THE REALITY #1: The strongest influence over food prices is oil prices.

In market terms, corn is a commodity. That means that the price of corn is not determined by consumer supply and demand. Instead, prices are determined by traders in commodities markets. Commodity price trends in these markets are often in sync, even for very different categories of goods. Specifically, food commodity prices are linked to the price of energy commodities.

Food commodities include grains such as wheat, corn and rice, as well as meats, dairy products, oils and sugar. Corn is only one commodity used to determine the indexed food price. Therefore, the rising price of food commodities overall cannot be attributed to production of corn ethanol. Like food commodities in general, corn price correlates closely with energy prices.

THE REALITY #2: The cost to process and transport grocery store food exceed the cost of the farm crops included in the package.

The component price of raw commodities in finished food is very small, and may account for only a small fraction of the retail price of packaged foods. This is obvious in the case of popping corn, where the package contents are basically 100% corn:

One popping corn container at Walmart.com (as of 12/19/11):  $4

Size:  30 oz.

One U.S. bushel = 1 191.57478 U.S. fluid ounces:  1191.57

Popping corn containers per bushel:  39.72

Retail price of a bushel of popping corn:$158.88

Commodity corn price per bushel:  $6.50

Percentage of commodity cost in retail price*:  4.1%

With 100% commodity contents, the fraction of commodity cost in popping corn is the largest of all foods. Commodity costs will comprise a smaller portion of packaged foods that contain a smaller fraction of commodities. In smaller proportions, commodity prices would have even less influence over rising–or falling–grocery shelf prices of packaged foods.

On the other hand, one of the main expenses in the food supply chain is energy, including fuel for transportation. In 2008, 8.2% of the money spent on grocery store food in the U.S. went toward energy costs. For the popping corn scenario, transport and other energy would cost twice as much as the corn itself. This difference would be more dramatic for packaged foods with lower commodity costs.

More Mythbusting

Sources:

• http://www.walmart.com/ip/Pop-Secret-Premium-Jumbo-Popping-Corn-30-oz/15084566
• http://www.ers.usda.gov/Publications/err114/

More information about the fuel vs. food debate:

• http://www.growthenergy.org/images/reports/food_vs_fuel_fallacies.pdf
• http://ethanol.typepad.com/my_weblog/food-and-fuel/
• Note: Both sources are from ethanol advocacy organizations.