We have heard a great deal about the cost of food over the past three years. As the election draws near, news of food price inflation has escalated. Food price is real. You can ask any American about their budget for groceries. However, there is another part to this story that is rarely mentioned in these news stories – the cost to produce food. Few Americans would even know or think about this aspect of food in the grocery store, these costs have a great deal of impact on America’s farmers and ranchers.
All primary inputs to producing crops and livestock including land, capital, energy and labor have risen sharply over the last four years. And, associated with each of these inputs are regulations which are also major contributors to agricultural costs of production. If we use USDA’s Prices Paid Index to compare the costs of livestock production, overall costs have increased 28% from 2019 to 2023. The cost of energy posted a 35% increase over the same years while the cost of labor rose 24% from 2019 to 2023. This does not even consider further increases in the cost of labor in states that require farmers to pay overtime, i.e., Washington and Oregon. I did not even know the word overtime when I worked on ranches 50 years ago!
There are very few farmers or ranchers who do not borrow operating capital on an annual basis and as with all interest rates, the cost of this operating capital has jumped significantly over the last four years. Interest cost for farming and ranching rose 25% from 2019 to 2023. The major use of capital, of course, is to buy or expand a farm or ranch. I have written often about the importance of economies of scale in agricultural production. Expanding the land base of an existing operation and diversifying production can be key to managing market risk and/or generating additional revenue to maintain a family operation. Not only have interest rates risen, but land values have also risen significantly, thus making the decision to expand the farm or ranch a costly decision from every perspective.
The U.S. has the largest selection of quality, safe food of any country in the world. And yes, consumer prices have risen sharply over the past four years. However, the other part of the story is that the farmers and ranchers who produce our quality and safe food as well as purchasing many of the same food products as the average consumer, have also experienced sharply higher costs of production on the farm or ranch to produce that food.
I can certainly appreciate the average consumer’s concern about food inflation. And while most Americans appreciate the farmers and ranchers who produce our generous, safe food supply, now is a time in this environment of high food costs to also appreciate what it costs to produce our food.
Your Next Read: Nalivka: Inflation and a Repeat of History
