FOOD AND FIBER PRICES No program for avoiding inflation can be successful if basic prices for food and fibers get out of hand, and no industry suffers more than agriculture from the inflationary process. Moreover, ineffective control of this broad group of commodities will foredoom to ultimate failure any attempts at effective price control in other fields. Foods and fibers represent by far the largest single element in the cost of living for most of the Nation's families; rising costs of living lead to demands for wage increases; and wage increases lead to increasing production costs and prices throughout the economy. It cannot be stressed too often that inflation is nothing more or less than the accumulation of increases in individual prices all taken together. There is no black magic about the process. Inflation cannot be avoided if an attempt is made to exempt from all restriction any such large group of commodities as food and fibers. The treatment of the problem must be completely across the board, and this is vital. Any kind of price control for foods necessarily will involve two groups, agriculture and the food industries. At the present time less than half the consumers' food dollar goes to the farmer; the greater part is represented by the marketing spread made up by processors' and distributors' charges. Therefore, even if farm prices did not rise beyond reasonable levels, there would be no assurance that retail food prices would not rise if the food industries were exempted from any kind of price control and no steps were taken to prevent unwarranted increases in marketing spreads. At the same time, the food industries cannot be expected to keep down prices to consumers when farm prices are allowed to increase sharply. FOOD, THE LARGEST ITEM IN LIVING COSTS There can be no effective control of living costs if food and fiber prices are left out of account, since these are by far the largest items in the budget of the average workingman. Families with average incomes of less than $1,000 per yearand 42 percent of our population is in this category-spend considerably more than half their budget for food and clothing. (See chart 84.) The large part of the workingman's budget which goes for food makes it imperative that food prices be kept in line for two reasons. First, the burden of any increase in food prices will fall mainly on low-income people. For the fortunate few, a rise in food prices means only that they need dispense with nonessential in order to buy their accustomed food supplies; but when a family with limited means is already spending over half its budget for food it can't very well increase that proportion, so that a rise in food costs means that it simply has to cut down on its food purchases. Secondly, demands for wage increases throughout industry are usually buttressed by a showing that living costs have increased. With food and clothing making up a major part of the cost-of-living index, it is evident that a rise in the prices of these commodities will have repercussions throughout the entire economy. Although food prices were low at the beginning of the war it is significant that nearly two-thirds of the increase in cost of living in the United States since the outbreak of the war has been due to increases in food prices. FARM PRICES IN RELATION TO INFLATION Farm prices, and hence farm income, are subject to violent price movements. In general, they tend to rise faster than prices of industrial products during periods of inflation, and to fall faster in the subsequent period of deflation. This was the tendency during the World War, and it has been the tendency during recent months. (See charts 85 and 86.) At the outbreak of the present war there was a disposition on the part of many people to forget the lessons of the past and to think that farm prices could be expected to remain relatively stable. It is becoming increasingly evident that we can no longer take this view. PERCENTAGE USE OF INCOME BY AMERICAN FAMILIES AT DIFFERENT INCOME LEVELS NOTE.-Taxes shown here include only persona! income taxes, poll taxes, and certain personal property taxes. SAVINGS 160 CHART 84 PERCENT 220 180 140 100 60 CHART 85 INCOME PER CAPITA, ON FARMS AND NOT INDEX NUMBERS (1910-14=100) On farms Not on farms Av US DEPARTMENT OF AGRICULTURE NEG. 39402 BUREAU OF AGRICULTURAL ECONOMICS THE NET INCOME PER PERSON ON FARMS FROM FARMING FLUCTUATES MUCH Since August 1939 the index of prices received by farmers has increased by 34 percent, as compared with an 11 percent increase in average wholesale price of nonfarm products. In the case of particular foods the increase has been much greater than is indicated by these overall averages. Wholesale prices of fats and oils have increased by 98 percent; coffee, by 42 percent; meats and dairy products by 20 percent; and sugar by 17. The present situation with respect to food prices is not altogether analogous to that of the last war. For some of the great staples-wheat, cotton, tobaccothe fact that exports to many countries have been cut off and the ever-normal granary has been established, makes the price situation potentially less inflationary than in the last war. On the other hand, for many food commodities there is no such backlog and, as already pointed out, there have already been sharp price increases. INFLATION AND THE FARMER APR. MAY JUNC No one can argue that prices of farm products should be kept in line while prices of other commodities or payments to labor get out of line. But equally it can be said that nothing else can be kept in line if prices as important as these get out of control. It is necessary to repeat, we must go across the whole board. It may be possible for some to take the short-run view that agriculture will lose by any effort to restrain an inordinate rise in farm prices during an inflationary period. But in the long run it is probable that one of the most compelling arguments for stable prices throughout the economy comes from agriculture itself. It is generally recognized that the long years of agricultural disparity following the first World War trace directly to the inflationary movement in farm prices. from 1917-20. Farm prices skyrocketed in these years, and farm costs, land values, mortgage debt and interest charges were built up in proportion. When the inevitable price break comes, this load of debt remains to plague agriculture for a generation. That happened in the last war, and it can happen again. (See charts 87 and 88.) There is also an ethical factor involved. If farm prices were allowed to go to whatever heights the inflationary situation might take them while other parts of the economy were brought under control, it is true that for a time agriculturewould gain at the expense of other groups. But this would put the farmer in the position of being, temporarily, a profiteer—a situation which responsible farm leaders have repeatedly condemned.1 NEED FOR INCLUSION OF FOOD INDUSTRIES UNDER PRICE CONTROL Any measures taken for controlling food and fiber prices must necessarily include processors and distributors of agricultural products. More than half the retail price of food goes, on the average, to cover manufacturing and marketing charges. In an emergency situation the public will not willingly tolerate unwarranted increases in these margins on commodities so important as food and clothing. It is imperative that instrumentation be provided whereby handlers" margins shall be held to reasonable limits, and the Government must be in position to move in this field when charges of profiteering become widespread. CHART 87 PRICES PAID BY FARMERS, FARM WAGE RATES, AND INTEREST AND TAXES PAYABLE PER It is the universal experience that handlers' margins tend to widen in periods of war inflation; and having once risen they do not come down quickly in the subsequent deflationary process, despite sharp declines in farm prices. From 1913 to 1920 the actual margin (in terms of dollars for handling a given market-basket of foods) more than doubled. Moreover, this margin never returned to pre-war levels even during the depression of the early 1930's. This is not to say that this increase in food was not without a substantial basis in terms of rising costs and wage rates to the food industries. But the natural tendency in inflationary periods is for these margins to rise faster than wage costs, and there is the everpresent danger that some elements of the trade will use actual or prospective wage increases as an unwarranted excuse for raising margins. (See chart 89.) In the present emergency there have already been price flurries for a number of food and fiber products (fats and oils, coffee, sugar, etc.) where there was reason to suspect unwarranted speculative activity. If the food industries are exempted from any consideration under general price control measures, the Government is powerless to deal with situations of this kind. 1 An excerpt from the resolutions adopted by the American Farm Bureau Federation at its twenty-second annual convention, December 12, 1940: "We shall insist that the defense program be handled both efficiently and effectively. We will oppose all restrictive practices which attempt to turn scarcity to the advantage of any group. We will oppose profiteering in whatever place and whether by industry, labor, or agriculture itself." 64300-41-pt. 1-18 |