that simple due to a lot of other factors that play into profit for the producers.

The producer is receiving more for the product they produce, but at the same time they are spending more producing the safe, wholesome food we all enjoy. For the farmers, cost of inputs has been rising according to a report from the Economic Research Service (ERS). Input costs of seed, fertilizer, pesticides and fuel are all higher than they were in 2002, and all of these inputs are needed for the producers to be able to produce enough wholesome food.

As you can see in the following graph, producers are receiving more income but compared to the cost of production it is basically the same profit margin as it has been in the past. The farmers have more invested while their goal is to receive the same profit each year resulting in more risks for the producers. Full report can be found here.

Another reason that producers are not making more profit from these higher grocery bills is the small percentage of a food dollar that actually goes back to the producer. The ERS performed another economic analysis back in 2011 that examined where each dollar spent in the grocery store was distributed. Only 11.6 cents of every dollar spent in the grocery store actually went back to the farmer. The rest of spilt between processing and food services. Full report can be found here.

Overall, we need to thank the producers daily for providing the consumers with wholesome food for as cheap as they do with their increasing input costs.

Miles Theurer

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