Many factors contribute to increased food prices

It is not accurate to blame increases in the price of bread solely on wheat prices. Contributing factors include the rising costs of other ingredients such as milk and eggs, packaging costs, as well as transportation costs, which can be seen in the $0.78 per gallon increase in gasoline prices over the past year. Oil prices are the biggest contributor to rising food prices. Oil closed above $105 a barrel in early March, which is driving up production and transportation costs.

Bakers are increasing the prices of their products to make up for the increased cost of inputs, including, but not limited to, wheat flour. Global wheat stocks are at their lowest level in 30 years, and U.S. wheat stocks are at the lowest level in 60 years. The combination of weather-related production issues, rising global demand, and a weak U.S. dollar has pushed wheat prices to historically high levels. Although it is true that commodity prices have more than doubled in the last 12 months, it is important to note that wheat is only a small portion of the input costs for a loaf of bread.

"It's not only the cost of flour, it's all the other factors too," said Naji Toubia, owner of Bagatelle Bakery in Wichita, Kan. The bakery has been in business for 25 years, and Toubia says this is the fastest increase in input costs he has seen during that time. "Flour prices in general were fairly reasonable. We could have handled the jump if some of the other factors weren't combined with it." Toubia says the increases in packaging materials and fuel surcharges from some of his suppliers are also cutting into his bottom line. He has had to cut back on the variety of products he offers and produce only the most profitable ones. Toubia says they used to produce extra and give it to churches and charities, but they've had to cut down on that as well.

"Customers are adapting," Toubia says. "There is a big awareness on the part of customers. They are having to cut back. Our sales are suffering a little bit."

On average, a baker can make about 70, one-pound loaves of white bread out of a bushel of wheat.

Ten years ago, when the price of wheat averaged $2.72 a bushel (average price received by farmers), the amount of wheat in a one-pound loaf of white pan bread was less than 4 cents of the price. At the same time, a one-pound loaf of white pan bread sold for $0.87. Coincidentally, a gallon of unleaded regular gasoline sold for $0.97 per gallon, the lowest price since 1989.

According to the USDA Economic Research Service, the December 2007 average price received by farmers for a bushel of hard red winter wheat was $7.63 (http://www.ers.usda.gov/Data/Wheat/YBtable18.asp). That's 11 cents per loaf of bread. The price of a one-pound loaf of white pan bread is $1.28, and a gallon of unleaded regular gasoline is $3.05. (Data from the Consumer Price Index, Bureau of Labor Statistics, http://www.bls.gov/cpi/home.htm)

So, in the past ten years, bakers have seen an increase in wheat prices of 7 cents per loaf of bread. And, bread prices have increased by 41 cents per loaf. Wheat makes up 9 percent of the cost of a loaf of bread. According to Toubia, the remaining ingredients make up about 21 percent, and the rest is packaging, advertising, transportation, and overhead.

These increasing costs of inputs are making U.S. flour users nervous. Some of them are encouraging USDA to pull acres out of the Conservation Reserve Program (CRP), and some are even calling for the U.S. government to intervene in the wheat market to ensure domestic supplies--and that is making overseas buyers nervous, too.

Two national wheat producer organizations--U.S. Wheat Associates and the National Association of Wheat Growers--oppose early release of CRP acres without the penalty, believing in the sanctity of such contracts, preferring to allow landowners to decide once the contracts are up for renewal.

The groups also unalterably oppose any potential agricultural export embargo. The U.S. wheat industry has invested many years and resources to developing overseas markets and has earned a valuable reputation as the world's most reliable supplier. U.S. Wheat Associates and the National Association of Wheat Growers believe a better solution is to let the market adjust itself as new wheat production comes on line and as global plantings increase in response to demand.

According to the U.S. Department of Agriculture's weekly Export Sales Report, total known outstanding sales and accumulated exports of all classes of wheat for the 2007/08 marketing year, through Feb. 28, were 32.034 million metric tons (1.18 billion bushels), 54 percent higher than last year's year-to-date total of 20.840 MMT (765.7 million bushels). USDA forecasts 2007/08 U.S. wheat exports to reach 1.2 billion bushels. The marketing year ends May 31.

The continuing increases in food prices and the weak dollar amplify the need for a strong farm safety net. The weak dollar means imported food is more expensive than domestically produced food. With the additional expense of transportation, imported food costs even more. Not only that, but USDA ensures a safe domestic food supply. According to the USDA Economic Research Service, in 2006, the families and individuals spent about 10 percent of their disposable personal income on food--the lowest amount of any country in the world. (www.ers.usda.gov/briefing/cpifoodandexpenditures/data/table7.htm)

"Americans have the most affordable, most abundant and safest food supply in the world," said NAWG Past President John Thaemert, a wheat producer from Sylvan Grove, Kan. "We, as agricultural producers, take pride in the work that goes into making that a reality, and in knowing that our work allows citizens to live their lives without worrying about their next meal."

4/7/08
1 Star WK\10-B

Date: 4/2/08

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