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Robert Longley

Impact of Drought on Food Prices

By August 15, 2012

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While about 87% of the 2012 U.S. corn crop and 85% of the soybean crop are now in danger of being damaged or lost to the "extreme to exceptional" drought affecting more than half of the nation, the impact of the drought on retail food prices should be minimal, according to the U.S. Department of Agriculture (USDA).

Along with potential damage to field crops, the USDA estimates that 63% of the nation's hay-producing acreage may be damaged by the drought, and that 72% of all domestic cattle were located in drought-afflicted areas on August 7. Faced with a lack of hay, and with their stock watering ponds drying up, ranchers in many parts of the nation are being forced to sell most or all of their cattle.

Food Prices: While droughts and other farming disasters increase the wholesale prices of raw, unprocessed farm commodities like corn and soybeans, these events typically have only a marginal effect on prices paid by consumers at grocery stores or restaurants.

The price of raw, bulk farm commodities - like bushels of corn or soybeans - is a relatively small factor among the many factors affecting what consumers ultimately pay for food. In fact, notes the USDA, commodities make up about 14% of the average retail food purchase, so even if all commodity prices doubled, retail food prices would increase by about 14%.

Other after-farm factors not affected by the drought, such as processing, transportation, labor costs, energy and advertising, make up about 86% of what consumers pay food in supermarkets and restaurants.

On July 25th, the USDA's Economic Research Service projected that the drought's impact on the average retail price of beef, pork, poultry and dairy products should become noticeable to consumers by late summer. The full effect of increases on grocery basket prices for processed foods containing corn, flour and cereal will take over a year to show up, with little or no effect until then.

According to the USDA, the increase in food prices is projected to be close to historical average this year and just slightly above that next year.

While declaring the drought of 2012 to be the most serious natural disaster to impact U.S. agriculture since 1988, the USDA released this informative inforgraphic demonstrating how the growth and resiliency of the U.S. agriculture sector places it in a better position to endure unpredictable and unpreventable disasters than ever before.

Also See:
Is America Running Out of Farmers?


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