Growing up in Grabill, I heard farmers complain about the small percentage of the final price of food that a farmer receives.
While I was a student at the graduate school of business at Notre Dame, a top executive of Kellogg's came to speak to us after we had done some exhaustive study of his company. I asked him what percentage of the cost of a box of cereal goes to the farmer as opposed to advertising costs.
He blew his stack, saying it was confidential and none of my business, throwing in for good measure that I was a typical young college socialist (this was 1974). This resulted in roaring laughter and the speaker getting even more angry, so the dean had to explain that I was the most right-wing student there.
I raise this because it seems rather odd that corn production in the largest corn-producing states may be down 40 percent or more, corn futures are up as high as 40 percent (futures are financial markets “purchasing” corn yet to be delivered), and yet prices are expected to only go up 3-4 percent.
The basic price of corn includes such costs as land, seed corn, the fertilizer (which includes its own cycle of raw materials delivery, salesmen, advertising), super-sized farm implements with incredible technological breakthroughs and the farmer's time.
Then it goes to market (e.g. trucks, grain elevators, storage bins), which is more expense. The corn moves through our transportation system (e.g. Central States in New Haven at different times shipped almost all area soybeans to New Orleans for shipment to Asia, other times toward Georgia/Florida for the American South).
Eventually some of the corn makes it to Battle Creek or somewhere to be made into Kellogg's Corn Flakes. Then the costs start to really mount. Cereal boxes, many of which are manufactured in our area, and the wax paper to hold the cereal each have sub-empires, including raw materials, transportation costs, colored ink and designers. Then there are the advertising costs of Corn Flakes.
Meanwhile, the flakes are heading to the grocery stores (and other locations ranging from military bases to schools to prisons) or to regional warehouses. The added costs then include transportation, unloading, stocking and sales clerks at the stores, as well as more advertising. The final costs are “overstocks,” which hopefully get to the Community Harvest Food Bank while still usable.
It is estimated that the decline in energy costs (a bigger total cost of Corn Flakes than the corn) will offset most of the corn increase. Historically, we have partially subsidized losses to farmers (in price and disaster) but not the other 95 percent of food costs for a simple reason: Without the farmer, the system collapses.
The farm bill needs improvement, but like most issues, it is a tad more complex than it appears on the surface. Our system is messy, but we supply the most food at highest yields and the lowest prices of anywhere in the world.