Food prices likely to rise in wake of USDA action to help farmers

Published: Wednesday, Aug. 15 2012 12:20 p.m. MDT

U.S. seasonal drought outlook

USDA

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SALT LAKE CITY — The U.S. Department of Agriculture has stepped in to help farmers struggling with drought, but experts predict it will be a mixed blessing for families. While the just-announced $170 million purchase of meat will help ensure farmers survive and provide more food to national nutrition safety net programs, it is expected to drive family grocery bills up slightly.

Agriculture Secretary Tom Vilsack announced Monday that the USDA would buy as much as $170 million worth of pork, lamb, chicken and fish for national food nutrition programs, such as food banks. More than half of the purchase will be pork. According to an article on examiner.com, the goals are to help livestock producers who are struggling mightily in the drought and to provide high-quality food to the federal nutrition programs.

"The purchases will help mitigate further downward prices, stabilize market conditions and provide high-quality, nutritious food to recipients of USDA's nutrition programs," he said in a news release announcing the plan.

The USDA said that during the 2012 crop year, the agency has designated 1,628 counties across 33 states as disaster areas, 1,496 of them because of drought. All qualified farm operators in those areas are eligible for low-interest emergency loans.

According to about.com's Robert Longley, about 87 percent of the 2012 corn crop and 85 percent of the soybean crop stand to be ruined by the "extreme to exceptional" drought that has slammed more than half the country.

He said the USDA estimates that 63 percent of the nation's hay-producing acreage may be damaged, and that 72 percent of domestic cattle were located in drought-afflicted areas as of Aug. 7. With little access to water and decreased supplies but more expensive hay, many farmers are choosing to sell their cattle.

Drought raises the cost of feed and the weight of the animals decreases. Since livestock is typically sold by weight, each animal fetches a smaller price than it normally would.

Vilsack said his agency would use Section 32 money from the Emergency Surplus Removal Program to buy the meat. "The funds are earmarked to assist farmers and ranchers who have been affected by natural disasters," the examiner.com article said.

The purchase will stabilize some American livestock producers who could otherwise face bankruptcy fueled by the drought conditions and related costs. It will also reduce the need to bring in foods from other countries.

But it will keep costs higher than they would normally be at the cash register. And there will be less inventory, which also drives up prices.

The USDA has said that commodity prices account for 14 percent of food costs, while the other 86 percent includes everything from processing and packaging to retail trade, energy, transportation and other expenses.

Historically, food price inflation has averaged about 3 percent over the last decade. It is expected to be about 3.5 percent in 2013, although continuing drought may nudge that number up.

"One solution is to copy what the USDA's next steps will be," wrote HM Epstein, a Parenting in Politics Examiner on examiner.com. "If you find a good price on any of these items over the next month, buy extra and wrap it well for freezing. That will save you money in the long-term, too."

EMAIL: lois@desnews.com, Twitter: Loisco

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