Friday, November 16, 2007

The Three E's of Higher Food Prices

In real estate, it's all about Location, Location, Location. For higher food prices, it's all about the three E's: Energy, Energy, Energy.

According to a recent release by the Nebraska Corn Board, the cost of energy outpaces the impact of corn on food prices
Some people have tried to blame the slightly higher prices they are paying for food on the grocery store shelf on the higher prices farmers get for their corn. There are other factors involved, however, including the high cost of energy, which affects every company that has groceries on a store’s shelf.

High energy costs add to the expense of processing and packaging everything, even a box of corn flakes, and then getting that food to the store,” said Randy Klein, director of market development for the Nebraska Corn Board. “Yet higher corn prices, driven by demand for consumer products such as milk, pork and ethanol, seem to take the brunt of the blame, in many cases without any reasonable explanation.”

Research has shown that a $1 per gallon increase in the cost of gasoline has three times the impact on food prices compared to a $1 per bushel increase in the cost of corn, Klein said. “Although some food companies have tried to blame corn for their price increases, many now acknowledge that higher energy costs play an important and significant role,” he said, “and many of these same companies continue to have nice profits.”

Using a box of corn flakes as an example, Klein said if corn is priced at $3.50 per bushel, there is only 3.9 cents worth of corn in a 14-oz. box of corn flakes that sells for $2.79. Conceivably, he said, the higher corn prices this year could have raised the price of that box of cereal 2 cents.

Source: Nebraska Corn Board

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