Higher food prices reflect variety of factors

AgriLife Extension economists provide ‘bigger picture’ on some agricultural product increases

Factors contributing to some higher prices at the local grocery store are the result of a perfect storm of short- and long-term retractions, disruptions, disasters and wide fluctuations in supply and demand, said Texas A&M AgriLife Extension Service economists. And that’s just the short list.

“We are already seeing consumers paying more for many grocery items, including beef, poultry and fish, as well as dairy items and a number of other household staples,” said David Anderson, Ph.D., AgriLife Extension economist in the Department of Agricultural Economics in the College of Agriculture and Life Sciences, Bryan-College Station.

With the pandemic, along with ice storm and drought, fuel increases and supply disruptions, slowdowns in shipping and a head-snapping return in demand, there are more than a few reasons consumers are seeing increased food prices.

Increased cost to feed poultry and livestock

Anderson said one significant factor in the rising cost of meat items is the increased cost of feed for poultry and livestock, which is made up primarily of corn and soybean meal.

“Cows, chickens, goats, sheep and other farm animals have diets that are highly dependent on feed made from these commodities,” Anderson said. “Increased costs for these commodities, along with increases in fuel and transportation costs, energy costs and the costs of agricultural inputs, such as fertilizer, eventually get passed along to the consumer.”

He said many problems with agricultural supply chain disruptions and production retractions that occurred during the pandemic will take time to rectify.

“Increased fuel costs, disturbances in the reliability of transportation and labor, and a general trend toward inflation have also been factors in food price increases,” he said.

Along with supply problems, he said, many agricultural operations have had to spend more on pandemic-related safety training and protocols and are passing along some of those costs.

“There also have been weather anomalies that have had an impact on agriculture, such as the winter storm and then drought affecting producers in Texas,” Anderson said. “In all, agricultural production and the effects of input costs, the push and pull of supply and demand, and other variables is a pretty complex and often unpredictable situation.”

Pipeline hack no major agriculture setback

While the ransomware attack on the Colonial Pipeline caused sudden and serious disruption of the primary fuel supply to eastern states, it likely did not cause any serious longer-term impact on agriculture, Anderson said.

“The fuel supply problem was exacerbated by panic buying that made the shortages even worse and left a number of areas entirely without fuel,” he said. “There was some cause for alarm among consumers, but that overreaction only served to prolong the situation.”

Anderson said agricultural producers in the region may have experienced some short-term issues with the pipeline interruption, such as temporary shortage of diesel fuel for farm equipment or temporary setbacks in transporting goods and supplies. However, the event likely did not produce much of impact on agriculture as a whole and really had very minimal impact on agricultural production in states like Texas and California.

Supply chain issues related to the I-40 bridge

However, Anderson said, the crack on a beam providing stability to the bridge on Interstate-40 between Little Rock, Arkansas, and Memphis, Tennessee, was a recent event that could potentially represent a major crack in the stability of the agricultural supply chain.

“Far more significant to agriculture than the Colonial Pipeline shutdown was the issue with the I-40 bridge,” he said. “There is a huge amount of agriculture-related barge traffic along the upper Mississippi and the rivers that feed into it, taking agricultural commodities into the New Orleans area for export.”

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The bridge was shut down for weeks and only recently was barge traffic again being allowed through, but at a slower pace until the bridge can be fully assessed.

The closure caused disruptions and delays in delivery for hundreds of barges, including those carrying corn, soybeans, soybean meal and other agricultural commodities.

“We’ve always had an advantage over other countries in our ability to move large quantities of agricultural commodities by inland waterways,” said Luis Ribera, AgriLife Extension economist, Bryan-College Station. An analysis by Ribera and others regarding soybean transportation throughout the U.S. showed 45% of the commodity moved via inland waterways, 35% moved by rail and 20% moved by truck.

However, he added, such delays in shipments and lack of reliability in supply can lead buyers to seek commodity providers in different countries.

“Once you’ve lost market share, it’s very hard to get it back,” Ribera noted.

Mark Welch, AgriLife Extension economist, Bryan-College Station, said had the disruption in barge traffic continued, there could have been some serious ramifications in the agriculture sector.

“A long-term disruption would have caused added delays and expense as the commodities would have to be offloaded and put into railcars or trucks for transportation,” he said. “Fortunately, this was a relatively short-term issue, but it did highlight how important our inland waterways are in the agricultural supply chain.”

Winter storm, prolonged drought in Texas

Welch said although some grain production in Texas was affected by Winter Storm Uri, producers are making good progress on corn and grain sorghum crops that needed to be replanted after the freeze.

“On the other hand, this year’s wheat production in West Texas has been affected by a different weather condition, a prolonged drought, which has been bad for those producers,” he said. “There are a number of factors at play in agricultural production, and it’s often a combination of factors and not one factor alone causing supply issues and price increases.”

He said yield losses from weather, as well as additional unexpected increases in labor and energy costs and increases in the cost of various agricultural inputs, have combined to create an escalating effect.

“There are so many variables, it’s difficult to pinpoint prices,” he said. “But it’s apparent that prices will continue to go up, at least in the short term.”

However, both Welch and Ribera noted grain prices in general are at a high level, presenting producers with an opportunity to make up for some of the losses they might have incurred from bad weather or other disruptions.

Ribera also noted the Texas citrus industry is still trying to recover from at least $230 million in losses from last year’s and this year’s crops.

“The effects of the storm likely will impact grapefruit availability and prices, but probably won’t have a significant impact on orange prices due to other large supplies available from Florida and California,” Ribera said. “But there are still likely to be increases in citrus prices due to increased costs of labor and transportation, as well as from general overall inflation.”

Many cattle ranchers across the state are also trying to recover from losses due to the winter storm while also dealing with this year’ extended drought, said Justin Benavidez, Ph.D., AgriLife Extension economist, Amarillo. Long-term livestock losses from the winter storm have been estimated at upwards of $300 million.

“Beef cattle producers are still working to replace the livestock they lost,” he said. “That takes a lot of time and is very costly. And the extended drought this year has had a further negative economic impact on them.”