Food industry experts said this week that consumers can expect to see increases in food prices because of Iraq's invasion of Kuwait - mainly because of higher energy costs.
A 20 percent increase in petroleum prices will result in about a 1 percent increase in consumer food costs.It will cost Utah's farmers and ranchers a lot more to produce food and fiber because of the increase in the price of oil, but Utah farm leaders say higher farm expenses should not be blamed for higher food prices at the supermarket.
"Until the loss of oil from Iraq and Kuwait is offset by increased output elsewhere, energy prices will likely remain high and American farmers will sustain higher operating costs," said C. Booth Wallentine, executive vice president of the Utah Farm Bureau.
Wallentine returned Wednesday night from Iowa, where he and other UFB officials met with other state farm leaders earlier this week.
"It is unlikely the farmer's share of food-cost increases will be passed on to consumers," Wallentine said.
"Since the farmer receives only 24 cents of the average U.S. food dollar, consumers could expect to pay for increases in other energy-related expenses, added between the farm and the grocer's shelf. This includes higher costs for refrigeration, manufacturing, transportation and even lighting the supermarkets themselves."
The price farmers paid for diesel fuel jumped by as much as 17 cents a gallon in some areas of the nation last week as crude-oil prices jumped past $28 a barrel. According to Wallentine, each $5 a barrel increase in the price of crude oil means an additional $1 billion boost in farm operating costs nationwide.
American Farm Bureau research economist Terry Francl said this week the $1 billion projection covers fuel costs for the cultivation and harvesting of 350 million acres. Also included are the costs of other farm tasks such as trucking, irrigation and crop drying.
Francl said farmers typically spend about $4.5 billion to $5 billion each year on fuels and oils. "Because of that, each $5 a barrel rise will increase farmers' energy costs by 20 percent," Francl said. "This projected increase doesn't include cost increases for oil-based farm inputs such as agricultural chemicals and fertilizers."
On the whole, energy, fertilizers and pesticides account for about 15 percent of all farm production expenses.
"Because of agriculture's reliance on petroleum products, American Farm Bureau President Dean Kleckner has conveyed fuel price concerns to the petroleum industry," Wallentine said.
"In a letter Monday to the American Petroleum Industry, Kleckner cautioned that unreasonable increases could encourage government oil price controls or new energy taxes."
An economic recession caused by higher energy prices could spell more bad news for farmers. A recession could send bearish waves through commodity markets.
A recession also would hit livestock producers - the backbone of Utah's agricultural industry. Consumer demand for beef is tied to consumer income, which usually falls with employment figures during recessions.
Larger domestic food supplies caused by the U.S. trade boycott of Iraq could offset some of the increased post-farm food-production costs, according to American Farm Bureau officials.
U.S. farmers are losing a significant market for products in surplus, such as wheat and rice, because of the trade embargo.
Last year, Iraq accounted for $726 million in U.S farm trade, mainly from shipments of wheat, rice, feedgrains, oilseeds and meal, feeds and fodder, tobacco, dairy products, eggs, tallow and other products.