processed foods (should) keep inflation down
Food inflation is all the rage in the news these days. But here’s something I learned today. Only 2% of the price of processed foods goes to the farmer. In that box of cereal I ate the morning, the actual grain in the box is only two percent of the total value. Well, in Canada at least, where this picture is from (click for larger size).
That’s why Canada and the US have seen such low food inflation compared to the rest of the world – we eat so much processed food. Canada’s inflation is 1.2%, US food inflation is 5.9%. China, on the other hand, is seeing an annual price increase of 22%, and Sri Lanka’s inflation rate is 34%!
(Canada gets break because of its stronger dollar, a supply management system that limits meat and dairy imports, and the Wal-Mart effect – Wal-Mart just entered Canada and spurred on a highly competitive retail market.)
Averaging processed foods with staples like meat and dairy, the USDA reports that US farmers get about 20 percent of the retail food dollar.
Farmers are getting a lot of flack for the increase in retail prices. But, per the chart, the increase in commodity prices should not result in a big increase at retail.