Economics 101 — As goes the price of fuel, so goes the price of food
Anyone driving a vehicle has noticed an extreme increase in fuel prices across the country in the last year, let alone in the last few weeks. As of March 12, 2022, gas averaged $4.33 per gallon and diesel averaged $5.14 per gallon. To put those numbers in perspective, the average price a week ago was $3.92 per gallon for gas and $4.41 per gallon for diesel. One year ago, gas was $2.84 per gallon and diesel was $3.06 per gallon. Those in California are paying an average of $5.73 for gas and $6.29 for diesel.
These skyrocketing fuel prices impact all Americans, including when we sit down for a meal. To produce a pound of beef or a head of lettuce, farmers and ranchers use tractors, plows, balers — all things that run on fuel. For a lot of businesses, when the prices of inputs (such as fuel) increase, the business equally increases the price of their goods. But because there are a lot of necessary middlemen between my Wyoming ranch and your table and because most farmers and ranchers are still family businesses, they don’t have the ability to simply increase their prices because the middlemen will just buy the raw product from someone else. And the family farmer or rancher will simply go bankrupt.
Additionally, truckers transport 70% of nation’s goods from one place to another. Truckers can’t stay in business if the fuel prices increase too much, so they must charge more to transport our goods. Those increased transportation costs will result in increased grocery prices.
This all means we are not just in a fuel crisis; we are close to a food crisis. A year ago, the average family of four was spending $256.70 a week on groceries. The United States Department of Agriculture has noted a 7% increase in the price of food from January 2021 to January 2022. Assuming food prices do not increase the rest of the year (which is highly unlikely), the average family will spend an additional $862.51 on groceries this year. Transportation and production costs are not the only factors increasing the price of groceries, but they are large ones.
“How did these skyrocketing costs happen?” First, start with President Biden’s first day in office when he revoked the presidential permit for the Keystone XL pipeline. That pipeline, running from Canada to Nebraska would have transported 800,000 barrels of oil per day to be refined in the U.S. The price for oil determines half of the price of fuel. Less oil means higher prices for what is produced. While there are other factors decreasing the supply of oil in the U.S. besides cancelling the Keystone XL pipeline, it still means higher fuel costs.
Second, President Biden also “paused” the issuance of new oil and gas leases on federal lands, again, decreasing the supply of oil and gas to meet our current demand. This caused another increase in price at the pump, for us, for transporters, and for farmers and ranchers.
Since economics is not a mandatory class in school, here is a summary. If the demand for a product increases, even if the supply is the same, the price will increase. If the supply of a product decreases but the demand stays the same, the price will still increase. We are currently in a situation where we have the same demand for fuel, but the supply is decreasing, causing prices to increase. As with the price of fuel, so goes the cost of food. This is a food crisis.
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