It isn’t uncommon to read about issues happening around the world that create hardship for some but leaving others unaffected, however; food inflation is not one of them. The rising cost of food is an issue being felt throughout North America and across the globe. Although it can be easy to focus on rising total of the grocery bill, it’s just as easy to forget about the relativity of the rising food costs and the economic ebb and flow that has been experienced for the last seven decades.
Dr. Michael Swanson is the chief agriculture economist with Wells Fargo, and he says that although we are paying more at the till for food items, the devil is in the details. In relation to wages over time, today’s ingredients are actually cheaper than they were a few years ago, but only about 15 per cent every dollar spent at the grocery store reaches the farm level — the other 85 per cent is tied up in manufacturing, retailing, transportation, and wholesaling.
“If you really look at the price of wheat, corn, barley, chicken, beef, to today’s wages, they’re really not that much more expensive, in some cases, even less expensive than they were 20 or 30 years ago, because wages have gone up that much faster than the raw ingredients have themselves,” says Swanson. “It’s a cold comfort to say to somebody who is currently scanning their items at the supermarket and seeing that total jump up faster than they’re expected. But at the same time, we have to be reasonable and say, Look, you know, when you earn more, that money is going to go somewhere. And so we really have cheap ingredients in today’s world, compared to where we were 15 to 20 years ago, and so much cheaper than we had 50 to 60 years ago.”
When it comes to rising fuel prices, consumers are getting a double whammy when it comes to their bank accounts. Not only does it cost more to fill up their vehicles and machinery, the climbing diesel prices are also the main contributor to the increase in food costs, says Swanson. The silver-lining being, he doesn’t expect it to last.
“Let’s go back and look at crude oil prices over the last 10 years. The market seemed to get by pretty well between $50 and $70 [per barrel]. So why do we think $115 is here to stay?”
He theorizes fuel costs will start to drop and come back down to that average within the next 12 months, with the caveat that many factors will have an impact on that potential drop, including – or maybe most importantly, the Russia/Ukraine war.
Of course these price increases aren’t bad news for everyone. The meat packing industry has seen some substantial profits to the point of billions of dollars being put into new facilities in an effort to reap some of those rewards, one of which – an 8000 head packing plant that is proposed to be built in South Dakota.
If we are to look over the long term though, as the saying goes— what goes up, must come down. In Swanson’s opinion, much like the price of fuel, consumers will start to see a decline in food prices likely within the next year. Again, that outcome is contingent on several factors, but given the current landscape and historical values, it isn’t out of the question to expect.