Rising production costs are consuming most of the profit farmers might receive from the record prices crops like corn and soybeans are bringing.
“Although some crops are bringing record prices, farmers are paying record prices for things such as fuel, fertilizer, feed and seed that go into producing our crops and raising livestock,” said Georgia Farm Bureau president Zippy Duvall. “The higher commodity prices our crops are bringing are barely covering our higher production costs. We're feeling the pinch of higher fuel costs just like our consumers.”
Higher energy prices, increased demand from China and India for agricultural production supplies and the weak value of the U.S. dollar are all factors contributing to higher production costs for farmers and ultimately higher food prices for consumers, economists say.
“There's been a significant increase in the world demand for agricultural supplies used in producing crops that are made from petroleum. In the last five years, there has been about a 14 percent increase in the demand for fertilizer worldwide reflecting the population and consumer growth in China and India. In the U.S., we've actually seen many of the plants that produce nitrogen fertilizer shut down, so we've lost about 40 percent of that production capacity and are importing about 50 percent of the nitrogen we use in the U.S. We also import over 90 percent of the potash products we use for fertilizer,” explains University of Georgia agricultural economist John McKissick.
“Keep in mind the dollar has depreciated about 25 percent in the past five years. This means the prices of imported input products have increased about that much. It's a combination of all these factors that have pushed up production costs.”
UGA economists predict it will cost Georgia farmers 14 percent more to grow cotton this year than last and 49 percent more to grow corn. The production costs for growing peanuts are up 21 percent from 2007, while the production costs for soybeans are up 49 percent. Since 2002, costs are up between 40 and 75 percent for these same crops.
All of these production cost estimates are for irrigated crops. Drought conditions or sporadic rain make it necessary for farmers to irrigate their crops. Irrigation systems are fueled by diesel fuel or electricity, both of which have seen price increases. In 2007 alone, total cash farm expenses rose to $222 billion, according to the USDA.
“As supply and demand conditions change, the prices farmers receive are most likely to fluctuate, whereas the cost of production inputs, such as fertilizer, are much less likely to weaken,” explains McKissick.
“Rising production costs have eroded many of the benefits farmers are perceived to reap from high commodity prices. For perspective, consider that food prices have increased only about 4 percent in the last 12 months.”
Glenn Waller, a row crop and cattle farmer in Washington County, has recorded the prices he has paid for production supplies and the income he has made from his crops since 1965. In 1998, he joined forces with Washington County Extension Agent Sidney Law to compile this data to chart how production costs, farm income and food costs have risen through the years.
“Farmer costs have increased almost 12 times what they were in 1965 to 2008. However, the most important person in the food production process, the farmer, has only received an increase of 1.5 times for the farm products he produces during the same period of time,” Law explained.
“However, during the same time period, food prices have increased more than seven times.”
Farmers receive only 19 cents out of every retail dollar spent on food, according to the USDA Economic Research Service. Off-farm costs, which include marketing expenses associated with processing, packaging, wholesaling, distributing, transporting and retailing food products, account for the remaining 81 cents of every retail dollar spent on food.
In 1968 farmers received $1.50 a bushel for corn. By 2006, corn was bringing $2.68 a bushel. Today it's averaging about $6 a bushel. That's an increase in farm income from corn of only 233 percent from 1965 to 2008. Meanwhile, corn flakes cost 31 cents per pound in 1965, cost $2.99 a pound in 2006 and $2.82 a pound in 2008. That's an increase in food cost to consumers of 810 percent from 1965 to 2008.
In 1965, it cost Waller $12 to buy a bushel of seed corn for planting. By 2006 seed corn had risen to $95 a bushel, and in March 2008 seed corn cost $150 a bushel.
In 1965, Waller paid $38 a ton for standard fertilizer that contains nitrogen, potassium and phosphorus. By 2006 a ton of the same fertilizer cost $268. Today that fertilizer averages $420 a ton.
In 1965, Waller paid 15 cents for a gallon of diesel fuel, which is used to run most farm equipment. By 2006, diesel fuel averaged $2.46 a gallon. This year it's averaging more than $4 a gallon.
In 1965 a 94 horsepower (HP) tractor that Waller uses to plant his corn crop cost $6,500. The cost of a tractor with the same HP cost $53,000 by 2006, and it costs $58,000 today.
In 1965 a four-row grain combine Waller uses to harvest his corn crop cost $6,900. By 2006 the cost of a combine rose to $153,000 and increased an additional $333 in 2008.
“American consumers enjoy the most stable and safest food supply in the world thanks to the efficient agriculture infrastructure we have in our country. USDA statistics show that American shoppers spent less than six percent of their income on food in 2006, a lower proportion than any other nation.
“In most of the world, consumers spend at least 10 percent, and in some countries such as Indonesia, consumers spend as much as 55 percent of their income on food each year,” Duvall said. “If we think we have problems now because we're dependant on imported fuel, imagine life if we were dependant on imported food.”
Founded in 1937, Georgia Farm Bureau is the state's largest general farm organization.