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Farming
and Food Prices
Recent increases in food prices
and the upward trend in agricultural commodity prices have generated much public
interest recently, especially given the current economic situation and concerns
about inflation. Dai Davies, NFU Cymru President, will use Carmarthenshire
County Show to dispel a few of the myths that have arisen as a result of this
increased focus on the farming industry.
Mr. Davies' Myth 1: The current
rise we are seeing in food prices is driven by increases in agricultural
commodity prices.
Unfortunately, farmers know all
too well that despite being part of the same supply chain, movements in retail
prices, wholesale prices and farmgate prices do not necessarily move together.
Mr Davies explains, “While
food retail prices increased by 57 percent in the 1988-2007 period, farmgate
prices increased by only 17 percent. While, interestingly, the cost of living
over the same period, rose by 93 percent. Food prices are the result of a
combination of production costs, processors and retail margins. For many food
products, energy and energy-related costs represent a higher proportion of
overall production costs than agricultural inputs.”
A good example is the much
publicised rise in bread prices. With the average loaf of bread increasing
in price by more than 30 pence in the last two years, less than 10 pence in that
increase can be traced back to the rise in the price of wheat.
Mr. Davies' Myth 2: Rising food
and commodity prices are good news for farmers.
Again, another myth as a lot of
attention has been given to the food price increases very little has been
mentioned about the increase cost of production for the farmer which is why NFU
Cymru is advising farmers to watch their rising input costs and to shop around
for the best deal.
Mr Davies said, “The first
three months of 2008 have seen a faster increase in input prices than in the
prices for their produce. Between January and March input prices have increased
some 10 percent faster than output prices and are expected to remain at a high
level or possibly continue increasing. This means the profitability of our
sector will be substantially affected.”
Mr. Davies' Myth 3: Food
inflation is the reason for higher overall inflation.
The reality is that the impact
on your average household of food price increases has been lower than the rise
in motoring costs resulting from higher fuel prices. While food prices
have led to an increase in cost of living of just under 0.7 percent out of the
three percent increase in Consumer Price Index, the figure rises to above 0.7
percent when the same analysis is undertaken for fuel costs. It is
therefore evident that food price increases, though playing a part in rising
inflation, are not the main driver.
Mr Davies concluded, “The
issue of increasing food prices, which these myths surround, will probably be
with us for several years to come so I hope I have gone some way in dispelling
them now.”
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