Saturday, December 15, 2007

New Report: Marketing and Demand Are Key Drivers of Food Price Inflation

Informa Economics Food vs Fuel ReportA new report by Informa Economics identifies the so-called “marketing bill”—the portion of final food costs that excludes grains or other raw materials —as a key driver of the consumer price index (CPI) for food, largely due to rising energy and transportation costs.

Another significant factor in consumers’ food bills is surging global demand for commodities. The report finds a comparatively “weak correlation” between corn prices and overall food costs.

In fact, just four percent of the change in the food CPI could be attributed to fluctuations in the price of corn. Simply put, growing U.S. ethanol industry is not the cause of food price inflation.
“This analysis puts to bed the argument that a growing domestic ethanol industry is solely responsible for rising consumer food prices,” said Informa Chairman and Chief Executive Officer Bruce Scherr. “The statistical analysis plainly details that energy-intensive activities such as processing, packaging and transporting, as well as the cost of labor, have a far greater impact on consumer food bills than the price of grain. It may be politically convenient to blame ethanol for rising food prices but it doesn’t make it factually accurate. As far as Informa is concerned, this debate is settled.”
Informa has outlined a number of key findings from its report, including:
  • The “farm value” of commodity raw materials used in foods accounts for 19% of total U.S. food costs, a proportion that has declined significantly from 37% in 1973.
  • The marketing bill has a higher correlation with the consumer price index (CPI) for food than does corn, although there is a notable long-term upward trend to both the marketing bill and the food CPI.
  • There is no statistical evidence to suggest that high and/or rising corn prices are the causative reason behind high and rising retail meat, egg and milk product prices.
  • The proportion of the average American’s disposable income spent on food has declined steadily over the last half-century, from 21% of disposable income in 1950 to below 10% in 2006.
  • No single factor drives consumer food prices over time.
The analysis concludes: “While there have been a number of stories in the media over the last year indicating that consumer food prices are being driven higher by an ethanol-induced increase in corn prices, there is little evidence of such a simplistic cause-and-effect linkage.”

Source: Informa Economics

Subscribe to updates by Email

AddThis Social Bookmark Button

Food and Fuel

Good and Balanced Food and Fuel News!

No comments: