Consumers who notice similarities between crude oil and gasoline prices might expect the same pattern for food, but economists with the University of Arkansas Division of Agriculture said on Apr. 28 that the relationship between farm prices and grocery store prices is much more complex.
This topic matters because many people believe that changes in what farmers receive for their crops will quickly affect what they pay at the supermarket. However, experts say that many factors disrupt this direct connection.
Hunter Biram, extension economist for the Division of Agriculture, said, “Making a direct connection between the two is extremely difficult.” He explained that both global and domestic economies are influenced by interest rates, weather events, wars, disease outbreaks, trade conflicts and other unpredictable elements. “Given the complexities of the food supply chain, the best research available focuses on the share of the food dollar attributed to farming, along with a comparison of crop price volatility compared to food price volatility. Historically, food prices are about half as volatile as crop prices.”
Scott Stiles, extension economics program associate for the Division of Agriculture, said agriculture does not work like other industries where increased costs can be passed along to consumers. “The farmer is a ‘price taker’ and cannot pass his costs along to the buyer,” Stiles said. According to him: “The greatest near-term impact on grocery prices would be related to transportation — i.e., fuel costs… And at some point, higher petroleum prices would increase manufacturing costs for plastics and packaging.” He added: “These same cost increases are impacting farmers… Unfortunately they are not in a position to pass these cost increases along.”
Biram described how farmers must make tough decisions when faced with high input costs and low commodity prices: “Farmers will shift acreage to the most profitable crop or the crop that will produce the lowest loss… Even if that crop is facing increased production expenses, grain buyers have no incentive to offer a better price.” He continued: “Grain buyers — elevators — are highly price elastic… As long as there is ample grain available to purchase there likely won’t be any significant effects on consumer prices due to increases in production expenses… Grain buyers will adjust prices accordingly in order to remain profitable.”
According to the official website, The University of Arkansas Cooperative Extension Service receives funding through federal grants from the U.S. Department of Agriculture and state appropriations.
The Cooperative Extension Service supports social cohesion by offering programs addressing rural, urban and suburban community needs according to its official website.
Program delivery utilizes county offices as well as research centers across Arkansas according to its official website. The service operates in all 75 counties with specialists based on five university campuses according to its official website.
It is part of The University of Arkansas System Division of Agriculture according to its official website. Its goal is enhancing agriculture, communities and families through research-backed practices according to its official website.
