Despite ongoing negative attention on corn prices, new research from Texas A&M University supports the notion that higher corn prices have had little to do with rising food costs and have only a small effect on some food items.

The analysis, "The Effects of Ethanol on Texas Food & Feed", conducted at Texas A&M's Agricultural & Food Policy Center, indicates that corn and oil prices have had very little impact on retail food prices.

Rather, "labor costs do significantly affect prices", the report outlines.

Instead, it's "other causes" - not including oil, labor and corn - that are greatly impacting food costs.

David Anderson, lead author of the report and Texas A&M Extension economist, said this includes overall tight world supplies.

For instance, dairy has a booming world export market that has pushed prices to all-time highs.

Wheat has also been boosted by low world supply.

Other causes also include issues of industry structure and production cycles.

Mr Anderson said this prevents some segments from passing on higher costs.

"Competitive pressures and market environment dictate the ability to change prices," the report said.

Increased labor costs have two effects: increased production costs and increased consumer incomes.

When workers in US livestock packing and processing facilities receive higher wages, some of it goes back into buying more food.

A similar phenomenon is going on in developing countries.

Continued media coverage cited recent increases in the farm-level prices of corn, grain sorghum, wheat, soybeans and rice as causing significant increases in retail food prices.

Just last week, the cries got louder after an International Monetary Fund-World Bank meeting and report criticised the role biofuels have played in increasing food prices, especially in poverty-stricken countries.

It's important to note that US consumers spend the smallest amount of disposable income on food.

In some of these very poor countries, more than half of incomes go toward food.

Also, since the food is not processed as much, the price increases are more pronounced, Mr Anderson said.

As the Texas report outlined, several other factors are affecting higher retail food prices domestically.

On average, the farmer's share of retail food represented 19pc of the total marketing bill in 2002, down from 32pc in 1970.

Labor costs account for twice as much as the farm gate share at 38 cents for every dollar spent.

"One element to rising food prices that tends to be overlooked is the impact higher fuel prices (oil and natural gas) have on retail food prices. The impacts of higher energy prices would be felt throughout several categories in the marketing bill but would be primarily in the packaging (8 cents), transportation (4 cents) and energy (4 cents) categories," the study noted.

Because corn is generally consumed as an ingredient in highly processed foods, such as high-fructose corn syrup in soft drinks, cereals, sauces and hundreds of other products, farm-level corn prices impact retail food prices very little, the report said.

Mr Anderson said this analysis takes a longer-term view (24 months) on price interactions. For instance, as prices go up, consumers, food processors and producers all make adjustments - whether it's in lowering production, reformulating or other changes like in product size.

Mr Anderson evaluated the impact of price changes in crude oil, labor and corn.

The effect on each equilibrium retail food price of a 1pc shock in the crude oil, labor or corn price is less than 1pc in a comparison of egg, bread, milk, beef, pork, chicken, lettuce and tomato prices.

The results indicate that a 10pc increase in corn prices leads to a 2.5pc change in retail egg prices after 24 months.

The report noted that since 2005, unexpected egg price changes have amounted to a 27.6pc increase.

Corn prices caused a 6.4pc increase, unexpected labor issues caused a 1.7pc increase and other causes accounted for the remaining 19.5pc change.

For each food, other factors accounted for the largest share of the percentage change in prices.

Overall, a 1pc change in the corn price is estimated to lead to a 0.173pc change in the fed-to-feeder price spread, which increased partially to offset the price of feed.

In the example for hog prices, prices have declined, but oil and labor combined for a 10pc increase, partially offsetting the 13.3pc decline from other causes.

The transition in livestock prices and margins has yet to move through the system, and Mr Anderson explained that the ability of any one segment to pass costs up or down is limited.

The cycle can't go on forever, though, he said. At some point, losses become large enough to force production cutbacks.

* The full report is available at www.afpc.tamu.edu/pubs/2/515/RR-08-01.pdf.

SOURCE: Feedstuffs, USA.