Is The Era of Cheap Food Over?

James Dunn
Professor of Agricultural Economics
The Pennsylvania State University

Food has steadily become more affordable over our lifetimes. Real farm prices have declined for decades. Incomes have risen, making eating out regularly and buying more prepared foods a possibility for the average American. In the last year, higher prices for food grains and may other items have led to speculation that real food prices will rise in coming decades, reversing the long-term trend.

Some food products such as chicken and milk are less expensive than they were 30 years ago in real terms while other food products are a bit higher. The prices of very few food products have increased in price significantly in real terms over recent decades. As a result of stable food prices and rising incomes Americans can afford to eat more processed food and more meals away from home.

The single biggest reason food prices have remained low is technological progress at the farm level. Improvements in productivity have been amazing. In the United States in the past 35 years, milk per cow had doubled, corn yield per acre is up over 60 percent and soybean yield per acre is up almost 40 percent. With genetic engineering, the advances in large acreage crops such as corn and soybeans are expected to leap forward to almost unimaginable levels.

Farmers have sometimes said the U.S. government has pursued a cheap food policy. I do not believe that to be the case. The Land-grant system was designed to advance agriculture with education, research and extension. Cheap food was the inevitable result.
Why is food more expensive now? One reason is that economic growth in Asia has increased the demand for most basic commodities, including petroleum, fertilizer, steel and feed grains. The U.S. ethanol industry and bio-fuels in general have dramatically increased the price of corn and soybeans which in turn has led to increases in meat, egg and other prices.

Are higher food prices temporary or permanent? China and India are enormous markets, with 2.5 billion people between them. This includes many very poor people.  Their agriculture is advancing rapidly, leading to larger farms and decreased employment in agriculture. There may not be jobs in the city when these people leave the countryside. These factors mean the growth in Asia is more fragile than many believe. The collapse of the “Asian tigers” that happened in 1998 can happen again.

Ethanol is another factor causing high food prices and there is trouble on that front. When corn prices are high, ethanol production from corn is not economic. That’s why stock prices of ethanol companies are trading at a fraction of former levels. In the long run it will not make sense to derive ethanol from corn. Our current policies that subsidize making bio-fuels from food are short-sighted. Ethanol supporters who claim that the role of bio-fuel growth in food price inflation is small are using estimates that are blatantly absurd. I believe the bio-fuels splurge will end and that for this and other reasons, real food prices will fall again. Newer seeds, more investment in fertilizer plants and other infrastructure, less bio-fuel production and other events will increase production of food. Agriculture responds quickly to changes in the marketplace. In the 1970s we had a similar period. High energy prices, some bad weather in Russia and elsewhere and other events led to a few years of high food prices. Food prices returned about to their previous levels. The era of cheap food is not gone, but only on vacation.

Biographical Sketch

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